One of the biggest problems in banking today is growth, or shall we say, lack of growth. Consumers and businesses are either unable or unwilling to borrow like they did before the financial crisis. Nationally, mortgage revenue growth has been built on refinancing activity, with only a recent improvement in the level of home purchases. Bank profitability has been bolstered more by a reduction in loan losses and loan loss reserves than by phenomenal growth rates.
In other words, there’s trouble brewing in the kitchen, unless the economy makes substantial gains. Bank boards are looking for answers to these problems and adjusting strategic plans to deal with the low-growth environment.
To address some of these challenges, Bank Director held its inaugural Growth Conference April 30 through May 1 in New Orleans. Coming off of a vibrant weekend of the New Orleans Jazz and Heritage Festival, the event was held inside The Ritz Carlton in the busy French Quarter, with speakers that urged the audience to better understand technological change and the preferences of younger generations, including Brett King, the author of Bank 2.0 and Bank 3.0. “If you want to transform banking for the globe, then the mobile phone is going to be the way to do it,” urged King.
Much of the conversation revolved around technology and the need to adapt to a changing marketplace, as well as the importance of creating a unique niche in a competitive landscape dominated by the biggest banks. John Cantarella, the digital president for the news and sports group at Time Inc., another conference speaker, agreed that mobile technology is going to be the disruptive technology that changes banking. For example, companies such as San Francisco-based Square Inc., which processes credit and debit cards for merchants using their iPhones, iPad or Android phones, are revolutionizing the payments business.
However, many of the bank speakers at the conference had a more nuanced view of technological change. Richard Hill, the chief retail banking officer for the $19-billion asset Hancock Holding Co. in Baton Rouge, Louisiana, said when he got into banking in the 1970s, the prediction was that checks would go away and branch banking would go away. That clearly didn’t happen, or at least not at the accelerated pace that many predicted. The problem for his bank and for many others is that profits are getting squeezed with low interest rates, and the bank needs to make investments that expand revenue. “A great challenge we have is figuring all this out,’’ he said.
Other bank directors or officers at the conference talked about the challenges of trying to grow in a slow economic environment, which often puts pressure on a bank to cut costs, not invest. Plus, competition in some types of loans, such as commercial and industrial lending, has reached absurd levels. However, some of the conversation revolved around opportunities, too. Mortgage banking provided growth opportunities for some attendees, especially when big banks take as much as eight weeks or more to close on a loan. Specialty lending, such as asset-based commercial lending, provides some growth avenues for banks able to attract experienced talent to deal with the complexities of such loans. Some banks are specializing in medical offices or dental practices, for example, both as a way to understand the business and get referrals.
“You must do an authentic self-assessment,” said Jay Sidhu, the chairman and chief executive officer of Customers Bancorp Inc., in Wyomissing, Pennsylvania. He was the keynote speaker at the conference and has one of the best growth stories in banking, recently topping Bank Director magazine’s 2013 Growth Leaders Ranking. “You must think differently and take advantage of technology and your unique market position. You have something that big banks don’t have and you can take advantage of that. If you don’t, you’re going to be eaten.”