Issue link: http://www.insightdigital.biz/i/119013
Banking construction loans, and reducing the focus on retail banking, are over. ���We are more balanced in retail and business banking, with a trend toward the business side,��� Cera says of Baylake���s business model. Meanwhile, retail banking is changing and doesn���t require as many branches as it used to. Associated closed about 20 branches last year and another 12 in January. Most of the closed outlets were within 3 miles of another branch. Associated held onto 90 percent of its customers and managed to place 60 percent of displaced staff internally, Flynn says. ���Consumer behavior is changing with technology,��� says Flynn. Basic foot traffic has declined by 20 percent or more as customers access banking services online, through smart ATMs and mobile banking. Associated is investing in all those channels, he says. On the commercial side, Associated is diversifying its portfolio with investments in oil and gas and power and utilities. ���For me, the important thing about managing risk in a bank is diversification, not allowing one segment to grow disproportionately,��� Flynn says. Specialized for success Banks with a light retail footprint, such as commercial banks that limit personal banking services to their commercial clients, have done well in the new banking environment. As a commercial and industrial bank, Nicolet escaped the worst of the downturn when it hit. While it had $25 million in chargeoffs during four years, earnings always exceeded losses during that same time. Atwell says Nicolet competes against big players like Associated, BMO Harris and Wells Fargo. After Nicolet completes its merger with MidWisconsin Bank, the $1.1 billion bank will have a $17 million lending limit, 34 | Insight ��� A p r i l 2 013 the highest in Brown County, he says. ���At other banks, when you hit $2 million someone in a distant location, someone you will never see, is signing off on that deal,��� he says. ���In our organization, everybody involved lives here.��� In addition to new economic realities, Wisconsin���s community bankers are also dealing with the challenge of finding quality talent to fill key roles. At a Federal Reserve conference for community bankers, Atwell asked how many were encouraging their children to go into banking. Amid some nervous laughter, no one raised a hand, he says. ���Where is the talent going to come from? Here are these $250 million not-very-well-run community banks advantage over smaller banks, because people know they won���t be allowed to go bust. (Bloomberg cited an IMF study that the implicit guarantee gives the top 10 banks a .8 percent pricing advantage, or a hidden subsidy of $83 billion a year.) In a crisis, the advantage goes beyond interest rates to survival. What that implicit guarantee looks like in Wisconsin showed up during the financial crisis. Atwell says his customers were trying to decide if they should draw down their lines of credit with Nicolet and transfer all their money to a TBTF firm like Wells Fargo. ���If people like a community delivery system, they have no problems with their deposits being there. But in a crisis, they may move their funds to Chase because they know the government won���t let ���The banks with a strategy that is durable and adaptable are perhaps 20 to 25 percent of the total in the state. Then there are the tweeners with enough capital strength not to make a decision for several years, and then there are some banks that have no room to move.��� ���Rober t Atwell, chairman and CEO of Nicolet B ank who thought they were doing well up to 2008, but what they thought they were doing right blew up in their face,��� Atwell says. ���Their boards are tired, and if they didn���t have a regulatory near-death experience they had a pretty scary time. People used to get onto community bank boards because they were a nice social club, paid a few hundred for a meeting and they got to see what other businesses were doing. Now the boards are sick of the game and management is aging and tired.��� The Too Big to Fail banks, or those regulators have deemed systemically important (think Chase, Citi, Wells Fargo, US Bank, Goldman Sachs, Bank of America), have an interest rate them fail,��� he says. So Nicolet invited its top 100 to 150 customers to the lobby for a chat and explained where the bank was financially and how management was handling the crisis. ���It kind of worked, but I don���t know if it would have worked if the Feds hadn���t gone all in on the financial safety net,��� Atwell says. ���We were verging on a run on the whole structure of our financial system.��� Community banking attraction Community banks do have an edge in service and customer trust, if they know how to use it well. w w w. i n s i g h t o n b u s i n e s s . c o m