Bankers, Get The Help You Need

Bankers, Get the Help You Need

Greetings my banking friends!  In my previous article ( A 30-year Banking Journey – First National Bankers Bank ) I highlighted some important strengths of community banks and the critical role they play within the U.S. economy:

  • Community bankers typically have strong, personal knowledge of both their customers and local market conditions.
  • Focus on relationship banking, vs. transactional banking, establishes trust and gives community banks better insight when assessing risks.
  • Organizational hierarchies allow community bankers to be fast and flexible. Administration of the PPP program was a reminder of the importance of community banking.
  • Community banks account for over 40 percent of small business lending despite accounting for less than 15 percent of industry assets.

The Federal Reserve, FDIC, OCC, and other regulatory agencies have made similar conclusions over the past decade.  The financial crisis of 2008 and resulting Dodd-Frank legislation burdened community banks with legislation more appropriate for the large U.S. banks.   Banks with less than $10 billion assets have since been given some relief from the Dodd-Frank requirements.   I’d like to share my experience as a community bank CFO throughout that period.

I joined a community bank as CFO on September 1, 2008.  On September 15th, Lehman Brothers filed the largest bankruptcy filing in U.S. history.  The housing market had collapsed and the U.S. entered what is commonly called the “Great Recession.”  As a 2-year-old de novo bank, the executive team was relatively new.    We faced a challenging and unpaved road ahead.  Capital levels, Asset-Liability Management, Liquidity and Investments would require intense focus for the foreseeable future.  Regulators were on the way.  In addition to these priorities, we all had our plates full managing routine functions.

Community bank employees and their leadership teams tend to be generalists.  The community bank business model doesn’t allow many of its employee to be specialists only.  It’s common to see necessary operational and administrative functions reporting to CEOs, CFOs, and Chief Lending Officers. I was ultimately responsible for non-financial functions such as Human Resources, IT, Facilities, Legal, etc.  Coming from larger organizations, I was accustomed to these functions operating with their own management teams.

What I came to realize was that there are many professional services organizations designed to help community banks.  Ultimately, community bank CFOs (and other C-suite execs) partner with professional service providers that have deep knowledge and experience in functions that are too expensive to maintain internally via employees.  There are many functional areas that require hands-on knowledge.  More and more, community banks are “co-sourcing” functions such as compliance, internal audit, and loan review while focusing on core client responsibilities.  Asset Liability Management and Investments are technical areas that almost always require outside resources.  Large banks and “Bankers Banks” can invest and retain talented bankers who would otherwise be too expensive for individual community banks.

When interstate banking became wide-spread in the mid-80s, community banks found themselves in direct competition with larger banks for loans, deposits, and other products.   The concept of forming cooperative banking institutions, called “Bankers’ Banks” became more popular.  Bankers’ banks are unique in the banking industry.  Effectively, community banks pool resources to compete with large banks.   Bankers’ banks are limited by statute to providing services to or for other financial institutions.   There are currently 12 bankers’ banks throughout the US, down from 25 prior to the financial crisis in 2008.

Aside from NEVER COMPETING WITH OUR COMMUNITY BANK CLIENTS, there are several key reasons to consider partnering with Bankers’ Banks:

  1. Base line cost savings

With the market getting more and more competitive every day, community banks are looking for ways to cut non-interest expenses and increase their margins. Technological solutions and a retiring workforce combine to create opportunities to automate operational processes.  Most tasks can be automated at a fraction of cost of experienced personnel and less chance of human error.

  1. Try out something new at the lowest possible cost

Partnerships and affiliations enable community banks to experiment with new sources of non-interest income.   Products such as mortgage lending or insurance can now be facilitated without the rising costs of resources or infrastructure.

  1. Freeing time and focus on more value-add functions

Money is not the only resource that is freed up when co-sourcing.   Time and focus are just as important. Time consuming “back-office” work can be efficiently and independently executed through trusted partnerships.   Bankers can use their time effectively and focus on building and developing client relationships.

  1. Tap into a pool of well-trained talent/experts

Professionals who are well-trained and experienced in credit administration, asset liability management, funding and daily clearing are hard to find and expensive.  As an alternative, bankers’ banks can attract and hire specialists to provide these service offerings.  The costs are effectively spread over banks that do not require full-time specialists.

  1. To better manage risk and continuity

It hurts when top performers leave.  Bankers tend to move several times during their careers.  In community banks, top-performers are often the only people who perform duties single-handedly and understand everything that needs to be done.   Outside providers can provide continuity by maintaining pools of talent.

Our mission at First National Bankers’ Bank is to help community banks succeed and keep banking resources available to everyone.  We provide products and services that enable our respondent banks to compete with larger banks.   We will not compete with our community bank shareholders or customers by originating loans to or seeking deposits from the general public.

We look forward to helping our respondent backs succeed.  Check out our services and give us a call.  Community banking is our passion.