What is the Future of Community Financial Institutions?

The reports of my death are greatly exaggerated.  -Mark Twain

I have had a number of conversations with banking and technology peers that have expressed concern over the future of community financial institutions. I hear from some that have indicated that community financial institutions under $250MM and as high as $500MM in total assets will no longer be viable in the very near future due to the cost and burden of financial regulations and other environmental factors. I believe they are dead wrong.

Not because my livelihood and yours depend on it, but I believe that community institutions will continue to play a significant role in small business and commercial lending and will adapt through use of affordable technology to streamline efficiencies while being much stronger at managing their credit risk to local businesses that need credit. I believe it is the small businesses and the expansion of small businesses that will help add jobs we desperately need and lead us into a stronger economic period in the future. It is the community financial institutions that will be able to make these loans with the best intuition, judgment and common sense and not some large institution automated credit scoring model.

While I believe that community financial institutions will continue to play a strong role in the coming economic recovery, it is not without challenges. Here is my checklist of what community institutions should be considering when evaluating or setting their strategic plans for the future.

  • Stick to your core strengths. The single most significant cause of all community financial institution failures from 2006 – 2010 was over-concentration in Commercial Real Estate (CRE). It is reported that 66% of the failures were due to CRE lending concentration. I recommend that each institution understand its core lending strengths and focus more on those areas such as C&I lending.
  • Diversification.  Those institutions that will thrive are the ones that diversify their assets. Understand your core business areas and align with your community.
  • Hire the right people.  Every employee from your back office support to front line customer service and lenders should be chosen wisely. Do you have the right team? Is the staff set up work efficiently?
  • Streamline technology.  In order to keep up with the larger banks, community institutions must be willing to invest in technology to keep up with the times. This means identifying the technologies that can help your staff work efficiently and support your core business lending activities.

At Suntell, we were founded 16 years ago on the desire to deliver affordable solutions to community financial institutions to support business lending in a more efficient environment. Yes, we believe that community financial institutions future will remain thriving and at Suntell we believe we will continue to play a role in the key areas outlined to support efficient business lending as we all work toward the ongoing economic recovery.

Thank you for your business and loyal patronage.

Duane Lankard

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How does a loan origination system work?

An LOS is defined as a system that automates and manages the end-to-end steps in the loan process – from the application, through underwriting, approval, documentation, pricing, funding, and administration.

What is the difference between loan origination and underwriting?

A loan officer is someone who works for a bank or credit union or other financial institution and offers loans to borrowers, while an underwriter is someone who analyzes documents from potential borrowers to determine if they are eligible for a loan.

What are the benefits of loan origination software?

By now, lenders are well versed in the benefits of a digital loan origination system, such as: Providing borrowers with easy, streamlined, and digital applications. Providing bankers with automating spreading and financial analysis tools.