Community Bankers Boost Fees as Loan Demand Languishes

ATLANTA — Bona fide borrowers may be hard to find, but there are other ways for community banks to make money, several bankers said during an industry conference earlier this week.

From assessing new fees to rewriting bank charters, there are multiple avenues for community banks to boost noninterest income or cut costs, three bankers said Tuesday at the FIG Partners LLC conference in Atlanta.

"We're implementing a fee whenever anyone applies for a commercial loan," said Garrett S. Richter, the president of First National Bank of the Gulf Coast, a $368 million-asset bank based in Naples, Fla.

Richter said that the fee has become necessary because potential customers often cause the bank's staff to perform a considerable amount of work for free, and then the bank gains nothing in return.

"We'll do a lot of work for borrowers, but then after we send them the commitment letter, they'll walk across the street to another bank who says they'll do the loan for less," he said. "We're not going to do it for free anymore."

L.T. Hall, the chief executive of Alpharetta, Ga., bank consulting firm Resurgent Performance Inc., said that after auditing the operations of one of his clients, he found the bank was giving more than $800,000 each year back to customers by charging too-low fees, or no fees at all.

"Banks are looking at all kinds of fees — subordination fees, account-closing fees," Hall said. "We give more [products and services] away than we should."

David Wood, a partner at accounting firm Porter Keadle Moore LLP, said he has advised community banks operating multiple charters under one holding company to rewrite their corporate documents. The argument that multiple charters provides a higher level of local control is usually outweighed by the cost savings of having only one charter, he said.

Community banks are looking at whether holding onto certain types of customer groups is worth the cost, Hall said. Some studies have estimated that about 80% of community bank customers are not profitable for the bank, he added.

Panelists also discussed ways to reduce noninterest expenses. With some recent acquisitions, MidSouth Bancorp Inc. managed to contain future costs by hiring staff in areas such as accounting and debt-collections immediately after the deals closed, said James R. McLemore, the Lafayette, La., company's chief financial officer.

Last month, the $1.05 billion-asset MidSouth said it would buy First Louisiana National Bank in Breaux Bridge, La., for $11.5 million in cash and 725,000 shares of common stock. MidSouth expects to complete the acquisition by the end of this year.

"We've found we need to throw a lot of resources at [a deal] early on, including temporary staff," McLemore said. "It's not big money, but if you don't do it right, it can turn into big dollars later."

Wood echoed McLemore's comments, saying that some of his acquisitive community bank clients have told him, "If I had to do it over, I would have hired that person earlier."

Unfortunately, higher noninterest expenses could offset some improvements in noninterest income. Richter said his bank has already earmarked money in its projected 2012 budget for hiring a full-time compliance officer. The bank has already targeted a candidate, he said.

"We're convinced we need to hire him," Richter said, saying the compliance officer is necessary to oversee the bank's dealings with both existing and new regulations. The compliance officer will also be responsible for responding to any regulations that might be imposed by the Consumer Financial Protection Bureau, or CFPB.

"Lord knows what will happen with the CFPB," Richter said.

James W. Cornelsen, the president and chief executive of the $753 million-asset Old Line Bancshares Inc. in Bowie, Md., said he recently met with CFPB staffers and he walked away from the meeting comforted by their attitude.

"Their body signals look very encouraging," Cornelsen said. "It looks like they will paint everyone with a real broad brush."

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