The CEO of Leawood-based CrossFirst Bank breaks down trends in the business banking industry and the challenges and opportunities that community banks face in an environment of increased consolidation.
Q: Can you tell us a bit about current or emerging trends in business banking that are on your radar screen for new growth opportunities?
A: There is a lot going on in the banking industry. The low rates are putting a lot of pressure on margins. A lot of banks are trying to figure out how they are going to make money in the lending business going forward with this rate environment.
Q: How does all of the recent consolidation we have seen in banking impact other businesses?
A: You’re going to continue to see consolidation in the industry. More and more, with this low-rate environment, and the evolution of technology, you’re starting to see profitability improve with some of the large institutions. And with the regulatory burden that’s being placed on banks, and the cost of keeping up with the bigger banks, it’s making it harder and harder for the smaller banks to compete. You’re going to see a natural consolidation in the industry. It’s been going on, and it’s going to continue. But there is still a place for the local community bank, and that bank that’s going to loan money to the smaller and local business that knows its customer, can be flexible and adaptable and help those companies grow. It’s really important for our economy that we continue to have community banks that know the communities, are local, and continue to invest in the community.
Q: Chase just entered the market, and other big players could follow by expanding here. Is that a concern for community banks? Or is it an opportunity because people like having the personability community banks have to offer?
A: It’s a little bit of both. When there is more competition coming into the market, it could affect pricing. But our customer wants a banker, and I don’t know that Chase is going after that same customer. We’re very focused on a customer that wants a local relationship and is able to talk to a banker. That’s why we’ve chosen to really focus on businesses and professionals.
Q: But are there any adaptations you make to compete with the bigger banks, such as the adaptation of new technologies?
A: Technology is the biggest piece. We are constantly investing in technology. We want to make sure we have best-in-class technology to be able to compete with the bigger banks. We started this bank in 2007 with a model that we weren’t going to have a branch on every corner. But to be able to compete, we need to have best-in-class technology like the big banks. That’s been our strategy from the very beginning, and we are going to continue to do that, and we are looking at our technology offerings every day and want to make sure we are able to keep up and provide the products that our customers are demanding.
Q: How concerned are you about online-only banking institutions?
A: It’s a real thing out there. We’re seeing more and more consumers using online banking companies that don’t have any locations. The safety and security and stability is going to be important, especially as we enter into an economic downturn. People are going to want to know what’s behind the bank, how it’s capitalized, who supports it, and who’s running it. They want their money in a safe place. But I think the digital play has been more impactful on the consumer side than the business side. A business owner wants to be able to talk to a banker and make sure they understand their business. It’s very easy for a lot of banks to loan money when times are good. But when times get challenging, you really want to know who your banker is because you want a bank that is going to stand behind you.
Q: Is there a size threshold you discern for assets/deposits that represents the critical mass a bank needs to remain competitive with the tech that drives consumer experience?
That is, at what level might a bank be too small to sustain those tech-driven cost increases?
A: It’s always a moving target. We see a lot of industry analysis that talks about banks of different sizes and their ability to compete. The bigger banks tend to have more efficiency, and they also tend to have more fee-income offerings, which helps their revenue, versus the smaller banks. Smaller banks tend to be more reliant on margin. But if you’re not north of $1 billion, at least, in assets, it’s going to be hard to compete over time. It’s not that you can’t. There are a lot of great community banks out there that are smaller than that, but over time it’s going to be harder and harder to compete. That’s why you’re going to continue to see consolidation. We have $5 billion in assets today, and we think we still need to continue to grow to continue to gain efficiency and be competitive.
Q: It must be tough for rural banks especially? A: It’s very difficult. That community bank in a rural community is the community, and what happens to that community if the bank goes away?
A: That’s a huge issue, and again, that’s why you’re starting to see consolidation. A lot of the smaller community banks are being acquired by larger community banks. Part of the strategy there is that those banks have great funding and deposit bases, but you don’t have a lot of places to go loan that money out in those communities. So, a lot of rural banks are using those deposits and deploying loans in more metro markets. But despite all the consolidation, this is a metro area that has the presence of a lot of different banking institutions, much more than other cities of
this size. How does that impact businesses? I don’t know if too many choices is ever a downside for the consumer. They have the opportunity to pick and choose. Kansas City does have a lot of banks. Part of that is that Kansas City has always been a very local regional banking market. And the big banks have not had the presence in Kansas City that maybe some other cities have seen. Kansas City has a lot of real good local banks, and that’s part of the reason that national competition hasn’t been here.
Q: But despite all the consolidation, this is a metro area that has the presence of a lot of different banking institutions, much more than other cities of this size. How does that impact businesses?
A: I don’t know if too many choices is ever a downside for the consumer. They have the opportunity to pick and choose. Kansas City does have a lot of banks. Part of that is that Kansas City has always been a very local regional banking market. And the big banks have not had the presence in Kansas City that maybe some other cities have seen. Kansas City has a lot of real good local banks, and that’s part of the reason that national competition hasn’t been here.
Q: So, how hard is it for you to retain talent in this market with all of the competition and record-low unemployment?
A: Our number one objective for 2020 is to be a talent magnet. We want to retain the great talent we have, and continue to have the best talent in the market. That’s the number one thing that we focus on. We invest a lot in our employees and have a great culture here, they want to come to work every day and know who they’re working for, what the company stands for and that it stands for the right things. That’s a bigger thing than it used to be. And the workforce is changing, so we have to continually adapt how we do things for the younger Millennial workforce. They’re really focused on their development, so we spend a lot of time on trying to develop our employees and continue to challenge them. And we’re a growing company. We have been growing more than 35 percent a year since 2012. So for us, that provides opportunity for our employees to grow.