The Community Bank Contrarian

By Kate Young

Think back to the year 2009. The smoke has not yet cleared from the financial crisis and for many banks, survival is at stake. In the C-suite of a 142-year-old Midwestern community bank, a young executive makes the steel-nerved decision to buy the mortgage division of a neighboring bank that has failed. How would describe such a person?

If you’re thinking: cowboy, maverick or gambler, you’re way off base. If you’re thinking: analyst, strategist or visionary, you’re not wrong. But if you sit down for a conversation with Luanne Cundiff, president and CEO of First State Bank of St. Charles, Mo., another word might also come to mind: contrarian.

At a time when other bankers were scrambling away from the mortgage business, she and the bank leadership team marched into the breach. Now that many in the industry are moving toward niche banking, she strives for diversification. She’s a woman in banking who has serious questions about the way we talk about women in banking. And while she holds fast to her institution’s traditional values, she’s also preparing for everything to change—suddenly and fundamentally.

Cundiff is the 2019-20 chairman of ABA’s Community Bankers Council, but good luck getting her to brag. Ask her to comment on her long list of achievements and she may just pivot to the latest news from her bank. It’s not that she has nothing to say about her ascent from bank regulator to bank CEO, her inclusion on American Banker’s list of “Women to Watch,” or the two times she was invited to the Oval Office to discuss banking regulation with President Trump. It’s just that she seems far more interested in talking about the state of banking at this crucial point in history.

Changing the story of where bankers come from

Some people are born into banking. Others learn the business from the teller line up. Cundiff took the academic route. As a student at Western Illinois University, she happened upon a class taught by a charismatic banker-turned-Ph.D. who was launching a banking curriculum at the business school. “There was a group of us that just clicked with him,” she says. “He convinced us to take more classes,” which led her to a finance major with an emphasis in banking.

The school’s banking program helped her land a position with the Federal Reserve Bank of St. Louis, where Cundiff began her career as a bank examiner. Early on, however, she knew her ultimate goal was to be a community banker. “I knew I needed the foundation of the regulatory world before I could move on,” she says. But once she did, she took on every corner of the business. “I did commercial lending and operations. You kind of do it all when you’re at a smaller bank.”

‘You don’t look like a banker’

Throughout this range of experiences, Cundiff notes that she always enjoyed the full support of her bank’s board and management, and she says she was never treated differently from the men at the bank. “No one ever thought, ‘Wow, that’s weird that Luanne’s a CEO,’” she says. “That never happened in my shop. And I’m fortunate for that.” She’s quick to add, though, that industry-wide, the gender gap at the highest levels of banking is real.

For Cundiff, a potential source of that gap became clear during her stint as a commercial lender. Although she did not experience gender-based obstacles within her bank, she says, once “you walk outside those doors,” things are different. Out in the field, clients and prospects often perceived her as someone who didn’t “look like a banker.” She notes that “no one really talks about the different roles within the bank and the customer piece of it. But in my experience—in my observation—commercial lending is where it’s very difficult to get females involved.” Many women, she says, get frustrated and either move to a different role or change industries entirely. “It’s not the fault of the bank—but you can’t control what the customer says, does or thinks.” At least, not in the short term.

Over the longer run, Cundiff fears that conferences and seminars meant to empower women in banking may exacerbate the gender divide by framing human issues—like networking, childcare and work-life balance—as women’s issues. “It’s the same for men,” she argues. “I mean, my husband has to balance all of that.” In recent years, she says, she has become increasingly engaged in “trying to help move the needle in whatever way I can” when it comes to women in banking. But she won’t accept a simplistic approach to the issue. To her, that’s no better than assuming what a banker should look like.

‘Focused on the foundation’

Located in a historic town about half an hour west of downtown St. Louis, First State Bank has appeared consistently over the past 10 years in the “best bank” lists published by the St. Louis Post-Dispatch, the St. Louis Small Business Monthly and the St. Charles Suburban Journals. In 2014, it was declared one of the healthiest 100 banks in the U.S., based on deposit growth, capitalization and its Texas ratio. How did it get there?

To explain, Cundiff takes us back to that game-changing decision the bank made in 2009. “Prior to the financial crisis,” she explains, “we struggled as a bank to try to figure out what direction we were going to head.” Clearly, something strange was happening in 2006 and 2007. “I remember sitting in my office one day, thinking: Did I miss a class or something? Because why is this customer getting a mortgage [at the bank]down the road when they can’t even make their interest payments? I know they don’t make enough money to make their interest payment.”

When the crisis hit, she knew from her experience in the regulatory world that “you can’t have that kind of catastrophe without the government getting involved.” Big changes were certain. The question was what they would look like.

“In 2009, we decided to acquire a mortgage division of a failing bank. A huge risk, obviously,” she recalls. “But after meeting with the group, I could tell that the bank was failing for reasons unrelated to the mortgage division. And the people who actually worked at the mortgage division—there were just 18 of them—were actually very focused on compliance. And so are we. And focused on the foundation. Because they know that if the foundation has a crack in it, everything can collapse. But they couldn’t do anything because the bank was failing for reasons beyond their control.”

Perceiving that regulations would soon make smaller-scale mortgage lending like First State Bank’s impossible, Cundiff made the deal to achieve scale. Without it, the bank would have needed to get out of mortgage lending all together. Since then, the bank’s mortgage division has grown from 18 employees to about 140, providing sustainable earnings and diversity to the revenue stream.

Diversification was a strategy that not only helped the bank survive and grow—Cundiff also credits it with deflecting the recent onslaught of mergers and acquisitions among community banks. In fact, in its entire history, First State Bank has never been merged or acquired. Diversified revenue streams and a diversified balance sheet mean that, “in the event that you have a blip in one area, you have a fallback. That happens often with institutions,” she explains. “We try to create a solid foundation and build from that. In the event we have some cracks up above, the foundation is strong.”

Unraveling the stability paradox

First State Bank is now about 152 years old—and with that comes a strong legacy of multigenerational shareholders and customers. Some of them, Cundiff notes, are in fifth generation to bank with the company. “That does create a sense of loyalty that you can’t get in most places,” she says. On the other hand, “if you don’t offer them the latest and greatest, they’re not going to stay with you. So you can never take that for granted—and we don’t.”

If that sounds dramatic, consider the data: First State Bank recently looked at payments coming into the institution and found that the dollar volume flowing in from nonbank fintech payments services doubled in just one year. “We’ve probably never seen that kind of shift,” she says. “And it’s not just happening to us.” Banks of every size, she believes, will have to think creatively and react quickly—but “in a safe and sound way.” In other words, in order to endure, banks had better be ready for constant change.

Change doesn’t have to be about making tech investments, she notes—sometimes it’s just “thinking differently to get from point A to point Z.” Toward that end, when First State Bank hired an additional EVP, Cundiff deliberately sought out a candidate with no banking experience. The mechanics of banking can be taught, she points out, but not the art of thinking differently. “And that’s what we needed.”

Customers are changing too—they’re more mobile than ever, and many of First State Bank’s multigenerational legacy customers are now scattered across the country. “We’re a $400 million bank,” Cundiff says. “But because of the technology that we’ve employed, and our ability to service customers when they move away to college, when they open another office in another state, when they have grandkids and move away…they don’t have to move their accounts anymore.” With account holders located in 42 states, First State Bank calls itself a “community bank with nationwide reach.”

The big question that is Cundiff’s job to answer: “Can we preserve the community bank model?” She points out that nonbank payments and nonbank lenders were not a threat 20 years ago—and it’s impossible to say what the next threat will be or when it will arrive. “We have to make sure that we as bankers all understand the value of our institutions and how the external environment can change the value,” she says. “Quickly.”