New Year, New Challenges

Facing the demands of multiple generations, bankers see the value of getting back to basics.

By Monica C. Meinert

With the first of the year, it’s almost a reflex to fixate on what’s “new” and “next.” And while there’s not a single community bank that isn’t looking and planning ahead, community bankers say that 2017 may be less about the latest and greatest technologies and more about doing what community banks do best: creating growth and building personal relationships in their local markets.

It’s a simple message—one that dates back more than a century for some of the country’s oldest institutions. But at a time when the industry is still struggling to shake off the reputational damage done by the financial crisis—and when the traditional banking model is quickly giving way to new disruptive technologies and the shifting demands of new generations—the message has gotten a little muffled.

Don’t be the ‘best-kept secret’
“Community banks have a soul,” says Sue Brignac, president and CEO of $159 million Washington State Bank in Washington, La. “We have our own culture. Community banks are people who are part of the Lion’s Club, the Rotary. We’re the people who grow the community.”

But bank CEOs at a recent roundtable agreed that they could be doing more to get the word out about exactly how they help their communities.

“Banks traditionally have been remiss in saying ‘Hey, look at us,’” observes ABA Vice Chairman Jeff Szyperski, who is also chairman, president and CEO of Chesapeake Bank in Kilmarnock, Va. He acknowledges that that’s starting to change with the help of social media, but adds that until recently, many of his customers didn’t realize just how active a role Chesapeake Bank plays in the markets it serves. “We’ve always done this, they just didn’t know it,” he says. “That’s on us.”

Deborah Cole agrees. “I think we have to stop keeping the secret of what we do and expose it to the community more.” Her bank, Citizens Savings Bank and Trust Company in Nashville, Tenn., is the country’s oldest African-American owned and operated bank—a distinction that sets Citizens apart from its bigger competitors but doesn’t generally raise awareness on its own. “Being the city’s best-kept secret doesn’t help us. We’ve got to make a total effort to make the community aware.”

Getting the word out about the good that community banks do isn’t just a good PR strategy anymore—it’s becoming vital for preserving the longevity of the industry. As the oft-quoted Millennial Disruption Index highlights, 53 percent of millennials don’t feel that their bank offers anything different than other banks, suggesting that community banks still have some legwork to do to differentiate themselves to younger generations.

Jeremy Callais, CFO and COO of MC Bank & Trust in Louisiana, says his bank has made a concerted effort to boost awareness of what the bank and its employees are doing year-round to serve the community, particularly in the area of financial education. His bank sets a goal each year to put 180 employees into classrooms throughout the 180-day school year to teach students from kindergarten to high school the importance of financial literacy. Recently, he says, the bank has been in the process of re-vamping its annual report to showcase more of these outreach activities. “We are calling it the ‘Giving Report,’” he says.

Recent studies have shown that millennials in particular put a high priority on corporate social responsibility in the companies they do business with or look to as potential employers. And for an industry facing a serious talent drain, highlighting community contributions can be a good recruitment tool.

“Because of increased regulatory burdens, reputation-wise, we’re not in a sexy industry because we’ve gone to an intense regulatory environment rather than a Zappos environment or a Google environment,” acknowledges Brian Johnson, CEO of Choice Financial Holdings in Grand Forks, N.D. “Younger talent doesn’t look to us career-path wise. Twenty years ago, being the banker in town was a great job to have. That dynamic has changed for us.”

But community banks have a unique opportunity to position themselves as good corporate citizens to prospective generations by highlighting the positive impact they have in the community—from giving to nonprofit organizations, to financing small businesses, to volunteering at the after-prom party for the local high school.

“With respect to corporate social responsibility, there probably aren’t many better industries to scratch that itch for millennials,” Szyperski notes.

The challenge of living ‘legacies’
Community banks aren’t just straddling generational lines from a human resources standpoint—they’re also facing changing consumer expectations and demands as technology continues to advance. One of the biggest challenges on the horizon is balancing what customers say they want with what they’re actually using, says Charles Schmalz, president and CEO of East Wisconsin Savings Bank in Kaukauna, Wis.

Take branches, for example.

“A lot of us have ‘legacy branches,’ and we’ve built our brand and customer model around this presence, and let’s face it, there’s less and less traffic coming through,” Schmalz explains. “You may get an individual who comes in and opens and account or starts a loan relationship, and you may never see them in the branch again, but if you go out and talk to them and see what they’re doing, they’ll tell you, ‘I wouldn’t have an account with you if you weren’t physically there,’” he explains. “They don’t want to come in, but they want to know you’re there.”

But reconciling the expectation of “being there” with the bottom line is tough, especially when it comes to branch staffing. “It’s ultimately a challenge, because people want you there, but the activity—especially in the rural markets just doesn’t justify it,” says Johnson. “And it’s generational. The baby boomers [and older generations] want to come in and still have that experience, and then we have some customers that tell me they haven’t been in the bank in over five years.”

Johnson says he sees a similar problem with product offerings—while customers want access to the full range of products and services, they can be slow to adopt, leaving banks holding the bill with little ROI to show for it. He gives an example of person-to-person payments, which Choice Financial adopted initially, but decided to abandon after seeing sluggish adoption rates and an uptick in fraud. Johnson adds that he’s a “big believer in partnering up” with fintech companies to explore new, more cost-effective ways to meet customer demands.

“I think there was a period of time where a number of us tried to be as much as we could, provide as many products and services to customers over the years,” adds John Malanowski, chairman and president of Lorain, Ohio’s First Federal Savings and Loan. “With the increase in regulations and the difference in what’s required of us, we’ve had to take a step back and identify what are the most important products and services to offer, and that has actually somewhat funneled some of the products down.”

Personal connections still matter
“We can’t be everything to everybody,” Cole and the others acknowledge. But that’s not necessarily a bad thing. Community banks have a unique role to play in the banking ecosystem, and paring down the things that aren’t working can provide an opportunity to refocus and prioritize the things that are—and do those things exceptionally well.

“What we try to do is really delineate better what we have and try to exploit what our competition doesn’t have,” says Kelly Mason. His bank, First National Bank, is a $100-million bank headquartered in Pratt, Kan.—one of three in a town of 7,500 people. With the banks competing for the same customers, “it’s going to be a matter of relationships,” he says. “If we’re going to grow, we’re going to be pulling from our competition, and we’re going to do that with our people.”

Community banks have always thrived on personal connections. And the desire for personal connections is something that customers across all generations will still look for, says Brignac. “Relationships are still relevant,” she says. “I think community banks are still a ‘safe harbor’ in people’s financial world. We just have to continue to have relationships with our customers and be that safe harbor.”

Monica C. Meinert is associate editor of the ABA Banking Journal.