Some Community Banks -- Like Hudson City and TCF -- Profit From Financial Crisis

A recent report by the Aite Group, a research and advisory group to the financial services industry, found that community banks are well positioned to take advantage of new opportunities resulting from the financial crisis. Some of them, such as Hudson City Savings Bank and TCF Bank, have actually already started doing so.

Sure, many community banks are struggling with challenges such as increased delinquencies and net charge-offs across their loan portfolios, which for some have curtailed their ability to lend. More than 40 banks failed between January 2008 and February 2009, according to FDIC data.

But the current financial crisis also affords most community banks the opportunity to expand their customer bases and to boost lending to small-business customers.

One good old-fashioned way these banks are boosting business is by reclaiming some of the deposits lost to larger institutions over the last decade. Aite surveyed 743 banks in February, and found that 55 percent have seen deposits increase. While many of these banks are reaping a windfall as depositors abandon seemingly rickety big banks, their good fortune also reflects their own more conservative lending standards.

For instance, Hudson City, based in Paramus, N.J., expanded deposits last year by almost 22 percent, to $18.5 billion (PDF link) — largely reflecting the opening of new branches. The bank has also started offering Internet deposits as of December. By comparison, Citigroup’s deposits fell 6.3 percent to $774 billion in 2008, according to its most recent 10-K.

Small companies represent another opportunity for community banks. The Aite survey found that 21 percent of surveyed banks said the financial crisis has enabled them to make greater inroads in the small-business market.

Midwest bank TCF, for instance, started offering inventory-financing services in December, in part by taking over some of Textron Financial’s clients, mostly small consumer electronics and household appliances dealers. TCF has the necessary liquidity to start in such a new area and can also take advantage of the fact that larger players like Textron and GE Capital are exiting the distribution financing business. The bank said it expects as much as $200 million in new business in the segment.