Five Traits Future Community Bank CEOs Must Possess

Succession Planning

Passing the Baton

When our Firm initiates a new CEO search or Succession Plan, we work with the owners and/or Board of Directors of the client company to build an “Ideal Candidate Profile.” This profile, while useful, is a target which can seem unrealistic when you start to see real live candidates.

I often simplify the Profile to a short list of Knowledge, Skills and Abilities (KSAs) that are critical. This becomes a “must have at a minimum” list. We recently produced a list of critical “musts” for a community bank CEO search. Listed below are the five traits that we all agreed were needed by any bank CEO of the future:

  1. Ability to see local community needs and think outside the “Banker Box” to envision how the Bank can satisfy the unmet needs.
  2. Ability to inspire all constituencies with a vision that creates value for customers, staff and shareholders.
  3. Keen risk management skills to manage risk under all economic scenarios.
  4. Ability to manage a wide diversity of products and service lines.
  5. In-depth understanding of how technology is changing the marketplace.

Given enough time, some of these critical KSAs can be developed with internal succession candidates, but there must also exist within such candidates a propensity to think broadly and deeply enough to be simultaneously analytical, creative and eloquent. Often, an outside candidate is able to strengthen an already strong internal team with these KSAs.

I would be happy to present this and other succession planning topics to your owners, Board and/or your Management Team as an introduction to our Succession Strategy, Executive Development and Executive Search services. Call me at 919-732-2716 or complete the request form below and I will reach out to you.

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Separate Roles in CEO Succession Process

Boards of Directors have a difficult, but critically important job to do with CEO succession planning.  If a Board selects the right person to succeed a departing CEO, shareholders, employees and regulators will be happy with the results.  On the other hand, a failure with CEO succession can bring about the failure of the enterprise.  If it is not THE most important thing a Board does, it is very close.

I am often asked whether a retiring CEO should be on the Search Committee.  There are times when the answer is an obvious “no.”  However, there are situations wherein the Board feels more comfortable with their role if they have a long-term, successful CEO heavily involved in the process.  My 35 years of participation in these processes has taught me that no two companies are exactly alike, so there is no right or wrong answer to the question.  To me the ideal is for both the CEO and the Board to have important, but different well-defined roles in the process.

The most productive role for a CEO in succession planning starts the day they become CEO.  From the beginning, a CEO should start preparing their potential internal successors by assessing strengths and weaknesses, getting them training, development and coaching as needed while exposing them to the Board.  The CEO should be sure the Board understands the efforts being made to develop successors internally and frequently share candid assessments with the Board.  If this work is done properly, the Board should have a good idea of their “bench strength” in case of an emergency and when it is time for the CEO to retire.

Roles Fork

CEO and Board work together until decision time

The role of the Board (usually with the help of a Search Committee) is to select the best candidate from inside or outside the company.  If the departing CEO has done his/her job, the internal candidates should be strong contenders, given their intimate knowledge of the company and its culture.  Nonetheless, today, most Boards feel like it is their fiduciary duty to look outside the company as well as inside.  So, most often the Board or Committee will have some good internal and external choices.  When it comes time to make a choice, a long-term, successful CEO should be available to the Board, but should take a passive role except in extenuating circumstances.

The departing CEO will justifiably favor the internal candidates, and any external candidates the CEO brought in early.  However, the departing CEO is most often not going to have to live with the consequences of the selection.  The CEO can still be on-call with the Board to answer technical questions about the job, but the sorting and grading of the candidates should not include the CEO unless there are strong reasons to include him or her.  Sometimes, the Board will choose a successor a year or two before the departing CEO steps down, in order to give the new CEO time to learn from the departing CEO.  In other situations, the departing CEO will be staying on in a Board role, which has its own issues that we will discuss in a future blog.

For now, suffice it to say that including a CEO in the final selection of their successor is fraught with issues and should be avoided unless there are compelling reasons to keep them involved to that extent.  If it would help your Board to have a full discussion about this issue, call me at 919-732-2716, or click here and give me your contact information.

Citigroup, Inc.’s New CEO Compensation Plan

Citi is finally getting CEO pay plans right! After losing their shareholder “say-on-pay” vote at the 2012 Annual Meeting of Shareholders, new Chairman Michael E. O’Neill, who just took over as Chairman last April, interviewed a large number of important shareholders. He was told that paying their CEO a $6 Million Incentive based on a two-year (2011 and 2012) cumulative pre-tax profit of $12 Billion, may sound like a good deal for the shareholders, but it was fraught with problems.

carrots

Incentive Pay Must Be Carefully Designed

To begin, the Company had 2010 pre-tax profit of approximately $12 Billion. So, the hurdle for earning the $6 Million was half of the actual earnings in 2010. Yes, the economy has made earnings difficult to produce, and yes, Citi is trying to overcome internal problems, but shareholders were unwilling to allow a hurdle rate that low. There were other problems with the design of the Plan.

Cumulative two-year pre-tax earnings ignores the fact that the bank could grow assets at a decreasing return on each dollar and meet the earnings hurdle while increasing their capital requirements significantly. Using volume of profit as a management performance measurement always has this inherent problem. In fact, increasing volume of profit can and often does result in lower returns on equity in banking. For that reason, shareholders can lose as management earns more, and a lose-win plan is never good.

Finally, building on the last point, there is no clear link between shareholder returns and management pay in the Plan Citi was using. A common objective of executive compensation plans is to align the interests of management with those of the shareholders. The old Citigroup, Inc. Plan did the opposite to some degree. The Board of Citigroup consists of intelligent and successful people, but they got some bad advice along the way. After Chairman O’Neill spoke with shareholders, he tasked the Board’s Compensation Committee to redesign the CEO’s Compensation Plan to address the shareholders’ concerns. He was not about to get a negative “say-on-pay” vote after his first year as Chairman.

Now, in my many years of studying and designing executive compensation plans, I have yet to see the perfect plan. It just does not exist. Business is too complex to allow for such a thing, and the need to keep the plan as simple as possible is an important constraint.  Yet, the new Citigroup, Inc. Management Compensation Plan addresses shareholder concerns with an elegantly simple design.

Executives will be granted units worth a certain amount in three years if certain performance is achieved.  Citigroup stock must perform in the top three-quarters of a carefully selected peer group of stocks of similar companies, and Citigroup’s Return on Average Assets over the three years must beat a hurdle equal to the previous year’s actual or there will be no units rewarded.  Furthermore, if the Return on Average Assets over the three years is better than the previous year by a significant percentage, then a target number of additional units will be awarded.

This design is superior to the old design because it clearly:

  1. aligns management’s interests with those of the shareholders and
  2. it is tied to relative performance compared with peers as well as the Company’s strategic goals.

There are some potential draw backs to such a plan, but the new plan is so much better than the old plan, I will not spend words on the risks in this particular blog.  Perhaps in the future, we can look at some of the potential flaws.  In the meantime, I say congratulations to Mr. O’Neill.  I may go buy some Citigroup stock!

Stages of Effective Succession

It is never too soon to start developing a succession plan for the top executive positions in an organization. Such plans take time to develop and come to fruition. Here is a brief outline of the steps:

Planning

This step should be in process continuously. It involves determining which positions need successors and what knowledge, skills and abilities will be needed for those positions in the future to have a successful enterprise.

company-organization-chart

Development, when affordable, should start early.

Development

This, too, is ongoing. It is the training and development of the inside candidates and the search for and recruitment of outside candidates that fit the ideal candidate profiles. This step takes time to implement…maybe years if you hope to develop talent internally.

Selection

Here you are screening, selecting and negotiating terms with the successor. Often, you will need to circle back and revisit plans and development steps if strategies change. Eventually, though, a successor must be chosen.

Transition

This is the handing off of the baton from a retiring executive to his or her successor. It is fraught with risk and should be carefully planned and

monitored. Most new employment relationships that are going to go bad will do so during the first six months while a transition is occurring.

There is a lot to do to make succession planning work. We will be happy to present an overview of the process to your executive team and/or Board at no cost

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Click here and request a contact, or call me at 919-732-2716.

Effective Strategic Planning in a Challenging Environment

Change?  No change is necessary.

That is what some bankers thought when their institutions began to suffer the first shocks of a quake that started rattling the financial industry in the mid-1980s.  These bankers figured that if they just hunkered down and minded their own business the tremors would subside.

Bank Strategic Planning

Bank Failures Since 1979, Source: SNL Financial and FDIC
Number of Failed Banks in 2012 is annualized based on 23 failures as of 5/1/12

Instead, many banks – and bankers – vanished.  From 1988 to 1992, the U.S. banking industry witnessed more bank failures than ever before, especially in any comparable five year period.

The reasons were complex.  Massive change hammered the industry.  New banking laws and regulations altered how financial institutions could do business and increased base-line costs.  For banks that were already on shaky financial footing, new capital requirements dictated cutbacks and/or injections of hard-to-find investment dollars.  The debut of interstate banking intensified price-cutting campaigns to win market share, and margins began to shrink.

Sound familiar?  It’s de ja vu all over again!  “Same events, different time.”  The earthquakes returned in 2008, and the financial world began to come undone once again.

For survivors of repeated quakes, reality has arrived.  If we hope to retain our jobs and help our institutions withstand external pressures, we had better prepare for life in an earthquake zone.  Strategic Planning is needed today more than any time since the 1980’s.  Through strategic efforts, banks can intelligently re-engineer their institutions to gain the resilience and strength needed to absorb shocks – and even expand – in our unstable economy.

Strategic Planning is extremely challenging in this environment, since it requires looking at the future and making assumptions.  Today, about the only given is that more massive change lies ahead.  Yet, an outline is emerging of the future that banks will face.  Over the next four or five months, we will comment on dealing with specific trends.

Five Requirements for Successful Strategic Planning

The plan is never finished.  Strategic Planning is a process that never ends.  Banks should revisit their strategies every 12 to 18 months.  Bankers should ask these questions to reassess internal attitudes and the outside world:

  • What have we done successfully?
  • How has the competition reacted?
  • What is different in our environment?
  • Should we continue on current path or make changes?
  • Are any failures due to poor strategies or poor execution?

For strategic planning to succeed, management and the Board must view the process as an ongoing commitment—not an exercise to satisfy regulators.

Management and Board must reach consensus.  Poor communication between a bank’s management and its board can present hurdles.  If these two groups do not have a shared vision, strategic planning has little chance to succeed.  Therefore, it is crucial to engage both groups in the planning sessions.

Many voices must speak.  A CEO and one or two people may complete a strategic plan without involving any of those who execute it.  The plan will be impractical, and managers will have no personal investment in its success.  Banks should search for ways to let employees share in the rewards and risks inherent in the development of strategic plans.  This may mean rewarding performance using bonuses or incentives, stock plans and other alternatives to pure salary.

Strategic Planning

Strategic Planning Cannot Predict the Future

Follow-through is essential.  A frenetic management style can create difficulties.  The CEO and board may eagerly develop a strategy, but lose interest when it comes to monitoring progress and overseeing implementation.  As soon as the first crisis comes along, they forget about the planning.

Power to harness change creatively.  Strategic planning cannot predict the future.  You cannot predict exactly when a quake might hit your institution—or its size and duration.  With strategic planning, you can make wrong decisions as well as right ones.  But strategic planning will help you learn your institution’s strengths and weaknesses and discover how your resources can be marshaled to help your bank survive and thrive.  Strategic planning strips change of its power to frighten and immobilize bankers.  It offers executives the power to harness change creatively.

Style Profiling – When “How They Fit” Is Important

The DISC style profile instrument is quick, inexpensive and impressively accurate in capturing work style preferences. Instrument is a basic 4 quadrant profiler that has been around since 1934, has been enhanced/validated several times,and is available via web. Great tool for search and selection as well as team building. The DISC is only available through a certified consultant.

I have been a certified user/provider since 1991.  We use it at MYMC in our search and team building practice areas, and also supply it to clients. We train clients in interpretation/usage of the instrument, support client usage, and/or simply provide clients with a secure web-based profiling process. I have seen consultants and clients overuse and over-rely on profiling instruments – using numerous instruments in the mistaken thought that they then have all the answers. Such over reliance abuses the very process they were brought in to support, and often the participant as well by trapping him or her in a limited “box” of prescribed behaviors, while also increasing the cost. I recommend a more thoughtful and selective approach to using supportive instruments for search and team building. While valid instruments can provide insights into capabilities or preferences, they can never replace the need to talk with people. We have found that while people have preferences, they also, in the right circumstances, have a remarkable range of performance capabilities. We at MYMC try to always look at “what are we trying to accomplish” first, and then use a few (seldom more than one or two) select and targeted instruments to augment our interview and team building processes.

The right instruments can help provide insights and even a meaningful framework within which to examine how an individual fits with the requirements of a particular job, or into an existing or newly formed team.  Ever have doubts about whether or not you really know that team-mate or candidate? Ever get fooled by circumstances, a clever interviewer, or a halo effect? Then try augmenting your interview, selection and or team building processes with instruments like the DISC Style Profiler.

We will be glad to assist.  Call me at 919-644-6962.

Ideal Community Bank CEO Candidate

Needle in a Haystack

The Community Bank CEO of the future may be hard to find

Today’s “American Banker” had an editorial called “Chief Factor in Small-Bank Survival? It’s the Chief.”  No question about it!  Leadership matters and while the banking industry has always been about people, the quality of the leadership has never been as critical.

The model for success in the future for community banks is changing radically.  Margins will be thinner on the traditional business of gathering funds and lending them out.  Costs for doing business are rising, if for no other reason than increasing regulation.  Customers are shifting banking habits requiring banks to invest more in technology-based solutions.  The challenges to success will be sizable.  So, what does the ideal candidate profile for the future community bank CEO look like?

I am sure we don’t yet have all of the answers to this major question, but many of the features can be seen in other industries that have gone through massive change.  Retail distribution went through similar change over a couple of decades leading to the development of big-box and chain retailers taking the place of the local hardware store and clothier.  Some leaders saw the change coming and innovated.  Some changed the channel of distribution.  Some narrowed the definition of their niche.  In every case, survival depended on strategic vision, detailed knowledge of their communities and customers and the leadership abilities to take their people through the wrenching change without destroying their loyalty.

The ideal community bank CEO of the future will need to have a wide array of skills and abilities.  They will need a mix of technical skills and interpersonal abilities that may be difficult to find.  Technical skills to recognize and analyze risk and understand the opportunities and the limitations of technology will be key.  In addition, the leadership traits of visionary strategists and change agents will be essential.  The CEO of the future will also need to be able to drive a sales culture and hold people accountable for results.  They will need to be a community leader and a master politician to help the local community understand why he or she demands performance and is willing to turn over staff members that may be their neighbors.

We build “Ideal Candidate Profiles” for Boards who ask us to find executives, and while every organization has its unique needs, there are certain traits that are usually needed based on the executive position.  We are exploring the changes needed for the future and the community bank CEO profile is one that will change dramatically.  Click the button below and register for a free presentation to your Board about the CEO of the future, or call 919-644-6962 and ask for Tim.

Request your Free Board Presentation

Succession Planning Without Three Envelopes

According to a recent WorldatWork survey of large companies, over 30% have no succession plans in place and 50% of executives say they do not have a successor for their current role.  Why?  They cited a number of reasons:

  • Not enough opportunities for employees to learn beyond their own roles (39%)
  • Process isn’t formalized (38%)
  • Not enough investment in training and development (33%)
  • Not actively involving employees or seeking their input (31%)
  • It only focuses on top executives (29%).

A lack of succession planning can lead to a lack of strategic direction and weakened financial performance, but it is hard work and Boards tend to make it a task instead of a strategy.  We will be happy to share an outline of succession planning as a strategy.  Just go here and request it:  http://matthewsyoung.com/contact.htm

The three envelopes for succession planning

The three envelopes for succession planning

Or, you could use the three envelope approach.  I learned this approach from a fellow who had just been hired as the new CEO of a large, publicly held company.  The CEO who was stepping down met with him privately and  presented him with three numbered envelopes. “Open these if you run up  against a problem you don’t think you can solve,” he said.

Well, things went along pretty smoothly, but six months later, the net interest margin  took a downturn and he was really catching a lot of heat. About at his  wits’ end, he remembered the envelopes.  He went to his drawer and took  out the first envelope.  The message read, “Blame your predecessor.”  The new CEO called a press conference and tactfully laid the blame at  the feet of the previous CEO.  Satisfied with his comments, the press – and Wall Street – responded positively, the stock price began to pick up and the  problem was soon behind him.

About a year later, the company was again experiencing a slight dip in  margins, combined with serious balance sheet problems. Having learned from his  previous experience, the CEO quickly opened the second envelope.  The  message read, “Reorganize.”  This he did, and the stock price quickly rebounded.

After several consecutive profitable quarters, the company once again fell on difficult times.  The CEO went to his office, closed the door and opened the third envelope.  The message said, “Prepare three envelopes……….”

You don’t need three envelopes if you use succession planning as a strategy.  http://matthewsyoung.com/contact.htm

Strategic Planning for New Skill Sets at Community Banks

All of the prognosticators (including us…see The Future Community Bank Model – Greater Diversity of Revenues and Reduced Risk) are talking about the need for community banks to diversify their product mix, rely less on concentrations of commercial real estate loans and develop new fee-based services.  The problem is that the current staff of most community banks has a set of knowledge, skills and abilities that do not apply in this new world community banking environment.

Commercial and Industrial Lending (aka C&I Lending) is a very different process than Real Estate lending.  Will the banks retrain real estate lenders or recruit C&I lenders from other banks?  Where can they find trained lenders?  Large banks have relatively few credit trained C&I lenders because these banks shifted years ago to a “hunter/gatherer” strategy that deployed many relationship developers (hunters), with limited credit training, who would bring the loan request to a few credit underwriters who made the deal work for the bank.  When this shift occurred, the large banks no longer developed the trained staff that community bank recruiters needed.

Banking gurus are also pushing the point that fee-based businesses need to be developed in the community banks to offset some of the continuing pressure on traditional net interest margins upon which community banks have historically depended.  There has been much written about understanding your local communities’ needs and the share of wallet your bank is getting.  This is how you determine what additional services are needed in your communities.  All true, but where do you get the talent to develop and then manage these new businesses?  Banks have not traditionally had strong sales teams, so once the new businesses are developed, will banks be able to build the businesses.

It has been estimated that half or more of the staff currently in most community banks will need to be replaced with people with new knowledge, skills and abilities needed in the new model of community banking.  In some cases, the change needs to begin at the top of the organization.  We hear from capital market players that investors often want a new team to deploy the new capital.  CEOs would be well advised to aggressively rethink their strategies for their banks and include strategies for attracting and retaining the new talent that will be needed in the new world of community banking.

For an assessment of your community bank’s strategic plan, click here:

Request an Assessment of You Plan

Director Succession

Director Succession

With the “Boomers” reaching retirement age, executives are beginning to retire in large numbers, but will the new CEOs walk into empty Boardrooms? Let’s face it, becoming a Board Member is not as glorious as it once was. The liability one takes on in the current litigious environment and the work necessary to do the job well is rarely offset by the rewards, financial or otherwise.

We worry about attracting and retaining qualified directors to represent shareholder interests in the future. Recruiting and grooming future directors needs to be an ongoing process of a Nominating Committee. We have been on the lookout for practical solutions to this dilemma, and recently found a case study in the “ABA Banking Journal.” A number of years ago, First United eliminated its three Advisory Boards. In their place, an Advisory Council was created. Care was used in terming it a “council” and not a “board.” This made it clear that the role was advisory, and it did not bear the legal responsibilities of the Board.

According to William Grant, chairman and CEO, the Council meets six times per year, in a dinner meeting following our Board meetings. This affords our Board members the opportunity of attending and observing. The Council’s agenda is to kept abreast of the bank’s activities, and to solicit their input on a number of market‐related issues. The majority of the Council members are community oriented businesspeople, and able to bring this perspective to the meeting.

This arrangement provides the following advantages to the Bank:

  • It serves as a valued “blue sky” advisory group to help the bank establish and execute strategies
  • It provides a “farm system” for future directors by affording members the opportunity of learning about the bank, its mission, and its culture. The bank gets to know them. If  there is a fit, then that person may eventually become a director. In fact, the last several directors at First United have come to the board by this route. If there is not a fit, then that becomes known before a member is placed on the board, and one side or the other comes to this realization.
  • It facilitates an environment where the Council member and various directors come to know each other, making the selection and nomination of future directors an easier chore.

This approach seems to address the issue nicely.  We would love to hear other ways that have worked for you.  Please comment below.  Thank you.  To discuss your Board’s succession planning process, call me at 919-644-6962 or complete a contact request at http://matthewsyoung.com/contact.htm.

Berry on Banking

Since September of 2008, we have been in the most challenging economic environment since the great depression. During this period, we have seen unprecedented government intervention with programs like TARP, and with the most recent passage of the Dodd-Frank Act, the regulatory burden is going to dominate the time of each management team and their board of directors. Risk Management practices have continued to improve, but it is the unforeseen risk, whether it is a double dip recession, continued declines in real estate values, deflation or a host of other things, that has to challenge the critical thinking of each bank’s leadership.

In this challenging environment, strong leadership is a must. Each CEO must be proactive and not reactive. Communication with regulators, the board of directors and the management team, as well as with all employees in the organization, is vital in order to maintain a healthy and well run financial institution. It also goes without saying that keeping shareholders informed of the strategy, vision and health of the bank is a must in order to build confidence in the marketplace. Capital is king, and investor confidence is vital especially in this economic environment and the access to new capital is paramount.

With respect to lending, there is an old saying that “you can fix bad loan underwriting but you cannot fix a bad market.” In light of the economic issues and the increased regulatory burden, Management needs to constantly monitor asset quality, ensure a diverse loan portfolio and be acutely aware of trends in the markets that the bank serves. Constant independent loan review in order to maintain a strong performing loan portfolio is now a best practice.

On the funding side, deposit composition is critical, as Jumbo CD’s and Brokered Deposits are not considered as part of a strong core deposit base. The true value of a bank is based on its loyal core deposit base. At the same time, management must make the tough calls and close branches where the economic risks are too great in a market that has been challenged by this prolonged economic downturn.

The banking business is still a people-driven business. Long-term, the key to success is having strong leadership that continually adds talented people to the organization.

To close, I’ll leave you with the idea that tough times do not last but tough-minded people and organizations do!

What do you want to be when you grow up? Creating a development plan that works

Time after time, personal development plans have all the staying power of a new year’s resolution. What goes wrong? Why is a good plan so hard to build, and even harder to execute?

Too Ambitious ….

Too trivial ….

Too vague ….

Too far away ….

Correct on all counts, but mere symptoms of the real problem – Creating and executing effective executive development plans is hard work, and planning efforts most often fail because someone forgot that people are unique, and that the change we are talking about may be real change. More often than not those attempting development planning processes (participants and practioners), don’t take time to understand how the “person they are working on” learns and grows, and/or don’t have a solid process for “testing” to see if the plans they have made have a high probability for generating change (i.e. provides the motivations needed for effective follow-through).

Give ‘em some space … Professional distance can equate to effective leadership

Parenting, teaching and counseling are leadership activities. Unfortunately, today’s parents, teachers and team leaders are all too likely to be operating as if their primary goal is to establish wonderful relationships with their children and/or students. Leaders, however, must guard against letting the desire for relationships undermine their leadership responsibilities. An attempt on the part of a person in a leadership position to establish “wonderful relationships” reflects insecurity, which can open the door to challenges within or surrounding the relationship. They don’t have to like you for you to be respected and seen as an effective professional, and seeking that fully appreciated “high” can be draining and disillusioning.

Effective leaders command by establishing an energizing vision of the future. They usually guide by establishing the “outer boundaries” and can delegate the known, while managing the unknown themselves. People in leadership positions who are overly demanding do not know how to command. Effective leaders are relaxed, not uptight. They realize that perfection is not necessarily a “best” goal. They are open to changing their minds (albeit they have to take care not to appear to be wishy-washy), and are not defensive when questioned, etc. They communicate clearly and concisely, which is essential to a projection of decisiveness, but are not prone to over control or feeling that they must know answers or be right. They understand the power of “discovery”, and while they may protect their charges from disaster, they also let people make mistakes and learn from them. Above all, the effective leader is focused on helping the people s/he leads become better at what they are doing. As a consequence, working for or with a good leader is intrinsically rewarding.

Anatomy of a Community Bank Failure

Why do community banks fail?  We are being called by a growing number of community banks that have serious credit problems, usually related to commercial real estate loans.  These banks desperately need capital, as losses from loan write-offs have eroded the capital base.  Why have so many community banks found themselves in this situation?

I could argue that the nation’s policies and regulations pushed community banks into their current situation.  If the problem today is too much concentration in real estate loans, I’m sorry, but this was the only lending niche left for community banks after interstate banking allowed large-scale mega-banks to form and compete on price for Commercial and Industrial loans and the consumer loan business was handed to the credit unions with their non-taxable status and the auto companies with their ability to finance their cars at giveaway rates.  Where else could community banks turn but local businesses and their real estate needs.

Matthews, Young SextantNow, having argued that they couldn’t help it, I would also argue that the real problem was a lack of leadership.  Lack of leadership started in Washington, where Congress allowed unfair competition.  Regulators tried to bring attention to the concentration of real estate loans being built-in community banks, but they were obviously not very convincing in so doing.  Boards of Directors allowed concentration risk to build because they assumed that real estate value would always appreciate.  Finally, too many CEOs and other senior officers of community banks took the easy way out and grew their banks down the path of least resistance.  People ALWAYS make the difference; on the way up and on the way down.

Armchair quarterbacking is easy, and I can’t claim that I saw the enormity of the impact of the real estate bubble or the liquidity crisis, but these things worried me and I tried to warn clients that diversity of assets, funded by a strong local deposit franchise was a worthy goal.  Alas, wholesale funds were too cheap and real estate was booming, so that approach seemed pretty boring.  Perhaps next time, we will all risk being stronger leaders.

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