After years of steadily increasing as new regulations were implemented, compliance costs at community banks are finally coming down, according to a survey released today by the Federal Reserve and the Conference of State Bank Supervisors. Community bankers reported spending fewer dollars on personnel, data processing, legal, accounting and auditing expenses related to the compliance function than they have in previous years — they spent $4.7 billion in 2017, down 13 percent from 2016 but still representing 21 percent of community banks’ net income.
With respect to technology, most bankers (66.5 percent) agreed that adopting new or emerging technologies was important or very important, and almost all (92.8 percent) say they have established relationships with outside partners to provide digital banking products and services. Of those, 30 percent said they are seeking to expand those relationships in the future. About 40 percent of banks said they are currently offering online loan applications, while an additional 23 percent said they do not currently offer them, but plan to do so within the next 12 months. An overwhelming 88 percent of banks said they use mobile banking.
On the small business lending side, the survey found that community banks currently compete primarily with other small and midsize banks, but many expect credit unions and fintech firms to become more significant competitors in the future. Despite competition, however, the majority of community bankers said that it rarely or never led them to ease lending terms by lowering interest rates or fees, extending maturity, reducing collateral requirements, allowing more borrower leverage or requiring fewer covenants.