On February 14-17 the American Bankers Association held their National Conference for Community Bankers. I made my first trip to the conference because I was asked to moderate a CEO Exchange, where bank CEOs sat, round-table style, discussing their most pressing issues.
The format was to first ask a couple of group questions. My first regarded attendees growth strategies. Did their markets support their growth aspirations? If not, do they intend to grow by expanding, taking market share from competitors, or merging.
I would say the answers were yes, yes, and maybe, with only a small number stating they were exploring strategic combinations with like-sized institutions. I salute banks that forge forward independently. But perhaps considering a strategic alliance with a like-sized financial institution can give the combined institution greater resources to compete, and greater liquidity and possibly trading multiples for shareholders.
In terms of taking business from others, the primary, head nodding answer as to how to do it was apple pie. The community bank takes deposits from your community, and then lends into your community, with decision makers based here, where the financial institution's employees live, work, and volunteer.
The second group question regarded capital. Where would the smaller financial institution get its next injection of capital, should it need it? Most relied on retained earnings/profits, as expected. Some rely on a relatively small group of local investors, including employees and board members. Read my post on using an ESOP here. A minority were exploring subordinated notes, that can be issued at the holding company and down-streamed as common equity into the bank, should it need it.
After group questions, the Exchange turned to round-table discussions among the CEOs. Below are some of the questions addressed, and a summary of ideas on how to attack these challenges.
If you could make one change in law or regulation that would provide you with the greatest regulatory relief, what would it be?
- The CFPB should tailor their rules for appropriately sized financial institutions.
- Eliminate the right of rescission. Nobody uses it.
- Change the CTR threshold.
- Reduce the BSA workload.
- Disband the CFPB.
- Revise HMDA so it doesn't require so much bank resources.
- QM and TRID delays closing times and disproportionately impacts rural banks (makes mistakes punitive).
Where is the greatest competition for loans?
- Credit Unions, Insurance Companies, and 3rd parties are competing for commercial real estate loans.
- Farm Credit, particularly in rural markets, are a significant threat to community banks.
Have you experienced a trend of easing underwriting standards over the past year?
- Commercial real estate loan spreads are shrinking.
- Competitors are lengthening loan terms (10yr fixed rate)
- Attendees are being more selective on these loans that are aggressively priced or structured.
- One reaction: make better use of 504s (SBA loans) to reduce risk.
How will you attract the next generation of leaders, employees, and customers?
- Employees: Pay aggressively. Give them increasing responsibility. Identify keepers early.
- Employees: Use stronger screening processes.
- Employees: Internship programs for college students.
- Employees: Have good wellness programs.
- Employees: Use them for process improvement/special project teams.
- Employees and customers: Target bounce-back millennials/ ones that leave the area but miss home and come back.
- Customers: Put millennials in meaningful roles to attract millennial customers.
- Customers: Use technology such as text messaging to wish happy birthday, low balances, etc.
How are you assessing and managing cyber risk?
- Professional certifications.
- More aggressive testing.
- Customer education (i.e. wire transfer vulnerability, etc.)
- Have to make the resource commitment to manage it.
- Regulators frequently drive risk mitigation.
- FFIEC testing.
The above are simply bullet points for difficult challenges. This is why the round-table discussions surrounding these issues was so important to attendees. To get the full benefit, you will have to attend.
It's not so bad. It was in Palm Desert this year and in Orlando next year! A welcome respite from winter, and beneficial exchange between community bank senior executives!
~ Jeff
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