FDIC Staffing Shortages Could Impact Banks

Written by

The Federal Deposit Insurance Corp. is facing a wave of retirements that could impact banks or complicate the agency’s ability to manage future crises, according to a recent report from its auditor.

The FDIC’s Office of the Inspector General flagged the agency’s changing workforce among several issues in its February 2023 report looking at top management and performance challenges the agency faces. More than 21% of the FDIC’s workforce was eligible for retirement in 2022, which is higher than the average eligibility rate of 15% at other government agencies. Within five years, the retirement eligibility rate at the agency will increase to 38%, according to the inspector general’s report.

“Without strategic workforce planning, retirements and resignations could result in the FDIC experiencing mission-critical skills and leadership gaps,” wrote the OIG.

Of course, being eligible for retirement doesn’t mean an employee will retire. Still, it’s an area of strategic concern for the agency. Retirement eligibility was higher among senior FDIC leaders and subject matter experts; within subject matter experts, 31% of employees with advanced IT expertise and 21% for employees with intermediate IT expertise were eligible to retire in 2022. This potential exodus of specialized knowledge “escalates at a time when cyber threats at banks and their [third-party service providers] are increasing,” the OIG wrote.

“Forfeiture of institutional knowledge is always a risk, and it’s especially a risk in a place like [the FDIC] because there are niche focus areas,” says John Popeo, a partner at The Gallatin Group and former FDIC legal division employee who was involved in 40 bank failures during the 2007-09 financial crisis. An exodus or retirement wave could create a knowledge gap among remaining agency staff, but Popeo thinks any dearth in knowledge would be temporary.

The FDIC’s workforce tends to grow and shrink throughout economic cycles, says William Isaac, who was chairman of the FDIC from 1981 to 1985 and is the current chairman of the Secura/Isaac Group. There were more than 12,000 banks when Isaac became chair; the FDIC would go on to close more than 1,300 institutions of financial institutions between 1980 and 1994 as part of the savings and loan crisis. The FDIC went on a hiring binge to deal with the increased resolution activity, Isaac says, expanding from about 3,000 when he joined in 1978 to a peak of 21,000 under his tenure. 

In addition to the wave of the retirements, the FDIC is also facing a question of who will replace them. The OIG also flagged in the report a potentially alarming trend that could have implications down the road: resignations among examiners-in-training. The four-year program that trains the next generation of examiners has seen “a substantial number” of resignations, above pre-pandemic levels. This brain drain could have a number of consequences for the agency: “Examiners play key roles in assessing the safety and soundness of banks, and it is costly for the FDIC to hire and train replacement examiners,” the report read. The FDIC invests about $400,000 to train each examiner. The OIG has previously identified a lack of clear goals to manage and track employee retention and made three recommendations to the agency; one recommendation remains unimplemented. 

Having too fewer examiners across too many banks can quickly create safety and soundness concerns. A 2020 paper from researchers at the Federal Reserve Board studied what happened when the ninth district of the Federal Home Loan Bank lost all but two field agents in the early 1980s who became responsible for oversight of almost 500 savings and loan institutions. The researchers found that it took the FHLB at least two years to build back up its supervision expertise, and that unsupervised S&Ls increased their risk-taking behaviors compared to institutions that received regular exams. Supervision gaps during this time led to about 24 additional failures, which cost the insurance fund about $5.4 billion — over $10 billion in 2018 dollars.

Inexperienced examiners may also provide less effective oversight and may need to work alongside regulators with more tenure. The U.S. Department of the Treasury’s OIG flagged examiner inexperience in a 2018 material loss review concerning the 2017 failure of Chicago-based Washington Federal Bank for Savings. The bank was closed after the OCC was informed of, and subsequently confirmed, pervasive fraudulent activity. The OIG found supervision weaknesses in the OCC’s examination teams, including relying on inexperienced examiners and those in training to conduct exams on an institution that was deemed to be low risk.

Of course, the FDIC isn’t alone in its workforce management challenges, and it’s by no means an emergent issue. And in this regard, the FDIC shares a problem with banks, which also struggle to attract and retain talent. 

Seventy-eight percent of respondents to Bank Director’s 2022 Compensation Survey said it was harder in 2021 to attract and/or retain talent than in previous years. About three quarters of bankers and directors said they couldn’t find a sufficient number of qualified candidates, 68% cited rising wages in their markets and 43% were feeling the pressure from rising pay for key positions. 

Todd Phillips, principal at Phillips Policy Consulting and former senior attorney at the FDIC, points out that federal law requires that all banks be examined on-site every 18 months. “If there aren’t enough examiners because they have retired, the government has a difficult time meeting that requirement [and] … it’s going to be a whole lot more stressful on the bankers themselves,” he says. “As older hands retire, you’re going to have newer, less experienced examiners coming in, and they may be a lot slower.”

Isaac believes technology will be part of how the agency fulfills its safety and soundness oversight mandate, especially if workforce challenges persist. 

“I’m a firm believer that we cannot have a modern economy without a properly supervised and regulated banking system,” he says. “There’s going to have to be an examination force that’s highly effective, coupled with modern technology, to stay on top of banks. [They’ll] figure out how to do that — I don’t have any doubt of that.”

The War for Talent in Banking Is Here to Stay

Written by

It seems that everywhere in the banking world these days, people want to talk about the war for talent. It’s been the subject of many recent presentations at industry conferences and a regular topic of conversation at nearly every roundtable discussion. It’s called many things — the Great Resignation, the Great Reshuffling, quiet quitters or the Great Realignment — but it all comes down to talent management.

There are a number of reasons why this challenge has landed squarely on the shoulders of banks and organizations across the country. In the U.S., the workforce is now primarily comprised of members of Generation X and millennials, cohorts that are smaller than the baby boomers that preceded them. And while the rising Gen Z workforce will eventually be larger, its members have only recently begun graduating from college and entering the workforce.

Even outside of the pandemic disruptions the economy and banking industry has weathered, it is easy to forget that the unemployment rate in this country was 3.5% in December 2019, shortly before the pandemic shutdowns. This was an unprecedented modern era low, which the economy has once again returned to in recent months. Helping to keep this rate in check is a labor force participation rate that remains below historical norms. Add it all up and the demographic trends do not favor employers for the foreseeable future.

It is also well known that most banks have phased out training programs, which now mostly exist in very large banks or stealthily in select community institutions. One of the factors that may motivate a smaller community bank to sell is their inability to locate, attract or competitively compensate the talented bankers needed to ensure continued survival. With these industry headwinds, how should a bank’s board and CEO respond? Some thoughts:

  • Banks must adapt and offer more competitive compensation, whether this is the base hourly rate needed to compete in competition with Amazon.com and Walmart for entry-level workers, or six-figure salaries for commercial lenders. Bank management teams need to come to terms with the competitive pressures that make it more expensive to attract and retain employees, particularly those in revenue-generating roles. Saving a few thousand dollars by hiring a B-player who does not drive an annuity revenue stream is not a long-term strategy for growing earning assets.
  • There has been plentiful discourse supporting the concept that younger workers need to experience engagement and “feel the love” from their institution. They see a clear career path to stick with the bank. Yet most community institutions lack a strategic human resource leader or talent development team that can focus on building a plan for high potential and high-demand employees. Bank can elevate their HR team or partner with an outside resource to manage this need; failing to demonstrate a true commitment to the assertion that “our people are our most important asset” may, over time, erode the retention of your most important people.
  • Many community banks lack robust incentive compensation programs or long-term retention plans. Tying key players’ performance and retention to long-term financial incentives increases the odds that they will feel valued and remain — or at least make it cost-prohibitive for a rival bank to steal your talent.
  • Lastly, every banker says “our culture is unique.” While this may be true, many community banks can do a better job of communicating that story. Use the home page of your website to amplify successful employee growth stories, rather than just your mortgage or CD rates. Focus on what resonates with next generation workers: Your bank is a technology business that gives back to its communities and cares deeply about its customers. Survey employees to see what benefits matter most to them: perhaps a student loan repayment program or pet insurance will resonate more with some workers than your 401(k) match will.

The underlying economic and demographic trend lines that banks are experiencing are unlikely to shift significantly in the near term, barring another catastrophic event. Given the human capital climate, executives and boards should take a hard look at the bank’s employment brand, talent development initiatives and compensation structures. A strategic reevaluation and fresh look at how you are approaching the talent wars will likely be an investment that pays off in the future.

What Drives Success in Banking?

Written by

As a founder and managing principal at Castle Creek Capital, a private equity firm that invests in community banks, John Eggemeyer has a unique perch from which to observe what’s going on in banking.

The San Diego-based firm has approximately $900 million under management, and usually has between 20 to 25 banks in its investment portfolio at any given time, according to Eggemeyer.

“We have the opportunity to look at a lot of different ideas,” he says. “I don’t consider myself to be an originator of any particularly interesting ideas, but I am an observer of a lot of interesting ideas that other people have worked with and made success of — or not made success of.”

Eggemeyer may be selling himself a little short. Prior to starting Castle Creek in 1990, he spent nearly two decades as a senior executive for several large U.S. banks. He also sits on the boards of many of those portfolio companies, and that combined experience gives him a very strong sense of what drives success in banking.

Eggemeyer will moderate a panel discussion at Bank Director’s upcoming Acquire or Be Acquired Conference focusing on subtle trends that bankers need to be talking about. The conference runs Jan. 30-Feb. 1, 2022, at the JW Marriott Desert Ridge Resort and Spa in Phoenix.

In today’s banking market, Eggemeyer believes that success begins with the customer. Period. End of sentence.

“It’s critical that you understand who your customer is and what your customer wants,” he says. “I think we’ve learned from the fintech community that they have segmented the customer [base] and identified very clearly the customer that they’re going after. And they have built their service model around the needs and wants of their customer group. And I think that has been harder for banks to actually do from an intellectual standpoint.”

Increasingly, success in banking is also a matter of scale. Not necessarily scale in the size of the organization, but scale in product lines or customers. “The businesses that have the greatest value, and the customer segments that offer the greatest value, are those that are the most scalable,” Eggemeyer says. “And again, I think in the fintech world, they have figured out how to apply technology to the needs and wants of the segment that they’ve gone after, and that has allowed their businesses greater scalability. … Businesses that are the most scalable offer the greatest opportunities for generating incremental returns.”

A cynic might argue that applying technology to scalable customer segments is fintech’s game, not banking’s. But Eggemeyer disagrees. “I’m not sure that fintechs are better positioned to apply technology to financial services than our banks,” he says. “So much of the technology that one would apply either operationally or in serving the customer is available off the shelf. You just have to be committed to making that transition.”

A third driver of success is talent; Eggemeyer says there is “an acute shortage of highly skilled trained executives” in the banking industry today. Talent and institutional knowledge has left as the bank space as the industry has gone through a number of difficult economic periods, he says, and banks managed their expense base in part by shortchanging the training and development of younger employees.

“I’ve watched this over a lot of cycles having spent over 50 years in the business. The great era of training in the bank industry was pre-1986,” he says. “And [since] that period of time, we have successfully downsized our investment in the development of people. And I think now we’re facing that challenge.”

In 1968, Eggemeyer was hired by the First National Bank of Chicago while still pursuing his undergraduate degree at Northwestern University. The bank had a program that hired up to 10 undergraduates a year for an extensive training program, then put them through an MBA program — in Eggemeyer’s case, at the University of Chicago. He spent 10 years working for the bank and was never in the same position for more than two years. That experience provided him with a very broad introduction to the industry.

The U.S. economy has changed greatly since the late 1960s. Graduates from top MBA programs today have many more options to choose from if they’re interested in a career in finance, including investment banking and private equity.

“It’s much harder for banks to compete for that level of talent,” Eggemeyer says. “And I don’t think there’s anything that you can do about that, other than look harder for the talented people who are not necessarily aspiring to [work in] private equity. And they may come from less traditional backgrounds, unlike the program that I went through at the First National Bank of Chicago. I just don’t see that happening very much in banking today.”

Five Assessments that Every Acquirer Should Make

Written by

Acquiring another bank will be one of the most important decisions that a board of directors ever makes. A well-played acquisition can be a transformational event for a bank, strengthening its market presence or expanding it into new markets, and enhancing its profitability.

But an acquisition is not without risk, and a poorly conceived or poorly executed transaction could also result in a significant setback for your bank. Failing to deliver on promises that have been made to the bank’s shareholders and other stakeholders could preclude you from making additional acquisitions in the future. Banking is a consolidating industry, and acquisitive banks earn the opportunity to participate one deal at a time.

When a board is considering a potential acquisition, there are five critical assessments of the target institution that it should make.

Talent
When you are acquiring a bank, you’re getting more than just a balance sheet and branches; you’re also acquiring talent, and it is critical that you assess the quality of that asset. If your bank has a more expansive product set than the target, or has a more aggressive sales culture, how willing and able will the target’s people be to adapt to these changes in strategy and operations? Who are the really talented people in the target’s organization you want to keep? It’s important to identify these individuals in advance and have a plan for retaining them after the deal closes. Does the target have executives at certain positions who are stronger than members of your team? Let’s say your bank’s chief financial officer is nearing retirement age and you haven’t identified a clear successor. Could the target bank’s CFO eventually take his or her place?

Technology
Making a thorough technology assessment is crucial, and it begins with the target’s core processing arrangement. If the target uses a different third-party processor, how much would it cost to get out of that contract, and how would that affect the purchase price from your perspective? Can the target’s systems easily accommodate your products if some of them are more advanced, or will significant investments have to be made to offer their customers your products?

Culture
It can be difficult to assess another bank’s culture because you’re often dealing with things that are less tangible, like attitudes and values. But cultural incompatibility between two merger partners can prevent a deal from reaching its full potential. Cultural differences can be expressed in many different ways. For example, how do the target’s compensation philosophy and practices align with yours? Does one organization place more emphasis on incentive compensation that the other? Board culture is also important if you’re planning on inviting members of the target’s board to join yours as part of the deal. How do the target’s directors see the roles of management and the board compared to yours? Unless the transaction has been structured as a merger of equals, the acquirer often assumes that its culture will have primacy going forward, but there might be aspects of the target’s culture that are superior, and the acquirer would do well to consider how to inculcate those values or practices in the new organization.

Return on Investment
A bank board may have various motivations for doing an acquisition, but usually there is only one thing most investors care about – how long before the acquisition is accretive to earnings per share? Generally, most investors expect an acquisition to begin making a positive contribution to earnings within one or two years. There are a number of factors that help determine this, beginning with the purchase price. If the acquirer is paying a significant premium, it may take longer for the transaction to become accretive. Other factors that will influence this include duplicative overhead (two CFOs, two corporate secretaries) and overlapping operations (two data centers, branches on opposite corners of the same intersection) that can be eliminated to save costs, as well as revenue enhancements (selling a new product into the target’s customer base) that can help drive earnings.

Capabilities of Your M&A Team
A well-conceived acquisition can still stumble if the integration is handled poorly. If this is your bank’s first acquisition, take the time to identify which executives in your organization will be in charge of combining the two banks into a single, smoothly functioning organization, and honestly assess whether they are equal to the task. Many successful banks find they don’t possess the necessary internal talent and need to engage third parties to ensure a successful integration. In any case, the acquiring bank’s CEO should not be in charge of the integration project. While the CEO may feel it’s imperative that they take control of the process to ensure its success, the greater danger is that it distracts them from running the wider organization to its detriment.

Any acquisition comes with a certain amount of risk. However, proactive consideration toward talent, technology, culture, ROI and a thoughtful selection of the integration team will help enable the board to evaluate the opportunity and positions the acquiring institution for a smooth and successful transition.

Embracing Gender Diversity as a Pathway to Success

Written by

A prolonged flat yield curve, economic contraction, increasing compliance and technology costs, not to mention the pandemic-induced pressure on stock valuations, have left banks in a difficult operating environment with limited opportunities for profitability.

Yet, there is an untapped opportunity for banks to capitalize on a strong and growing talent pool and profitable customer base: women. Research repeatedly shows that increasing gender diversity on bank boards and in C-suites drives better performance. Forward-thinking banks should look to women in their communities for growth inside and outside the institution.

Women now receive nearly 60% of all degrees, make up 50% of the workforce and, prior to the pandemic, held more jobs in the U.S. than men. They are the primary breadwinner in over 40% of U.S. households and comprise more than 50% of stock owners. A McKinsey & Co. report found that U.S. women currently control $10.9 trillion in assets; by 2030, that could grow to as much as $30 trillion in assets. Women also started 1,821 net new businesses a day in 2017 and 2018, employing 9.2 million in 2018 and recording $1.8 trillion in revenues. Startups founded by women pulled in $18.6 billion in investments across 2,304 deals in 2019 — still, lack of capital is the greatest challenge reported by female small business owners.

Broadly, research also supports a positive correlation between a critical mass of gender diversity in leadership and performance.

A study of tech and financial services stocks found a 20% increase in stock price momentum within 24 months of appointing a female CEO, a 6% increase in profitability and 8% larger stock returns with a female CFO. And they may achieve better execution on deals. In a review of 16,763 publicly announced M&A transactions globally over the last 20 years, boards that were more than 30% female performed better in terms of stock price and operational metrics than all-male boards.


Note: Performance metrics are market-adjusted
Source: M&A Research Centre at Cass Business School, University of London and SS&C Intralinks: “Gender Diversity and M&A Outcomes; How Female Board-Level Representation Affects Corporate Dealmaking” (February 2020)

But as of 2018, women held just 40 CEO positions at U.S. public banks, or 4.31%. Nearly 20% of banks have no women board members; the median is just over 16%. Banks should start by gender diversifying their boards; gender-diverse boards lead to gender-diverse C-suites.

Usually, boards feature an “accidental” composition that results from social norms: board members source new directors from their social and immediate networks. An intentional board, by comparison, is deliberate in composing a governance structure that is best equipped to evaluate and address current demands and future challenges. Boards can address this in three ways.

  1. Expand your networks. The median male board member has social connections to 62% of other men on their boards but no social connections to women on their boards. Broaden the traditional recruitment channels to ensure a more qualified, diverse slate.
  2. Seek diverse skill sets. Qualified female candidates may emerge through indirect career paths, other sectors of the financial industry or are in finance but outside of financial services. Women with nonprofit experience and small business owners can bring local market knowledge and relevant experience to bank boards.
  3. Insist on gender diverse slates. A diverse slate of candidates negates tokenism, while a diverse interviewer slate demonstrates to candidates that your bank is diverse.

But diversity in recruiting and hiring alone won’t improve a bank’s performance. To be effective, a diverse board must intentionally engage all members. Boards can address this in three ways.

  1. Ensure buy-in. Support from key board members when it comes to diversifying your board is critical to success. Provide coaching for inclusive leadership.
  2. Review director on-boarding and ongoing engagement. Make sure it’s welcoming to people with different connections or social backgrounds, builds trust and facilitates open communication.
  3. Thoughtful composition of board committees. Integrate new directors into the board’s culture and make corporate governance more inclusive and effective.

The long-term performance benefits of a gender diverse board and c-suite are compelling, especially in the current challenging operating environment for banks. Over time, an intentional board and C-suite that mirrors the gender diversity of your bank’s key constituents — your customer base, your employee base and your shareholder base — will out-perform banks that do not adapt.

How Banks in Texas Built a Recruiting Pipeline

Written by

Banking is an accidental profession.

Some bankers start as tellers trying to pay for college. Others are accountants and lawyers hired by bank clients. Still others are entrepreneurs who get frustrated with banks and start their own.

This is one reason banks face such a challenge in recruiting high-quality candidates.

Well, God helps those who help themselves. That’s Scott Dueser’s philosophy.

Dueser is the chairman and CEO of First Financial Bankshares, a $10.3 billion bank based in Abilene, Texas. It trades for the highest valuation on the KBW Regional Banking Index. Over the past two decades, it’s produced a total shareholder return of more than 2,000%.

Five years ago, Dueser started lobbying his alma mater, Texas Tech University, to launch an Excellence in Banking program that would offer classes in banking to undergraduate and graduate students studying finance.

For years, First Financial hired students from Sam Houston State University’s banking and financial institutions program in Huntsville. It did the same with Texas A&M University’s commercial banking program in College Station.

Why not construct a similar recruiting pipeline, Dueser thought, in First Financial’s West Texas stomping grounds? Other banks agreed. Much of the program’s endowment came from upwards of three dozen banks.

The inaugural group of students started earlier this year, three of whom interned at Dueser’s bank over the summer.

The program’s director is Mike Mauldin, who spent 17 years leading First Financial’s Hereford region.

“Mike is the perfect guy for the job,” Dueser says. “He’s not an academic; he’s a banker. A really good one. He’s also great with kids.”

Mauldin has structured the program around four pillars.

The first is a bank management class, covering the gamut of issues that lower and mid-level managers face in banks. The second is a marketing course, delving not only into traditional marketing strategies, but also into etiquette, teaching students how to navigate a professional environment.

The third pillar is a credit and lending course. This is where the rubber meets the road insofar as banking is concerned. According to the syllabus, students learn how to work with customers, read financial statements and assess credit risk.

Finally, students must intern at a bank. They’re required to write weekly papers as a part of it, Mauldin says, making them reflect on what they’ve learned.

“I don’t think of it as an internship,” Mauldin says. “I think of it as a long job interview. What we want at the end of the process is for the students to get jobs.”

Now, as a publication read by practitioners, we can be honest: No one learns much in college. At least I didn’t. But you do learn how to learn —a critical skill in an industry as dynamic as banking.

The program also acclimates students to banking. It’s a profession that everybody knows about, but few people understand.

Banking is to business what ballet is to dance, requiring a combination of both strength and grace. It’s an art and a science to balance the fragility associated with leverage and the stabilizing influence of capital and prudent credit policies.

“When assets are twenty times equity — a common ratio in this industry — mistakes that involve only a small portion of assets can destroy a major portion of equity,” Warren Buffett wrote in his 1990 shareholder letter. “And mistakes have been the rule rather than the exception at many major banks.”

Programs like the one at Texas Tech are designed to combat this.

A second rationale for the program, Dueser explains, is the need to diversify the industry’s workforce, which has proved to be a perennial issue in banking.

And so far, the program has lived up to expectations. Half the inaugural class consists of minority and women candidates.

Done right, banking is a lucrative and fulfilling profession. No community can thrive without a bank. The more students that appreciate this, the easier it’ll be to recruit them.

A Banker’s Story: What are Your Values?

Written by


BEBC13-Postcard-article2.pngThere is hardly a more transformative story than the one that occurred at Huntington Bank during the past several years. In 2009, Stephen Steinour was brought in to right the struggling, Columbus, Ohio-based bank in the wake of the financial crisis. The bank lost $3.1 billion that year and had bad credit issues. It raised capital and went through extensive layoffs.

“It was a tough year for us,’’ Steinour said at Bank Director’s recent Bank Executive and Board Compensation conference. “We had to shift gears.”

One of the things the $56-bilion asset Huntington Bancshares did was rebrand Huntington Bank, capitalizing on the bad name banks got during the financial crisis. While other banks were criticized for making substantial sums in overdraft fees, Huntington rolled out a 24-hour grace period on overdraft. If a customer overdraws an account, that customer gets a notification and 24 hours to put the money in the account with no fees. It was an extremely difficult year in which to introduce the plan. The bank was losing money, and the new program cost $36 million that first year.

“It was a huge step by our board and boy are we glad we did it,” Steinour said.

On the tail of the program’s success in bringing in new business and cementing loyalty, Huntington introduced asterisk free checking on the recommendation of employees. The checking account has no minimum balance requirements or terms.

“Our colleagues loved it because they asked for it,’’ Steinour said. “It put them in an empowered position with our customers.”

Huntington Bank began marketing itself as a “fair play” bank that would “do the right thing.” A training and recruitment video for the bank portrays the bank as a contrast to Wall Street, featuring a guy smoking a roll of dollar bills as if it were a cigar.

“We want to give customers an advantage rather than taking advantage of them,’’ the video says.

The transformation of the bank seems to have worked. Branding was by no means the only way the bank has improved profitability, but it helped.

In Bank Director’s 2013 Bank Performance Scorecard, Huntington was the top performing bank above $50 billion in assets, beating out giants such as Wells Fargo & Co. and Capital One Financial Corp., on measurements such as profitability, asset quality and capital levels. Huntington’s core return on average equity was 11.95 percent in 2012 and its core return on average assets was 1.22 percent, compared to a median of 9.70 and .98, respectively, for banks above $50 billion in assets.

Nowadays, Steinour is also focused on recruiting employees, with a particular emphasis on attracting the millennial generation into banking. It’s a challenge heightened by a public perception of the industry as one that takes advantage of people and has benefited from government “bailouts.”

Steinour says young people expect advances in technology and they are outspoken about their career objectives. Getting them to stay more than a few years is a challenge, as they generally don’t plan to work for the same employer for their entire careers.

“You have to respond to that,’’ he said. “That’s the workforce we’re getting.”

In order to address the concerns of its millennial employees, Huntington has laid out explicit career pathways and expanded its internship program. In response to questions from prospective employees about diversity, the bank has started groups for particular ethnicities and persuasions, including a lesbian, gay and transgender group.

“The things I assumed from my era of banking are no longer valid,’’ Steinour said.

Some good business practices, however, are timeless.

“We are in a people business,’’ Steinour said. “It is critical to us to engender engagement and continue to build upon colleague satisfaction. Their enthusiasm every day translates into great customer service.”

Quizzing Bank Compensation Leaders

Written by


11-18-13-ARS.pngPaying executives in a way that keeps shareholders happy and retains top executive talent remains challenging, and 44 percent of attendees of Bank Director’s Bank Executive and Board Compensation Conference in Chicago cited tying compensation to performance as the top compensation challenge they face heading into 2014.

Bank Director and consulting firm Compensation Advisors by Meyer-Chatfield polled more than 175 members of the audience at the conference, which occurred Nov. 4-5.

Bill MacDonald, chairman of the advisory board at Meyer-Chatfield, said he’s not surprised by the challenges faced by compensation committee members and human resources executives attending the conference. Many banks tie compensation to performance indicators like return on assets or return on equity, which for many banks have not been great in a flat economy. MacDonald recommended that boards should not rely solely on these metrics. They should also compare pay to peer groups and base incentives on strategic goals, “coming up with measurements of improvement that the executive and directors can control,” he said. Strategic goals might include revenue growth, opening new branches or improving loan quality.

Forty-one percent of attendees said that the development of competitive compensation packages is their board’s biggest challenge when it comes to attracting and retaining talent for the bank. When asked about specific challenges in offering competitive compensation packages, 30 percent of attendees said that their bank simply cannot afford to pay as much as other financial institutions. “I don’t think affordability should be an objection to not putting in a performance-based plan, because if the performance is there, the economics are there [and] the shareholders will be rewarded,” said MacDonald.

What do you see as the most challenging aspect in attracting and retaining talent for your bank?

Comp-14-ARS-pie1.png

James Dent, an attendee of the event and chairman of the compensation committee at Old Line Bancshares Inc., a $1.2 billion-asset holding company headquartered in Bowie, Maryland, said it’s important to stay competitive with the market in order to attract and retain talented staff. “If you want good talent, you’re going to have to pay for it,” he said. “It’s just a question of whether you want to step up to the plate and do the number that’s required.”

Thirty-nine percent of attendees said there is a lack of talented candidates, while 15 percent cited a talent vacuum caused by the retirement of experienced executives. MacDonald said that many executives have been unable to retire due to the economic downturn and its impact on retirement plans. “The stock didn’t perform, they can’t leave, and we’ve got a great group of middle management stuck behind this group of Baby Boomers,” he said. “So the challenge really is, how do you continue to retain and grow this middle management talent?”

Forty-two percent of attendees expressed satisfaction with their bank’s succession plan, while 36 percent were unhappy with the bank’s succession plan and 15 percent said that their banks don’t have a plan in place. Dent said that his bank is more comfortable with succession planning than they were two years ago, with a plan in place not just for the chief executive officer, but also for executives like the bank’s chief financial officer, senior lender and credit officer. “We have the talent in place to move forward if something were to happen,” he said.

Are you satisfied with your bank’s succession plan?

Comp-14-ARS-pie2.png

Bob Greer, chairman of Business First Bank, based in Baton Rouge, Louisiana, with $684 million in assets, said that his bank doesn’t have a formal succession plan in place. Business First’s president and CEO, Jude Melville, is under 40, but if Melville left the bank, “We have very good bankers right under him,” he said. “I don’t think our bank would miss a beat, so I’m not that concerned.”

When asked about board pay, 40 percent of attendees expected to see director compensation increase in 2014, while 58 percent expected pay to remain the same. So are directors fairly compensated? Fifty-three percent of attendees said yes, while 43 percent said no.

After spending two years gradually raising the board’s pay to better meet peer averages, Dent believed that Old Line’s board is fairly paid. “We have brought on some new talent,” he said. “They’re very busy people and we feel we should be paid for the time and the responsibility,” he said.

Do you believe you are fairly compensated for the amount of time you devote to your role as a director?

Comp-14-ARS-pie3.png

MacDonald said board compensation differs based on the maturity and structure of the board, as well as what phase of growth the bank is in. Community bank board members, already large shareholders at their banks, are focused on protecting their investment and less likely to crave a cash reward. A larger bank may favor a blend of cash compensation and restricted stock.

Greer said that Business First just started to compensate the board, in cash, in 2012. Right now he expects board pay to remain steady in 2014, and said that board pay will likely never be enough to compensate for the time, liability and responsibility of being a director. “It’s taking so much more time,” he said. “Most people own stock in their particular bank and want their bank to do well, so [they] don’t mind giving the time. I think the only problem is… I don’t see it slowing down any.”

Getting the Best People to Work For Your Bank

Written by



Filmed during Bank Director’s 2013 Bank Executive and Board Compensation conference in Chicago in early November. A panel of CEOs at top performing banks discuss how their companies develop executives, attract leadership and approach compensation in today’s highly competitive and economically challenging world.

Video Length: 55 minutes

About the Speakers:

Leon J. Holschbach, President & CEO, Midland States Bancorp, Inc.
Leon Holschbach is the president & CEO of Midland States Bancorp, Inc. Prior to joining Midland, Mr. Holschbach held the positions of region market president, community bank group at AMCORE Bank, N.A., president and chief executive officer of AMCORE Bank North Central N.A. and president of Citizen’s State Bank in Clinton, Wisconsin.

Ron Samuels, Chairman & CEO, Avenue Bank
Ron Samuels is the chairman & CEO at Avenue Bank. He is an experienced leader, executive and marketer and has been a banker in Nashville, TN for 40 years. Mr. Samuels was a founder in 2007 of Avenue Bank, which today has assets of more than $725 million. Mr. Samuels is recognized as one of Nashville’s most visible and engaged community leaders, having concluded his term as chairman of the Nashville Chamber of Commerce in July 2010, along with service on many other boards and committees in the arenas of economic development, professional sports, education and more.

Frank Sorrentino III, Chairman & CEO, ConnectOne Bank
Frank Sorrentino is the chairman & CEO of ConnectOne Bank. He is responsible for its business development plan, serves as the community liaison, sits on the loan committee and serves as the bank’s spokesperson. Mr. Sorrentino has been instrumental in developing the bank’s branch and expansion strategy and oversees all marketing activities.

What Skills and Expertise Will Banks Need in the Next Five Years?

Written by


As new regulations and slim profit margins challenge the banking industry, the skills and backgrounds of the employees who work in banking must change as well. Bank Director asked legal experts to address the question of how the talent needs of the industry will shift in the next five years.

How will the banking industry’s personnel needs—including executives within the C-suite—change over the next five years?

Stanford_Cliff.pngWhile banks will continue to rely on service providers for efficiencies, expect a premium to be placed on those middle managers who can negotiate and manage third-party relationships. Encouraged by the regulators, banks have become increasingly attuned to the risk management burdens of outsourcing, particularly with regard to consumer-facing services and information technology. In the bank C-suite, expect to see continued strong demand for those with risk management, compliance, technology, information security and credit risk backgrounds.

—Cliff Stanford, counsel, Alston & Bird LLP

fisher_keith.pngIn recent years, we have already seen the need for dedicated Bank Secrecy Act/Anti-Money Laundering compliance officers and Community Reinvestment Act officers. In the information technology area, there will be a need for a chief information officer and possibly a separate chief information security officer. Both the C-Suite and the boardroom will also have a need for individuals with extensive, detailed regulatory and compliance experience to assist with policymaking and strategic planning, especially to keep the compliance burden cost effective.

—Keith Fisher, Ballard Spahr LLP

Sharara_Norma.pngMore bank consolidation is expected in the next five years, so executives in the C-suite need to be prepared to be leaders of change. Along with the board, they need to create and implement a vision that reflects the bank’s brand and corporate culture. Recently, some banks have created a position of chief culture officer that reports directly to the CEO. That position involves much more than simply training the new people on how your systems work. Rather, the focus is on moving the bank forward as one family with one voice and one mission, and overcoming the natural tendency for an “us versus them” culture that often follows an acquisition.  

—Norma Sharara, Luse Gorman Pomerenk & Schick, P.C.

Lamson_Don.pngThe risk management expertise needed by a bank is increasingly dictated by regulatory standards. In addition, regulatory reform and legislative developments will continue to be important on both sides of the Atlantic. Thus, it will be important for banks to maintain personnel, including C-suite personnel, who can maintain relationships with regulators and other relevant policymakers, and effectively communicate with the public about the positive role of banks in the economy. Implementation of new rules and enforcement actions will continue, and therefore compliance and legal staff will continue to play key roles as new policies and systems are designed and banks respond to regulatory inquiries.

—Don Lamson, Shearman & Sterling LLP

Peter-Weinstock.jpgRisk management and technology will continue to require executive oversight. Institutions that do not have C-level talent addressing such areas will be expected to add them as they grow. The bigger question is what level of committee and task force infrastructure will be needed to respond to the increasingly interdisciplinary nature of banking? We are getting to the point that bankers are unable to schedule time with customers among the jumble of committee and task force meetings. Unfortunately, I do not see a quick change to such meeting proliferation.

—Peter Weinstock, Hunton & Williams LLP