Community Bankers Optimistic About 2005
By David M. Burns
The community banking industry expects a bright future for 2005, according to Grant Thornton’s Twelfth Annual Survey of Community Bank Executives.
Seven out of 10 community bankers say they have a sunny outlook for the business of community banking in 2005 (8 percent optimistic, 62 percent somewhat optimistic), and more than two-thirds (68 percent) share that sentiment about the general economic outlook in 2005 (8 percent optimistic, 60 percent somewhat optimistic).
Similar to their bank executive counterparts, audit committee chairmen at public banks also have an optimistic outlook for 2005. In Grant Thornton’s first ever “Bank Audit Committee Chairmen Survey,” 75 percent of chairmen report having an optimistic (7 percent) or somewhat optimistic (68 percent) view of the state of the national economy. Even more of them (77 percent) have an optimistic (17 percent) or somewhat optimistic (60 percent) outlook for the state of community banking.
With such a positive outlook, it is not surprising that more than three in five bankers and chairmen also think that the country is moving in the right direction.
This is definitely a change from 2004, when at the beginning of the year only 10 percent of bankers had an equally positive outlook for the economy and only 18 percent were equally optimistic about the business of banking. On the other side of the spectrum, last year 40 percent of bank executives had a pessimistic outlook for the economy and 26 percent had a similar viewpoint for the business of community banking. In 2005, only 6 percent had negative expectations for the national economy and a mere 4 percent had a gloomy outlook for community banking.
One reason community bankers may have such a bright outlook for 2005 is that 2004 turned out to be much better than expected, with many seeing an upswing in loan demand, a decline in delinquencies and perhaps relative stability of their core deposits.
At the beginning of 2004, one-quarter (27 percent) of all bankers expected delinquencies to increase, and only 14 percent thought that delinquencies would decrease. However, they reported very different results at the end of the year. One in five (18 percent) said that delinquencies actually increased during 2004, while a quarter (26 percent) said that delinquencies declined.
Bankers hit the mark in regards to core deposits. In last year’s survey, almost half (45 percent) of the bankers anticipated that deposits would continue to rise, which was confirmed this year with 49 percent of bankers reporting that deposits did in fact increase. On the flip side, 14 percent of executives at the end of 2003 said they expected a drop in core deposits; this was validated by 14 percent of executives in 2004. Though fewer community banks may have seen growth in core deposits, in general they seem to have seen more stability over the last year.
It appears that community bankers believe that 2005 will mirror 2004. Nevertheless, they are cautious about predicting changes in customer behavior for 2005.
In the matter of loan demand, 53 percent of bankers expect demand to increase over the year. Looking at core deposits, four in 10 bankers (41 percent) have forecast that deposit growth will continue in 2005. And only 14 percent are willing to predict fewer delinquencies in the coming year. No matter how guarded, the bankers optimism allays their delinquency concerns. Generally, they do not expect delinquencies to increase; rather, 65 percent of bankers think that rates will stay the same.
IMPORTANT SUCCESS FACTORS
What are the issues bankers and chairmen view as important for community banks’ future success?
For the bankers, retaining employees is once again a top priority with 93 percent of bankers saying it is important to their bank’s success, tying this year with the first-time survey option of retaining deposits. Regarding their confidence in retaining employees, 73 percent of bankers say they do a good job retaining key employees, regardless of bank size. In contrast to their confidence in retaining key employees, bankers are not nearly as confident when it comes to retaining deposits, with only 62 percent saying that they are confident in their bank’s performance.
Virtually all audit committee chairmen (97 percent) said that attracting new business customers is important to their banks continuing success; however, only 66 percent say they are confident in their bank’s performance in this area. Similar to their banking counterparts, 94 percent of chairmen also believe that retaining deposits is important to the success of their banks; and approximately three-quarters of them are confident in how their bank is addressing this challenge.
In the operational arena, 92 percent of bankers are concerned about protecting their customers’ privacy and 81 percent are confident that their bank is doing a good job with privacy. Bankers think that issues of corporate governance are also important to their bank’s operational success, with 87 percent of them citing the importance of assuring the quality of their financial reporting and 86 percent say that complying with government regulations, such as the Gramm-Leach-Bliley Act of 1999, the Bank Secrecy Act and the USA Patriot Act, is important to bank success. Almost nine in 10 bankers (86 percent) say that they are confident in the quality of their financial reporting, while only 73 percent are confident in their compliance with regulations.
Assuring the quality of their bank’s financial reporting is important to almost all of the chairmen (97 percent) and 84 percent of them are confident that they are doing a good job. This high number is more than likely due to the fact that as the audit committee chairman, it is their main responsibility to ensure the accuracy of their bank’s financial reports. Other operational issues of concern for the chairmen were protecting customers’ privacy (90 percent) and complying with government regulation (87 percent), with “confidence” at 77 percent and 79 percent respectively.
To receive a complimentary copy of Grant Thornton’s Twelfth Annual Survey of Community Bank Executives or the Survey of Public Bank Audit Committee Chairmen, visit Grant Thornton’s Web site at www.GrantThornton.com/banksurvey or contact Grant Thornton’s Office of Financial Services at 877.835.1723, FinancialServices@gt.com.
ABOUT THE SURVEY OF COMMUNITY BANK EXECUTIVES
In mid-November of 2004, Grant Thornton mailed questionnaires to a national sample of 4,625 chief executive officers and senior officers of banks and savings institutions. A total of 442 completed questionnaires were returned for a response rate of 9.6 percent, yielding a margin of error of ± 4.6 percent.
More than two-thirds (70 percent) of the respondents reported assets of more than $100 million, with 22 percent reporting assets greater than $500 million. The executives defined the community they primarily serve as rural (45 percent), suburban (38 percent) and/or urban (17 percent). Almost one-third (30 percent) are publicly held, 57 percent are private corporations and 13 percent have mutual charters.
ABOUT THE SURVEY OF PUBLIC BANK AUDIT COMMITTEE CHAIRMEN
In mid-November of 2004, Grant Thornton mailed questionnaires to a national sample of 407 audit committee chairmen of public banks. The surveys were mailed directly to the chairmen’s primary place of business, resulting in a return of 118 completed surveys, for a response rate of 29 percent.
Almost eight in 10 (78 percent) of the respondents represent banks with more than $500 million in assets, with 8 percent reporting $5 to $10 billion in assets and 5 percent reporting more than $10 billion in assets. Half (51 percent) of the chairmen defined the community their bank primarily serves as suburban and 30 percent as urban.
David M. Burns is a financial institutions industry practice partner with Grant Thornton LLP, the U.S. member firm of Grant Thornton International. He can be contacted at firstname.lastname@example.org or at (215) 656-3048.