As a member of the Federal Deposit Insurance Corp.’s Advisory Committee on Community Banking, Adriana Boeka consistently engages in talk about the role community banks play in the economy. Boeka, chief executive of Americas United Bank in Glendale, said the discussions revolve around whether it’s worth it being a community bank. Will these small banks survive on their own or be forced to merge to compete against the large, national banks? “The answer is no,” Boeka said. “Everybody has a role to play and it is tied to the community.” To the outside world, these small banks, which can have assets less than $1 billion and just a few branches, may seem like a relic of the past. Banking executives, however, see it differently. Community banks serve as an alternative to big financial institutions; as banks that build their customer base on close relationships and knowing the needs of local businesses; and by giving access to the senior management, such as the chief banking officer, the chief financial officer and even the chief executive. “We don’t use 1-800 numbers,” said Frank Di Tomaso, chief executive at Bank of Santa Clarita. “Our numbers are all on the internet. My number is on there.” Dennis Santiago, the Torrance-based managing director for deposit insurer Total Bank Solutions, in Hackensack, N.J., said that community banks do not have a lot of money compared to Bank of America Corp., Wells Fargo & Co. or JPMorgan Chase Bank N.A., and that compels efficiency in their decisions. “If you are down to $300 million, which is where the typical community bank is at, you cannot afford to be wrong a lot,” Santiago said. Few branches The Business Journal’s coverage area includes the headquarters of three community banks – Americas United, Mission Valley Bank in Sun Valley and Bank of Santa Clarita. America’s United has four branches, Mission Valley just two. Bank of Santa Clarita operates from a single location on Magic Mountain Parkway. All three banks are publicly traded. Those three are among the 5,800 community banks operating throughout the U.S., said Paul Merski, group executive vice president for the Independent Community Bankers of America, a Washington, D.C. trade group. Community banks provide about half of all small business lending in the U.S. and about 80 percent of agricultural lending, Merski added. According to a report issued in June by the U.S. Treasury Department, approximately one in four counties rely exclusively on community banks for banking services within county lines, and nearly half of the rural counties have only community banks located within them. “As such, these institutions serve as a critical backbone to America’s communities, including our rural economy, and are an essential provider of credit to small and mid-sized businesses,” the report said. A number of factors, including regulatory costs and increased competition, has forced consolidation in the banking industry. According to the Treasury Department study, the number of federally insured banks declined from 17,901 in 1984 to less than 5,913 banks in 2016. “The impact of consolidation has been particularly profound on smaller banks as the number of institutions with assets of less than $100 million declined by 85 percent between 1985 and 2013,” the report stated. The greater Valley region has seen its share of the consolidation. First California Financial Group Inc., the parent of First California Bank, headquartered in Westlake Village, merged in late 2012 with PacWest Bancorp in a deal valued at $231 million. CU Bancorp, which operates under the name California United Bank, was headquartered in Encino until December 2014 when it acquired 1st Enterprise Bank and moved its base to downtown. This national trend is likely to continue as evidenced by a report from Bank Director, an information service for bank boards, that surveyed 206 top executives at U.S. banks (see charts). Small borrowers The Valley’s three community banks are all of a similar size in total assets. Mission Valley and Bank of Santa Clarita just above $300 million; Americas United just below that number. Mission Valley is the oldest of the three having been founded in 2000. Bank of Santa Clarita was started in 2004 and Americas United followed two years later after raising more than $20 million from investors. The bank’s strategy was clear from its origins – it would be a business bank for the Cuban segment of the Hispanic community, Boeka said. That was where its founders had an affinity and goodwill established. “We are still small because we targeted a specific part of the business community,” she added. Americas United and Bank of Santa Clarita trade on the over-the-counter market. Neither files quarterly reports on its operations. Americas United has been profitable since 2011, Boeka said. “We paid some price with the recession and had some losses but we survived and continue to grow,” she explained. The bank works with manufacturers, distributors, small hotels and even gas stations. New customers are brought in primarily through referrals. “It is from satisfied clients that send you other people,” Boeka said. The Bank of Santa Clarita, too, has grown through referrals from its clients. The companies the bank has made loans to have become some of its best supporters and marketers, Di Tomaso said. “We have not done a lot of advertising,” he added. “I would say our return on advertising has been nominal, if anything.” When a client does refer a contact to the bank, that client then takes a vested interest in that contact’s relations with the bank, Di Tomaso continued, adding that clients are often referring their better contacts. Getting those good referrals in some degree helped keep the bank’s losses to a minimum during the recession, Di Tomaso said. “It is because if you refer someone it is somebody you have confidence in, whether it’s another company or a vendor for deposits or a loan,” he added. Santiago, of Total Bank Solutions, said a top observation of the summer made by banking analysts is that the regulators were paying more attention to the liquidity of community banks, particularly those with less than $1 billion in total assets. Liquidity means that banks have enough money to operate and make loans and are not leveraging themselves too much. That regulators were giving attention to smaller banks was interesting because liquidity coverage analysis has typically been reserved for banks with total assets of $10 billion or more, Santiago said. Community bank liquidity was the subject of a report in an FDIC publication released in June. “When stuff like that gets published, it is basically a telegraph to everybody else to be ready because these are things you are going to get asked,” Santiago said. From his analysis, Santiago said the three Valley-based community banks all have different approaches to maintaining liquidity. Mission Valley is the least leveraged while Bank of Santa Clarita is the most by having taken a goodly share of brokered deposits and Federal Home Loan Bank advances. Americas United falls in the middle, Santiago said. “The two (Mission Valley and Americas United) have more community-based deposits on a percentage basis,” he added. “That is good for them because they are relying on the community more.” Regulatory costs Operating a community bank entails plenty of challenges, even though banking professionals believe federal lawmakers are friendly to these smaller banks. “The community banks have built up goodwill with the lawmakers that realize they typically put their customers first and do the best they can for their local hometowns,” said Merski, of the Independent Community Bankers of America. Still, there remains work for these lawmakers to do in terms of changing regulations the small banks feel are burdensome to comply with. The recession of 2008 proved a pivotal moment for small banks. They were thrown into the mix with the larger banks whose practices on home loans and mortgage-backed securities led to the recession. So, when legislation was passed to regulate these large banks, the examiners expect the smaller banks to follow them too. “A lot of times there is a greater cost burden on the smaller banks,” Di Tomaso noted. In the June report from the Treasury Department, the agency made recommendations for community banks on “right-sizing capital requirements, enabling capital formation, encouraging new charters, and reducing a number of other regulatory burdens that hinder these institutions’ ability to serve their customers.” Boeka, of Americas United, sees a market opportunity for community banks to grab business as large banks have been slow to go after small borrowers. But risks on the horizon include avoiding a real estate bubble and making sure to get good appraisals on commercial real estate. “We have to keep the values honest,” Boeka said. From Di Tomaso’s perspective, there is plenty of room in the greater Valley region for other community banks to open. After all, he said, there is no bank based in Simi Valley, the Conejo Valley or even the north or west San Fernando Valley. “In my opinion, there is tremendous opportunity for a small bank to start in those communities,” he said.