Owning and operating a bank is more costly than ever. As 2018 nears its close, it’s important to reflect on all that has happened, as it’s certainly been an interesting year for banking. We witnessed lots of changes and plenty of forward momentum in a number of areas.
Mergers and Acquisitions
IT systems and controls, competition for quality management and loan customers, generational transition of ownership issues, increased regulatory oversight and compliance – these have all contributed to the continued pressure on every Board to evaluate whether to streamline, grow, or sell the bank.
Nine bank acquisitions, or mergers, were reported in Missouri alone though October 2018 – with two months still left in the year. And de novo activity has regained momentum across the country, though not in Missouri or neighboring states.
Customers still want to interact with their bank; however, now they want to do it faster and more conveniently.
What do seniors/boomers and millennials have in common? Banking technology solves a lot of problems and meets a lot of their needs. But seniors still like a bit of the personal touch, while millennials (Gen Z) put their trust in proven technology and apps.
And Gen X’ers will spend a lot of time online making the banking or buying decision, but they still like to do it in person with someone they can trust. What does this mean to the community bank? – actually quite a bit.
While branch interactions may be less frequent, there is a need for reduced but more broadly and deeply trained branch staff. Imagine a universal banker who can help a customer with routine teller transactions, download and train customers about your various technologies, discuss service options and open a deposit account, provide insights on a consumer or mortgage loan, or offer a cup of coffee. And with tremendous competition for deposits, customer rewards programs are moving forward.
BSA is the regulation that keeps on giving. This was the year we added the fifth pillar to our BSA program – Customer Due Diligence along with Beneficial Ownership.
Banks added processes to gain more complete information for each new account, and to risk rate our customers based on our understanding of their intended and actual use of their accounts. In addition, we were required to gain an understanding of the 25% owners of all new legal entity customers and related accounts, as well as the individual controlling the entity. And, while there was eventually some minor relief for CD renewals, loan modifications and extensions, and safe deposit renewals, compliance with the rule was a pretty big change for community bankers.
S.2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act provided some relief for community bankers. Banks with less than $10 billion in consolidated assets will enjoy a new class of qualified mortgages with limited “Ability to Repay” characteristics as long as loans are retained in portfolio. The Act included some relief for banks in rural areas who struggle to find timely and qualified appraisals and appraisers. And banks with less than 500 closed end mortgage loans, or 500 open end lines of credit in the last two years, have experienced some HMDA reporting relief.
Loan Demand and Quality
As the economy has heated up, banks are increasingly competitive for loan customers. New business creation and expansion, building projects, investment in machinery and equipment, and a rekindling in the residential real estate market have created competition not seen in quite some time.
But bankers interested in growth need to understand the full picture for each new customer – not just on a deal-by-deal basis. And loan fraud continues to grow as well, especially in Ag sectors where the recovery has not reached them. Now is not the time to lose track of your borrowers.
“I rob banks because that’s where the money is.” Maybe famous criminal Willie Sutton didn’t say it, but it is why banks are targeted. And now the criminals can sit at a computer terminal hundreds or thousands of miles away and pick away at your banks electronic firewalls, passwords, protocols, and systems at their leisure. Smaller banks with older ATM’s, etc. in more remote regions can be squarely in the view of the cybercriminal.
Bank regulators have provided and updated a plethora of guidance in this area. Be sure your team and provider have these issues in your sights.
It’s important to reflect, so that we can learn and grow. And while no one can be sure of what the future will bring, we can certainly all feel more secure by learning from past experiences, thinking strategically about the certainties of today’s banking environment, and positioning for long-term success.