Short answer: A mixed bag, with not many positives, even though technology is now most appealing, most responsive to needs, supported by strong companies, and very affordable.
How ironic that tech solutions for small banks have become fully capable and scalable to the point where a very good and completely integrated system (either in-house or outsourced) can cost the smallest bank only $2,500 per month with no capital outlay. But even the smallest bank is no longer scalable enough to operate comfortably. The point is that regulatory compliance, prudent safety standards, capital requirements, tougher competition, fussier new customers, the increasing threat of cybercrime, and borderline borrowers have added so much overhead and risk to a bank that high customer volumes are imperative in order to spread costs and produce a reasonable profit. Do you need a number? Anything less than a $250 million bank is facing risk of extinction unless drastic measures are invoked both within the banks and within the beltway.
There are some exceptions to my strict rules. Here are the options:
1. Embrace change. Some small banks have perfected their constantly changing model, and they should continue with customized adjustments that only they can tell us about. In this context, "some" is a mindfully-calculated 900 (a mere 17% of this population), and "small" is an adjective that would earn high marks as a Harvard Business School case study.
2. Sell the bank to a friendly and well-managed mid-tier bank that sees the value in what was built.
3. Dash your dreams and accept the fact that you are a mom and pop shop. Cut expenses to the bone, and you'll survive as a focused service offering, with dignity that comes from calling your own shots, rather than following the large-bank-caused mandates of inside-the-beltway "protectors." For example, the right CEO should also perform the duties of the CFO and CIO. Squeezing in golf once a month might be possible if the multi-titled CEO works 13-hour days, six days a week.
4. Form a cooperative, but only if you are in West Virginia, Iowa, Nebraska, Kansas the Dakotas or Wisconsin. There's too much attitude everywhere else to achieve harmony, minimal bureaucracy and agreement.
5. Make it a family-owned enterprise, but only if you are Catholic. You'll need a minimum of five kids who are as true to the order and prolific as you were. Banking is a long-term proposition. You'll be counting on the grandchildren to pay your dividends.
6. Choose your customers carefully. There are still lots of hurt customers who won't forgive the indiscretions of the giant banks. Especially now that the big boys are still taking double-digit million dollar bonuses, even after Ken Feinberg's wrist-slapping exercise. There is great compassion amongst grieving bank customers for anything accessible, personal and small.
7. Give up on the good ol' days of banking. New banking is all about kids stuff. Give the bank a makeover, driven by the new youthful Berkeley graduate who thought tradition was a euphemism for an authoritative ankle bracelet. When they're serving slurpees in the lobby (now known as sidewalk cafe) instead of coffee, you'll know the makeover worked. Instead of the FDIC logo, glue a picture of the Progressive Insurance lady on the door. That's power fully recognized and trusted. Or close your branches and become a lessee at every Starbucks store.
8. Be yourself. There's still life, happiness, job satisfaction and profit in community banking, as long as you stop trying to emulate the big banks. The biggest advantage you have is you can show your face with pride at your business platform, whereas Brian, Jamie, Vikram and John are known to your customers only by their apologetic faces as testifiers. You don't have to engage in mud slinging. They, or at least their disgraced predecessors, excelled at boomerang throwing.
Sometimes, reality can be harsh; opinions can go anywhere the generator wants to go. I believe I covered reality and opinions fairly. Here's my final opinion. Regulatory control should consist of three standards. Credit unions already have their own, and they're doing quite well (55 failures in 2009 and 2010 vs. 297 banks). Large banks are now in the proverbial vice, but they know how to ease up on the turning handle by introducing new fees to compensate for packaged-whatever. Small banks need their own standard because they serve a segment that relies as much on individual help for consumers and small businesses as Washington relies on regulations. Give community banks their own standard and watch the economy and employment grow.