Posts Tagged ‘Community Banking’

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.

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.

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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:

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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!

The Future Community Bank Model – Greater Diversity of Revenues and Reduced Risk

We wonder about the future of community banking.  Times are tough right now in community banking, but we are thinking about the business model for the long-term future of community banks.  Does anybody care?  We think so.

It seems every time there is a major wave of consolidation in banking, there follows a wave of new local bank charter applications.  There is always a strong desire among local business owners, developers and city fathers to have a locally owned bank that understands the local market and its needs for financing.  When the dust settles on the current banking crisis, and the coming wave of consolidation begins to wane, it is predictable that there will be another wave of interest in starting new local banks.  The necessary capital should be available as long as a business model can be found that will produce a reasonable return on what is sure to be a higher capital requirement.  We will take up the question of how much capital is needed in a future blog.

So, if you were starting a new bank, what business model would you want to use?  One lesson we relearn every 15 or so years is that concentration of loans in any one industry or type of lending is always risky.  There is just not enough margin in many types of lending to warrant risking more than a relatively safe level of concentration.  Some community banks have found some success in the insurance business or the investment brokerage business.  One thing seems clear, diversity of assets and revenue sources will be a key part of the future model.

It has also become clear that most, not all but most, of the small banks that got into trouble after the 2008 credit and liquidity crunch had little to no local franchise.  A local franchise is a brand that your local community understands and sees as a valuable part of the community.  While money was cheap and plentiful during the nineties and the beginning of the current decade, many banks started and leveraged their capital with brokered and wholesale deposits instead of local consumer and business deposits.  The demand for loans, especially for funding local real estate projects was strong during those boom days and a small marginal spread could be made with that model.  As we know though, when the easy money dried up, that model of banking did too.

The new community banking model will require more capital and greater control of risk.  We may not know everything about a new model for community banking but we can be sure it will require a strategy of building a local franchise for deposit growth and loan diversity.  I would love to hear your thoughts, so please comment below.  Also, to discuss your bank’s future, call me at 919-644-6962 or complete a contact request at http://matthewsyoung.com/contact.htm.

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