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Is there a future for community lenders? Four community lenders talk about staying competitive in a difficult market.

Article Excerpt
In a world where so much emphasis is placed on super-sizing--from half-pound fast-food hamburgers and extra-large fries to five-bathroom homes, to merger-driven extra-large megacorporations--small businesses often struggle to survive. In the banking and credit union industries, where a steady stream of mergers and acquisitions has created multi-state megabanks, this trend often leaves smaller financial institutions struggling to survive on a radically uneven playing field. [??] Is it still possible for community lenders--the credit unions and community banks with $1 billion or less in assets--to compete on this field? From the many lenders I have worked with, the answer is yes. But it takes a sound strategy, perseverance and hard work, because the challenges are many. [??] Competition is fierce, partly due to that long parade of mergers and acquisitions that continues to create larger and larger financial institutions and has changed the climate for smaller lenders. Even among credit unions, mergers and acquisitions have helped to create larger, stronger credit unions that add to the competition that smaller, under-$50 million credit unions must face. [??] Commoditization has blurred the lines of differentiation between banks and credit unions, making it more difficult for community lenders to promote their uniqueness. When you add in the increasingly burdensome compliance issues, plus advancements in technology and the Internet, you have a vastly different world than community lenders encountered just a few years ago.

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Many of the community lenders I talk to feel that by far the top challenge facing the smaller institutions, especially when a mortgage program is involved, is competition from large lenders. Whether it's product choice, pricing, recruiting employees or access to technology, smaller lenders suffer from the lack of scale to challenge the dominance of larger institutions.

Recruiting and retaining talented mortgage professionals are good examples. The turnover among loan processors and loan originators is fairly high everywhere, and there is constant pressure to retain the best people. Due to their smaller size, community lenders have an especially difficult time balancing staff numbers with changing market conditions. As a result, in a strong market they are often understaffed, while in a weaker market they are frequently overstaffed.

Technology, which can be cumbersome and expensive, is another area that can be difficult to manage for a smaller lender. But the fact is, consumers expect fast service and Internet access to information. For Web-savvy consumers, shopping is easier online, mortgage rates are instantly accessible and everything is so much simpler and faster--which makes up-to-date technology and an Internet presence critical for smaller financial institutions in order to stay competitive.

While keeping up with technology is crucial, one of the main reasons community...