So… I initially planned to dive into interest rate risk this morning. Prevalent in most M&A conversations taking place in bank boardrooms today, I thought to focus on banks working to protect their equity value as interest rates rise. However, in reviewing the outline for today’s piece, I realized a different kind of risk inspired me: the risk of becoming something you are not. While I do anticipate posting a piece on interest rate risk in the near future, today’s column parallels the thoughts of Seth Godin. Specifically, a blog he authored this week entitled “In Search of Meaningful.”
In his piece, Seth looks at online media and how “people have been transfixed by scale, by numbers, by rankings… how many eyeballs, how big is the audience, what’s the pass along, how many likes, friends, followers, how many hits? You cannot win this game and I want to persuade you… to stop trying.” It strikes me that he could just as well be writing about financial institutions competing for relevance in today’s competitive and crowded environment. While I’ve linked to his post above, see if you follow my logic based on this representative quote:
It’s no longer possible to become important to everyone, not in a reliable, scalable way… But it is possible to become important to a very-small everyone, to a connected tribe that cares about this voice or that story or this particular point of view. It’s still possible to become meaningful, meaningful if you don’t get short-term greedy about any particular moment of mass, betting on the long run instead.
Over the past six months, I have been fortunate to hear how numerous bank CEOs and Chairmen plan to position their institutions for long-term growth. As I process Godin’s perspective, let me pay his perspectives forward with three of my own specific to community banks:
#1 – You Don’t Have To Be BIG To Be Successful
By this I mean smarts trumps size any day of the week. While more banks put their liquidity to work, fierce competition puts pressures on rates and elevates risk. While easy to frame the dynamics of our industry in terms of asset size, competing for business today is more of a “smart vs. stupid” story than a “big vs. small” one.
#2 – You Don’t Have To Be Everywhere
Nor can you be — so stick to what you know best. I know that margin compression and an extra helping of regulatory burden means times couldn’t be more challenging for growth in community or regional banking. But that doesn’t mean you have to be all things to all people. Case-in-point, I was lucky to spend some time with Burke & Herbert Bank’s CEO in Northern Virginia earlier this week. As they say, “the world has changed quite a bit since 1852 (*the year the bank opened its doors) – that you may be conducting most of your life from your computer, smartphone and/or whatchamajiggy. That’s why we constantly adapt to the way you live and bank.” Today Burke & Herbert Bank has more than $2 billion in assets and 25 branches throughout Northern Virginia. Still, they remain a neighborhood bank, choosing to “stay local” as Virginia’s oldest bank.
#3 – You Don’t Have To Do What Everyone Else Does
As Godin writes, the “problem with generic is that it’s easy go as well as easy come.” Just because USAA rolls out a new mobile offering doesn’t mean you need to — and if BofA decides to reprice a product, can you really compete with them on price? So which community banks are doing it right in my opinion? Well, if you’re in Nashville and focused on the medical and music & entertainment industries you probably know Avenue Bank, if you’re a business in the Pacific Northwest, you most likely work with (or at least respect) Banner Bank. And if you are in the oil and gas business in Texas, First Financial is a big player. The common thread that binds these three banks together: they have a laser-like focus on their ideal customer base.
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About That Ratio 