The Past Is the Past … or Is It?
On the eve of our 20th Annual CEO Brainstorming Conference, I look back at the past for some clues to the future. It is hard to fathom that this event has been going on for two decades. As I recall, it all started as a small group in a hotel suite in Seattle and it has evolved into an annual event on Pier 70.
To celebrate the past and gain some valuable insights from the last 20 years, we have set up a panel of distinguished banking veterans called “Back to the Future.” Their mission, which they have accepted, is to provide us with meaningful perspectives on how our industry has dramatically changed over that period of time. This will lay the groundwork for a healthy discussion led by our panel of contemporary bankers entitled, “The Bank of the Future.” To that end, did you know that the number of banks in the United States has declined to approximately 6,400 institutions from approximately 12,000 during that period of time? And that the count was approximately 15,000 as recently as 1990? Further, the number of banks in the western U.S. (defined as Hawaii, Alaska, Washington, Oregon, California, Idaho, Montana, Utah, Nevada, Arizona, and Colorado) has similarly declined to approximately 530 in 2015 from 990 in 1995, and 1,391 in 1990.
Looking Back Before We Look Forward
I think it is beneficial to look back to provide some perspective for the future. Not only has our industry dramatically consolidated, but the very way in which we all do business every day has also changed dramatically. Just get on a plane before takeoff and you see almost everyone, from 3-year-olds to 80-year-olds, fiddling with their iPhones, laptops, and myriad other devices. The very delivery of banking services has changed forever. I venture a guess that almost all adults do some form of banking electronically through home computers, remote devices, or ATMs. The Bank of the Future panel will examine where this trend is headed and debate the future and shape of branches. Further, the historically low-interest-rate environment that we have experienced since the recession has exacerbated the gulf between community banks and larger banks on the non-interest-income side.
The large money center banks garner half their income from non-interest sources, a staggering number, while most community banks struggle to make a few shekels of non-interest income. What non-interest income activities can and should community banks explore? Will the regulators allow them to take the perceived risks of these somewhat nontraditional (at least for most community banks) businesses? Do they have the management, capital, and other resources available that are necessary to engage in these types of activities? Clearly, this is an interesting topic to debate.
Why Community Banking?
It is funny that every time I think of this question I am reminded of a quote from 1996 in the Puget Sound Business Journal from my former law partner Mark Lewington, now general counsel of Moneytree, Inc., to the effect that community banking is part of the fabric of this country. In spite of the numerous changes over the past 20 years to our evolving industry, and changes ahead, I still agree with Mark that community banking is firmly entrenched in this country. I would guess that in today’s impersonal world, that premise is even stronger than 20 years ago. The notion of personal service in a contact-starved world is indeed a refreshing thought. So if you accept my premise, then the next step is to figure out how to take advantage of the strengths of a community bank franchise. With new banks almost nonexistent for now, the value of a solid community bank should only be enhanced. The key, it seems to me, is to create a size, structure, delivery system, and platform that can withstand the pressures of today’s banking world, including regulatory costs and expectations. That should be the goal of every community bank: to figure out what it does best, what it wants to be “famous” for, and what niche it is serving.
Putting It All Into Perspective
The last 20 years have been both a challenging and a dynamic period for community banks. Consolidation, the “Great Recession,” regulatory fatigue, and just navigating the choppy waters have all marked the past two decades. But out of these challenges have arisen a number of new “super community banks” that have grown significantly and are positioned for continued success. Consolidation is challenging, but if done right, it presents opportunities for those who want to grow, as well as for those who want to exit. I look forward to the insights of the participants at our 20th Annual CEO Brainstorming Conference where invariably there will be some gems shared. When you think about it, there is just no business like banking that is so fundamental to the success of the individuals, businesses, and communities of which they are an integral part.