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Christine Temple | SBJ

CEO Roundtable: Banking

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Springfield Business Journal Editorial Vice President Eric Olson discusses the local banking industry with Sherry Lynch, Bolivar market president with Commerce Bank; Brett Magers, president of Legacy Bank and Trust; Doug Parker, southwest Missouri regional president of Encore Bank; and Tim Scott, regional bank president with The Bank of Missouri.

Eric Olson: Let’s begin with talking about some of the personnel movements in the industry, and that’s not uncommon in banking. Several changes have happened in a short amount of time here, including some of your own positions that you are new stepping into. Is it noticeably heightened of late to you guys? And if so, what are the reasons?
Brett Magers: It’s probably been growth. You see 12 years of an expansionary period in our economy and there’s just a lot of roles that need to be filled in institutions as the banking industry has grown by 30%-40% of the asset totals over the last seven, eight years. It’s created need for additional staff at each bank and we have (merger and acquisition) activity and retirements and succession plans that always happens. It’s just I think gotten heightened lately just because there is so much asset and deposit and loan growth that is out there.
Tim Scott: I agree with Brett. A lot of what’s happened here at Bank of Missouri is same thing, that there’s been a lot of growth. Ours has been through purchasing other banks. We’ve picked up two banks, and then we took a year off, and then we purchased Bank of Bolivar here just last year. I have noticed though in the banking industry, it seems there are these odd little shakeups that go on probably every two, three, four years. But it does seem like it comes at the tail end of some questionable financial time periods and then as it starts to get positive, people move and the banks get prepared, they go out and they go get some heavy hitters. That opens up some opportunities and ... creates a little bit of a circulation or, we’ll call it musical chairs, in banking.
Doug Parker: I think we used to have an employer of choice. I think with the number of people we’ve got out there and the candidates that we have out there, now it’s an employee of choice. The employee is running the gamut here, and they actually have the deck of cards in their hands. It’s kind of like Tim said, we’re coming out of something (and) going into something big, and we’re expanding. Everybody who has a talent and has the capabilities understands that, and they want to make more money, they want to advance.
Sherry Lynch: My situation is a little different because this will be my 30th year as part of the Commerce Bank team. My new role is part of a more longer-term succession planning with the retirement of the market manager last year. As part of Commerce Bank, I’ve been really lucky to participate in several internal programs on leadership development. We have an ambassador program, a mentor program that our employees can take advantage of. Because as you guys talk about it, it’s not only about attracting talent but retaining talent.

Employee trends
Olson: Reflecting on this past year in terms of employee counts. With the federal loan programs heightening the demand of services for many banks, did the Paycheck Protection Program cause you to increase staff? Has it waned since?
Magers: At Legacy, we are on quite a growth path based on some of our lines of businesses that have been in place for years and are really starting to take hold. The federal loan programs didn’t change much; it was really still handled by internal loan personnel we already had. We had built a small (U.S. Small Business Administration) department before that happened and really glad we did invest in that years prior to PPP coming out. Our employee counts have gone from about 75 a year ago to about 105 today. So, we are adding staff on a daily basis right now, but a lot of it has to do with just core commercial banking being so strong and we’re somewhat of a niche lender and a couple lines of business that are really healthy.
Scott: We didn’t hire any extra just for the federal loan programs. We just thought that we weren’t sure what that really was going to look like. I think we all as bankers, I may be speaking for everybody and forgive me, but we waded into this thing not knowing what really to expect out of PPP, and I think we got neck deep in water before we realized how much it was going to be. It made a lot of work for a lot of folks.
Lynch: For Commerce Bank across our entire footprint, we helped nearly 11,000 customers get PPP loans. And as part of COVID in that process, we utilized over 900 employees to support those efforts. So, it didn’t really matter what line of business you were in, we came together as one team to help the customers. I can’t speak specifically to employee counts, I just know that we took an agile approach and looked at it as how can we utilize all of our talent whether you typically work with commercial loans or not.
Parker: We didn’t have to add any people. Matter of fact, we had some third parties out there that handled some of our applications. We had online applications for PPP and you could drop it all digitally in there.
Olson: What’s the hiring outlook?
Magers: We’re not a large retail bank, so the vast majority of our positions we filled over the last year or two or three with our growth has been nonentry-level positions. Most of them are college educated, professional jobs and so we really haven’t seen trouble hiring. The unemployment rate is low among college graduates, so it is a tight labor market. We’re very employee-centric. Being a dynamic bank and having some growth trajectory is an attractive thing. But I know from speaking to the small-business clients that we serve, it’s the toughest market to hire that they’ve ever seen for especially entry-level, service jobs.
Scott: There have been some difficulties hiring tellers and entry-level jobs. Anybody that’s gone to the market and actually put out requests for applications, we’ve definitely seen much less response to those and having folks turn up for interviews has even been difficult. For those jobs that are upper level, where we’re hiring college types of graduates, those are a little more easy to attract if you’ve got a real sound, strong institution. We’re hoping that ... the unemployment benefits lessening to the normal standards, that that will begin to help ease this thing up. It’s really driving some pressures on inflation.
Parker: We’re more of a commercial concierge setup. We’re not a lot of branch network; we’re more online, digital. We pay more to get quality people. So, we’ve not had any problems at the end of it. We use our money and resources in that way to be more concierge online, customer-service oriented, whether it’s video conferencing, whether it’s actually call in or actual online setup. Many small businesses out there are not able to pay the higher end so it’s stifling that; well they can but then it hurts their earnings and their power to create a net income for the individuals.

Operational shifts
Olson: In this past year, operations have changed in every industry in a lot of ways. What’s been the biggest takeaway for you guys in banking in this past year? Additionally, I wonder about the long-term effects of that?
Magers: A couple major takeaways for me over the last year has been that community banking still matters, relationship-driven banking matters. When times get really good, money becomes a commodity to clients in a consumer-banking scale, Bank of America, JPMorgan Chase. When you look at the smaller banks, probably everybody, even Commerce is a large regional, but still a relationship-banking institution, we provide a service that goes beyond just our interest rate and a simple financial transaction. Through PPP and deferrals and all the issues that just popped up out of nowhere ... who you borrow money from and who you bank with, those I think actually matter.
Lynch: We operate with a super community bank philosophy. We feel like we offer all the products and services a big bank would, but we really focused on deepening those relationships and expanding those on a community market level. Our lobbies are open, we are welcoming customers, we want to take care of them in the manner they want to be taken care of. One of the things we’re really excited about is our new Connect banker program, which allows you to have an interaction through our app with a banker and there’s banker profiles out there so you can really choose a banker that you feel best fits you.
Parker: I also believe that it got back to the simple basics. We always talk about the old banking ways and communication and what my papaw or my daddy did. He created a communication line I think that we’ve lacked over the last many years. Because of the boom, because of things that were going on, we skipped some of that. We went straight to financials, looked at debt service loan to values and we moved on. This made us actually make a phone call or stand in front of somebody and say, “Hey, how’s it going? What do you need?” Because at the end of the day, if they’re hurting, we don’t want that property back. We don’t need another ATM out there, another branch or how to sell it or do whatever. That’s the last thing any of us want. But it made us get out, have a conversation and get a little bit more personal.
Scott: The other thing that sticks out is something that was a big takeaway is how flexible people became. Everything from the small-business owner, to the consumers, to people that were used to coming into the lobbies and when all of us had to shut our lobbies they went through the drive-thru and we taught a lot of folks how to use online stuff and it really created a whole new approach to banking. Then it even pushed a whole lot of our people that were in our branches out to work remotely. And again, we saw flexibility. Now that the lobbies are back open, I think we do see a lot more drive-thru traffic. We also see a lot more people working remotely. Everything I can tell, it’s all in a positive way. It’s just allowed a lot more avenues for us bankers that tend to do things the old way all the time to say, you know what, now we get to be creative and offer a lot more options.
Lynch: I know our businesses are having challenges filling positions, but one of the things we learned throughout this is, there are a lot of positions that can work from anywhere and maybe that mindset hasn’t always been there. And I think in contributing to that is that it offers a lot of opportunity for our employees who may have explored taking a position in say, a Kansas City or St. Louis market, because that’s where their family’s at. Now, there’s an opportunity for them to live anywhere and work from anywhere.

Digital debate
Olson: There’s some new buildings that have been completed, or soon to be ready for occupancy. I’m thinking of Mid-Missouri Bank, Central Bank, Legacy Bank. Do you predict that these branches are a last wave of that? Is there a continued demand for those walk-in services?
Magers: We’re not going against the trends in banking of everything moving digital. I think it’s the wave of the future and most consumer transactions now have moved that direction. For us at Legacy, we have never had a headquarters or place to house internal staff. It made sense to get us all under one roof and have a headquarters finally, but I think the trend is we’ve shed a couple branches over the last couple years and are about to in another month. We’re losing another location we’ve sold to another financial institution. We’re trying to move with the times, but there’s a high-touch, high-service feel that you have with corporate services and private banking and commercial lending that has to have a place for people to be housed. But I do think that that’s the way of the future. I see less branches, less brick and mortar, more digital transactions.
Parker: We came into this market a little different with concierge setup. We’re not looking at branches or lobbies or multiple locations. We’re highly mobile. And that’s just the philosophy. We have found that the digital platform is alive and well.
Scott: Bank of Missouri has been around for 130 years in Missouri. We’ve got brick and mortar, all 38 branches. With the purchase of Bank of Bolivar, there was some duplication and so in this region we’re closing or changing at least the scope of three of those branches. There will forever be a place for face-to-face banking. That may gradually lessen. We certainly noted the millennial crowd has changed the face of us. It’s a healthy world; it’s a good mix.
Lynch: This is Commerce Bank’s 156th year, and we still continue to believe in in-person interactions; they’re relevant, they’re a key element. As the generations change and the way they want to bank changes, that means that we have to pivot and change as well, which is why we’ve made significant investments in digital underwriting and delivery in regards to mortgage demand.

Balance sheets
Olson: What are the strongest lines and financials on your bank balance sheets?
Magers: There was a huge increase year over year in net income on first quarter, but I think that was mostly the fact that the first quarter of last year every bank saw Armageddon happening and put essentially all their earnings and loan losses at first quarter. There was a major increase in overall net income for the industry, which I think we experienced and most banks did, but I think it was just from everybody backing down their loan-loss provisions. The things that look the best right now for Legacy is just our asset quality. We’ve made a focus on, since I joined the bank about 10 or 11 years ago, just trying to run a pristine asset quality book because that drives your earnings and your future of an institution. The thing that I think is the toughest on us, and I think it’s probably once again industrywide, is the margin. Our loan rates fell. The bottom fell out from underneath us last year and deposit rates, especially in a hypercompetitive market like Springfield, they just didn’t fall as fast. I think that compression net margin is the biggest thing that we have to work on, and industrywide. How do banks exist with sub 3% territory net interest margin? It highlights the need to move into areas that have noninterest income fee generation. A lot of community banks just don’t have that model so it’s a tough future.
Parker: Brett’s our spokesperson. I’ll just point to him. [Laughs] Asset quality will take away any earnings or anything you have along the way. We were fortunate that we started a bank, we didn’t have to run through all this. Our growth has come from the niche that when other banks were contracting, we were able to go out and get those other customers along the way during a hard time. So, our margins are a little better than the industry average; fee income, we really focus on treasury management. I think the best thing we had going for us is that we just went through a capital raise and we hit our benchmark in six months or less, and that was significant.
Olson: What was that capital benchmark?
Parker: We had set a goal of $100 million, and we achieved it.
Scott: The margin compression is very tough. With the number of banks that are in the Springfield area, there is a lot of aggressive approach when it comes to getting the A or B credits. There’s no doubt about it, and so that’s going to force interest rates down on the income side. And then of course depending on how far you lagged or how much you were able to respond to the deposit rates, that mattered as far as what the compression was going to look like for the year. But what that did do is it forced a lot of people into looking at what is that noninterest income? Where can you go get it? And that’s something that The Bank of Missouri has been able to do very well. We just nicely call it our secret sauce. And it stabilizes a lot of the income that tends to rise and fall with interest rate fluctuations.
Lynch: We’ve been fortunate, our net income was up in the first quarter, compared obviously to quarter one of 2020, but also up over the end of the year. A lot of that’s attributed to our fee-based businesses, such as our trust company, mortgage banking, capital market fees, treasury. Those fee-based businesses are where we’re seeing some of that growth. In addition, we’ve had some nice deposit growth over the year, and I think those are all important things because as they said, the challenge is going to be growing that top-line revenue and the compression on the loan side and the interest rate environment.

Excerpts by Executive Editor Christine Temple, ctemple@sbj.net.

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