Community bank leaders entered 2014 with a rosy view of their companies' prospects, according to a new survey from Abound Resources.

A majority (61%) of community bank CEOs said they were optimistic or very optimistic about the year ahead, according to the survey of top executives from 111 banks with under $10 billion of assets. That's a big jump from last year, when just 28% of CEOs had a positive outlook.

Community bankers are feeling more upbeat because they turned profits in 2013's less-than-ideal conditions, according to Abound Resources President Brad Smith.

"It's been a difficult few years [for banks] with the weak economy, low interest rates and the Dodd-Frank Act," Smith says. "But many did well last year."

"Virtually all [community banks] have cleaned up their balance sheets," Smith says. "Their credit problems are largely behind them, and most that were operating under regulatory orders have come out. Profitability numbers are still not what a lot of CEOs would like to see… but for the most part they have realized they can still make pretty good money even in these down times."

Many community bank chiefs (85%) believe that they can make even better money by increasing commercial lending. Nearly half (49%) cited expanding their banks' online presence and improving their small-business market share as other top growth priorities.

"The reality for most bank CEOs is that there's not a lot of money to be made in investment portfolios right now," Smith says. "But most feel like there is still opportunity in commercial real estate and lending to small- and medium-sized businesses."

Community bank leaders also believe that building a competitive online presence will help them reach new customers and retain current clients, according to Smith.

CEOs "need to debunk the myth that community banks can't compete with big banks on technology," Smith says. To that end, they want to improve Internet banking products and services—and give their marketing websites some much-needed makeovers. "They're making sure the products they deliver online look like the Internet of 2014, not the internet of 2003," Smith says.

Community bankers' improved outlook has not blinded them to the challenges they are likely to face, according to the survey. Regulatory burdens topped CEOs' list of concerns for the third year in a row, with 86% citing the category as their most pressing worry.

"A lot of community banks' concerns have to do with what is within their control and what is not," Smith says. "They've proven to themselves that they can find ways to make money even when the economy is sluggish and interest rates are low. … But there's not a whole lot of space for being a creative problem-solver when you're dealing with the [Securities and Exchange Commission] or the [Federal Deposit Insurance Corp.]."

Nonetheless, the survey suggests that community bank leaders believe their companies are in fighting form. "There will continue to be consolidation, but the community and small regional bank model still has an awful lot of life in it," Smith says. "They can still be very successful, not only in traditional rural markets where there may not be a lot of competition from big banks" but in major cities like Los Angeles, Houston, Chicago and Boston.

"Big banks still can't do much lending if it doesn't fit within their very narrow check-the-box approach," Smith says, "whereas community and small regional banks can be more creative in figuring out how to get a deal done. As long as they're able to do that, there will still be a great model for small- to mid-size banks."

Sarah Todd is a news reporter at American Banker.

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