BHCA siminar looks at today's industry challenges

Northwestern Financial Review, Nov 1, 2001 by Bengtson, Tom

Community banking has a bright future but bank managers need to be mindful of shareholder interests, according to a trio of industry experts who addressed the fall seminar of the Bank Holding Company Association in Bloomington, Oct. 2. Rory Rowland, a banker-turned-- consultant from Independence, Mo., Jeffrey Gerrish, an attorney from Memphis, Tenn., and Bob Klockars, the former president of the Graduate School of Banking in Madison, Wis., teamed to encourage the 250 bankers who gathered for the 41st semi-annual seminar at the DoubleTree Hotel.

"Consumers will want a variety of ways to interact with their bank," Rowland said as he described the convergence of electronic technologies that are bringing wireless communications and Internet banking together. "Right now only a small number of homes are using Internet banking but as the number of homes wired for high-speed Internet access grows, interest in Internet banking will grow."

Noting that it took more than a decade for automatic teller machines to become popular, Rowland said technology is rapidly evolving and that the "windows of opportunity for adopting new technology are compressing." Describing the evolution of the gas station from full-service to selfservice with pay-at-the-pump, Rowland warned bankers that technology has the potential to put intermediaries out of business.

Rowland encouraged bankers to leverage their ability to work directly with customers. "Community bankers can make decisions quickly and can be flexible," he noted. "These are the factors that will separate you from the e-lenders."

He encouraged bankers who know their customers to "be ready before they are." He described a California bank that grew dramatically by pre-approving 60 percent of its customer base for loans. When customers were told they were preapproved, they "felt important" and many responded by taking out loans.

Rowland told bankers to act quickly because the competition is moving so quickly. He said a telephone survey of 36 customers is as accurate as a detailed survey of 400 or more people.

Gerrish noted the aging of our population. "Twenty percent of our population is older than 65 years old," he said. "There are 79 million people older than 65 today versus 34 million such people in 1995."

While the aging population has significant implications for customer trends, it also is affecting the shareholder population. "Shareholders are growing increasingly yield-oriented and less growth-oriented," he said.

Summarizing what he believes shareholders want, Gerrish outlined:

* Earnings per share growth of 8 percent to 10 percent per year;

* Return on equity of 15 percent or better:

* Liquid market for their stock;

* A liberal dividend policy.

Gerrish warned that it is becoming increasingly difficult to meet these shareholder demands, particularly in light of intensifying competition. Adding to the challenge is the difficulty most employers are having attracting and retaining good employees, Gerrish said.

Many bankers will decide to sell, which Gerrish said will result in a decrease in the number of institutions nationwide to 6,500 from the current 8,216. "There will be a bar-bell affect, with a few very large institutions and many small institutions," Gerrish said. "Most of the surviving banks will be sub S," he said, anticipating rule changes that will allow more banks to qualify for subchapter S incorporation.

Gerrish said the Gramm-Leach-- Bliley Act opens many opportunities to the community banking industry but he encouraged bankers to consider only those new lines of business that are closely related to banking. "Insurance, securities and real estate are the new lines of business that make the most sense for most community banks," he said. In addition, he encouraged bankers to develop new forms of revenue that are not interest rate sensitive.

Klockars identified characteristics that distinguish various groups of employees. He noted that increasingly, groups such as the Silent Generation (born 1925 to 1944), Baby Boomers (1945 to 1964) and Gen Xers (19651984) are having trouble working together. He said that bringing these groups of workers together is one of today's key management challenges.

He advised managers to make an effort to understand employees, lay out clear expectations, and include as many people as possible in decision-making processes.

Governor's Comments

North Dakota Gov. John Hoeven, a former president of the Bank of North Dakota, addressed bankers at the seminar luncheon. He encouraged bankers to remain optimistic, even after the terrorist attacks of Sept. 11.

"The strength of our country is that we are the strongest economic engine ever in the history of the world," he said.

Some bankers, he said, have told him they plan to be more conservative in their lending decisions. "We must not be knee-jerk in our reaction. Lending is critically important," Hoeven said. "You supply to fuel that runs this country."

By Tom Bengtson