Strategies and Best Practices of US Community Banks

TABLE OF CONTENTS

EXECUTIVE SUMMARY
COMMUNITY BANKS: THEIR TIME HAS COME
COMMUNITY BANKS VS. LARGE BANKS
SMALL BUSINESS: THE MAJOR TARGET SEGMENT FOR COMMUNITY BANKS
COMMUNITY BANKS LACK EXPERTISE TO SERVE SMALL BUSINESSES
PRODUCT STRATEGIES TO ENHANCE MARKET SHARE
COMMUNITY BANKS' SUCCESSFUL BUSINESS MODEL
1 INTRODUCTION
1.1 REPORT PURPOSE
1.2 REPORT STRUCTURE
1.3 RESEARCH OBJECTIVES
1.4 RESEARCH METHODOLOGY

2 MARKET OVERVIEW
2.1 KEY FINDINGS
2.2 DEFINING COMMUNITY BANKS
2.2.1 CONSOLIDATION TRENDS IN THE U.S. COMMUNITY BANKING SECTOR
2.2.2 KEY MARKET DIFFERENTIATORS
2.2.3 U.S. FINANCIAL CRISIS AND COMMUNITY BANKS
2.3 SMALL BUSINESSES: MAJOR TARGET SEGMENT FOR COMMUNITY BANKS
2.4 STRATEGIES ADOPTED BY TOP-PERFORMING COMMUNITY BANKS
2.4.1 SOURCING LOW-COST FUNDS
2.4.2 FOCUS ON AGRIBUSINESS

3 STRATEGY FORMULATION
3.1 KEY FINDINGS
3.2 COMMUNITY BANKS STRATEGIES FOR CUSTOMER ACQUISITION AND RETENTION
3.3 STRATEGIES TO ATTRACT DEPOSITS
3.3.1 BUNDLING PRODUCTS TO ENHANCE CROSS- AND UP-SELLING
3.3.2 IMPLEMENTATION OF REMOTE DEPOSIT CAPTURE
3.3.3 COMPETITIVE PRICING FOR PRODUCTS
3.4 SHIFT IN LENDING FROM REAL ESTATE TO C&I LOANS
3.5 FOCUSING ON SMALL BUSINESSES LENDING
3.6 PROFITABILITY ANALYSIS OF COMMUNITY BANKS
3.7 FACTORS INFLUENCING LENDING TO SMALL BUSINESSES
3.7.1 STRENGTHS: COMMUNITY BANKS HAVE STRONG CRM AND FLEXIBLE LENDING PROCESSES
3.7.2 OPPORTUNITIES: IMPROVING ECONOMY WILL SPUR DEMAND FOR SMALL BUSINESS LOANS
3.7.2.1 Governmental support to increase small business lending
3.7.2.2 Increasing adoption of advanced banking products
3.7.2.3 Huge underbanked small business segment
3.7.3 CHALLENGES: COMMUNITY BANKS NEED EFFECTIVE BUSINESS LENDING PROCESSES
3.7.4 THREATS: RISING FAILURE RATE OF SMALL BUSINESSES
3.8 CHANNEL-DRIVEN STRATEGIES
3.8.1 REDCUCING PER TRANSACTION COST THROUGH ONLINE & MOBILE BANKING
3.8.2 INTEGRATION OF ONLINE BANKING WITH FINANCIAL MANAGEMENT TOOLS
3.9 WINNING MODEL OF COMMUNITY BANKS
3.9.1 ENHANCED CUSTOMER RELATIONSHIPS
3.9.2 SIMULTANEOUS CREDIT MANAGEMENT & BUSINESS DEVELOPMENT
3.9.3 CENTRALIZATION OF OPERATIONS
3.9.4 BUSINESS INTELLIGENCE
3.9.5 CHANNEL INNOVATION

4 CASE STUDY
4.1 SUCCESSFUL RDC IMPLEMENTATION BY INDEPENDENCE COMMUNITY BANK
4.1.1 OBJECTIVE
4.1.2 ABOUT INDEPENDENCE COMMUNITY BANK
4.1.3 NEED FOR RDC
4.1.4 INDEPENDENCE BANK SELECTS VSOFT AS RDC VENDOR
4.1.5 RDC IMPLEMENTATION
4.1.6 BANK'S STRATEGIES TO INCREASE RDC AWARENESS
4.1.6.1 Referral program
4.1.6.2 Launched a website
4.1.6.3 Appointment of independent sales organization
4.1.7 IMPACT OF RDC IMPLEMENTATION
4.1.7.1 Benefits to the bank - Check processing cost reduced by 80%
4.1.7.2 Time and cost benefit to customers
4.1.7.3 Business deposits grew exponentially
4.1.8 CONCLUSION - TECHNOLOGY PLAYS A VITAL ROLE IN ENHANCING PROFITABILITY
4.2 THE STATE BANK OF COLORADO IMPLEMENTS CONTACTLESS MOBILE PAYMENT SERVICE
4.2.1 OBJECTIVE
4.2.2 ABOUT THE STATE BANK OF COLORADO
4.2.3 NEED FOR CONTACTLESS MOBILE PAYMENT SERVICES
4.2.4 COLLABORATION WITH BLING NATION TO IMPLEMENT CONTACTLESS PAYMENT SERVICE
4.2.5 THE STATE BANK SUCCEDED IN SIGNING MORE BUSINESS ACCOUNTS
4.2.6 ENHANCED CUSTOMER SATISFACTION

5 VENDOR ANALYSIS
5.1 PRODUCT BENCHMARKING OF MAJOR VENDORS
5.1.1 BENCHMARKING RDC VENDORS
5.1.1.1 Technological benchmarking
5.1.1.2 Functional benchmarking
5.1.1.3 Strategic benchmarking
5.1.2 BENCHMARKING MOBILE BANKING VENDORS
5.1.2.1 Functional benchmarking
5.1.2.2 Technological benchmarking
5.1.3 BENCHMARKING ONLINE BANKING VENDORS
5.1.3.1 Benchmarking vendors of online financial management tools
5.1.3.1.1 Functional benchmarking
5.1.3.1.2 Strategic benchmarking
5.2 VENDOR PROFILING
5.2.1 EBANKSYSTEMS
5.2.1.1 Recent developments
5.2.2 FIDELITY NATIONAL INFORMATION SERVICES (FIS)
5.2.2.1 Recent developments
5.2.3 FISERV INC
5.2.3.1 Recent developments
5.2.4 JACK HENRY
5.2.4.1 Recent developments
5.2.5 NETDEPOSIT
5.2.5.1 Recent developments
5.2.6 NEW CORE BANKING SYSTEMS
5.2.7 ONLINE RESOURCES
5.2.8 SHARP BANCSYSTEMS
5.2.8.1 Recent developments
5.2.9 WAUSAU FINANCIAL SYSTEMS
5.2.9.1 Recent developments

LIST OF TABLES

TABLE 1 SHARE OF COMMUNITY BANK IN TERMS OF NETWORK, ASSETS, DEPOSITS AND LOANS (2009)
TABLE 2 ANALYSIS OF LARGE BANKS VS COMMUNITY BANKS ON OPERATIONAL PARAMETERS
TABLE 3 KEY CRITERIA FOR BANK SELECTION
TABLE 4 BENCHMARKING OF LARGE COMMUNITY BANKS
TABLE 5 STRATEGIES ADOPTED TO INCREASE DEPOSITS
TABLE 6 RDC IMPLEMENTATION STRATEGIES BY COMMUNITY BANKS
TABLE 7 STRATEGIES ADOPTED TO IMPLEMENT MOBILE BANKING
TABLE 8 PRODUCT BENCHMARKING
TABLE 9 TECHNOLOGICAL BENCHMARKING OF RDC VENDORS
TABLE 10 FUNCTIONAL BENCHMARKING OF RDC VENDORS
TABLE 11 STRATEGIC BENCHMARKING OF RDC VENDORS
TABLE 12 FUNCTIONAL BENCHMARKING OF MOBILE BANKING VENDORS
TABLE 13 TECHNOLOGICAL BENCHMARKING OF MOBILE BANKING VENDORS
TABLE 14 FUNCTIONAL BENCHMARKING OF ONLINE FINANCIAL MANAGEMENT VENDORS
TABLE 15 STRATEGIC BENCHMARKING OF ONLINE FINANCIAL MANAGEMENT VENDORS

LIST OF FIGURES

FIGURE 1 REDUCING NUMBER OF SMALL COMMUNITY BANKS
FIGURE 2 % CHANGE IN DEPOSITS OF BANKS (2008 & 2009)
FIGURE 3 ROLE OF COMMUNITY BANKS IN ECONOMIC RECOVERY
FIGURE 4 SHARE OF COMMUNITY BANKS IN SMALL BUSINESS LOANS (2009)
FIGURE 6 KEY CHALLENGES AND STRATEGIES
FIGURE 7 STRATEGIES ADOPTED BY BANKS TO ATTRACT DEPOSITS
FIGURE 8 COMMUNITY BANKS RDC ADOPTION RATE BY ASSET SIZE
FIGURE 9 FACTORS DRIVING RDC ADOPTION
FIGURE 10 RDC PRODUCT MIX OF COMMUNITY BANKS
FIGURE 11 VALUE PROPOSITION OF COMMUNITY BANKS WITH MAXIMUM DEPOSITS
FIGURE 12 LOAN PORTFOLIO OF COMMUNITY BANKS (2009)
FIGURE 13 RELATIVE COMPARISON OF DIFFERENT BANKING PRODUCTS
FIGURE 14 NIM, ROA AND ROE COMPARISON OF LARGE COMMUNITY BANKS (2009)
FIGURE 15 NIM, ROA AND ROE COMPARISON OF SMALL COMMUNITY BANKS (2009)
FIGURE 16 SCOT ANALYSIS OF COMMUNITY BANKS FOR SMALL BUSINESS LENDING
FIGURE 17 COST AND TIME ANALYSIS OF DIFFERENT CHANNELS OF COMMUNICATION
FIGURE 18 ADVANCED CHANNELS REDUCE PER TRANSACTION COST
FIGURE 19 FIVE FORCES OF WINNING BUSINESS MODEL
FIGURE 20 IMPACT OF RDC ON CHECK PROCESSING
FIGURE 21 POSITIVE IMPACT OF RDC ON BUSINESS DEPOSITS
FIGURE 22 MOBILE BANKING VENDORS MARKET SHARE (%)