Running a small community bank isn't easy these days, but Patricia Husic is doing more than making ends meet.
Husic, president and chief executive of Centric Bank in Harrisburg, Pa., is fighting low interest rates like any other banker. But she is running a $421 million-asset bank that has enlarged its loan book by 30% in the last year, while successfully boosting fee income.
A big part of that success has been Small Business Administration loans and efforts to develop niche markets. For instance, the company promotes Doctor Centric Bank, a concierge approach to working with medical professionals.
Husic is also hoping to take market share after the sale of local institutions — notably Susquehanna Bancshares, Integrity Bancshares and Metro Bancorp — increases the chances of customers switching banks.
The following is an edited transcript of a recent conversation with Husic.
How would you describe the current environment for small community banks?
PATRICIA HUSIC: Community banking over the past several years has been challenging with increased regulations. There's a focus on the importance of [the Bank Secrecy Act] that requires personnel and software. It's also been challenging with low interest rates extending out since 2008. That's why we're seeing a lot of community banks going away. How do you pay for your operating expenses when efficiency ratios are 70% or even in the high 60s? It is tough to get that in the lower range when you're a community bank, even though people are wearing many hats.
For Centric, it has focused on working smarter, not that it hasn't been tough. You have to outline your strategic alternatives knowing where the margins are. We have increased our [net interest] margin by 12 basis points over the last year through a combination of loan yields and lowering our cost of funds.
We have made a very conscious effort about the importance of increasing noninterest income. Most banks won't be able to make it with just their core net interest margin. You have to supplement earnings, especially in this low interest rate environment. The perfect fit for us has been SBA lending. It's an opportunity to ensure that we can meet the demand and provide access to capital for those that maybe have a collateral shortfall, but the project still cash flows, so maybe it's expanding or buying a new business or buying a business's first building. We can do that with SBA, so that has been a significant source of noninterest income for us.
In our markets, there has been a lot of merger activity that has occurred over the past few years and there has been kind of a game of musical banking chairs. It has been a tremendous opportunity when business owners are really scurrying to find a new bank.
Many banks have gotten into SBA lending. Is there a point when that market gets too saturated?
We're seeing the volume increasing. SBA loans are not for the faint of heart. It's a government lending process, so there's a lot of paperwork. One of the things that align for our strategic purposes is providing capital to small-business owners. We're helping our communities thrive and grow. SBA lending could be impacted if we have another recession and businesses aren't starting up. But we haven't seen a slowdown.
How are you handling low interest rates?
Some of the risk management practices we have put into place include risk-rating a client and dovetailing that with a pricing matrix. You want to make sure you're getting paid for the risk you're taking. We have a relationship profitability model, so we evaluate if it is a loan for a relationship. We have certain targets that we need to meet for our net interest margin to ensure we're using our capital wisely. We also have taken a look at our C&I lending, which is an opportunity to bring in more business accounts, which tend to be non-interest-bearing checking accounts.
Do you see yourself as an acquirer?
Our plan is to explore any and all options that make strategic sense and that fit culturally. We have looked at some opportunities, but we will stay disciplined. Our goal isn't to do a merger just to get a notch in our belt. It can go horribly wrong, so it has to align with our strategic initiatives and be financially good for our shareholders.
Have you ever thought about selling?
At this point that is off the table. Our chairman led our shareholder meeting and talked about the mergermania activity and started off by saying we're not for sale. We feel that we're in a great position. It would be a different story if we couldn't execute on our strategic plan and deliver a value to the community.
How are you taking advantage of market disruption from consolidation?
It's a combination of getting intel and then looking at the market. It is a constant follow-up. You may hear the comment, "I'm really loyal to my bank." One of the first things I say is, "I appreciate and admire loyalty, but if there ever comes a day that your bank doesn't earn your loyalty then give us a try." Just being passive and waiting for someone to come through the doors isn't going to get you a bigger share of the market. There are some customers that just walk through the doors, but that's more retail. We have to go out and get commercial customers.
What are your greatest concerns as a banker?
You always hear about credit quality. Our credit quality is pristine, but you never know. Sometimes things happen and it could have a ripple effect. Let's say someone is in the midst of building a larger building and one of your vendors gets hit hard. How do they absorb that loss? It's that potential credit blow that you never saw it coming.
What's the forecast for this low-rate environment? How many more years will this go on? I don't think anyone has ever predicted that rates would be this low for this long. How long can community banks go on and remain independent with this low-rate environment? How long can employers go without hiring people? How long can that continue for small businesses? And then who will end up in the White House? Will that lead to more regulation or to relief for community banks?
What advice do you have for other community bankers?
Make sure you're developing a strategic plan that you can execute on and then also make sure you remain relevant in your communities. I think that's essential. It is also so important to provide a return to your shareholders. Ultimately, you need access to capital, and that's incredibly important. Capital is the core of everything we do. It is also so important to be visible in your communities, but also in the banking industry. Never forget about your greatest assets, which are your employees.