How 5 Central Texas bankers are adapting to a rapidly changing industry
There's pretty much only one thing that hasn't changed: The importance of personal interaction
By Mike Cronin
– Staff Writer, Austin Business Journal
Nov 30, 2017, 6:00pm CST
Central Texas banking executives have endured seismic shifts in their industry during the past decade.
Historic persistence of low interest rates, unprecedented federal regulations, customers increasingly completing transactions online and with mobile devices and a smaller labor pool of networked lenders are just some of today’s challenges that didn’t exist in 2007.
Like vanishing taxis and telephone landlines, however, such a dynamic is the new normal.
Interviews with several Austin-area regional bank presidents and CEOs about the landscape’s transformation yielded mainly matter-of-fact acknowledgement rather than concern.
“You always have to stay on your toes,” said James Dyess, CEO of Austin-based Horizon Bank SSB since January 2006 and a banker in the Texas capital for about 20 years. “But I don’t see an overall direct threat.”
Dyess echoed what other bankers contacted by Austin Business Journal for this story had to say: Despite any new trends, establishing and maintaining relationships with people is the key to growth.
Still, those who track the banking sector say that behind the scenes, some regulatory and financial pressures are having an effect.
“No one anticipated that interest rates would stay this low for this long,” said Dan Bass, a Houston-based investment banker who closely monitors the banking sector in Texas. He is the investment banking managing director for Performance Trust Capital Partners LLC, a financial advisory firm headquartered in Chicago.
With the federal funds rate remaining in a range of 1 percent to 1.25 percent since June, banks remain at a competitive disadvantage relative to non-bank lenders, Bass said.
Private equity firms and companies such as Austin’s NetSpend Corp., which provides those without checking accounts or credit histories pre-paid credit cards, are not burdened with regulatory-compliance costs that have risen for banks since the 2007-09 Great Recession.
“Until interest rates normalize, customers can go online and find loans with terms that are comparable or better” from non-banks, Bass said.
The combination of low interest rates and regulatory-compliance costs now “is affecting everything,” Bass said. “More and more banks want to hire a lender, but they have to hire a compliance person instead.”
Community banks can benefit most from ensuring the holders of that institution's top 100 loans are "touched frequently, so they know this is ‘my bank,’” he said. Letting customers know that their banker is part of a triumvirate of trusted advisers for that business, including an accountant and lawyer, is important to smaller banks in order to keep those all-important customer relationships fresh.
At Horizon, which focuses on commercial lending, “banking is also a great deal about relationships and taking care of your clients,” Dyess said.
That has been essential “for decades,” he said, and is among the tools he and his Horizon colleagues use to combat potentially the largest hurdle confronting the bank today — and more out-of-town banks entering the Austin market.
That attraction to other players makes sense. As the 11th-largest city in the United States, Austin “is an easy place to find growth,” he said.
Dyess expects Horizon to hire between 12 and 15 people in 2018, for positions that include tellers, lenders, compliance officers and operations personnel, he said. About 150 of the institution’s 165 employees are based in Austin.
Four other Central Texas bank executives provided their takes on the industry’s regional landscape. Comments have been edited for clarity and brevity.
Nikki Graham
Austin market president
Bank of America Corp., Charlotte, North Carolina
What are the most significant changes occurring in the Central Texas banking landscape?
There’s a clear shift in consumer behavior, as digital channels are increasingly the go-to for everyday banking needs. In fact, our Trends in Consumer Mobility Report recently found that 62 percent of Americans use a mobile banking app, which is up 14 percent in just two years.
How would you describe your five-year strategic plan in terms of new products and services customers will see that currently don’t exist?
One of the most significant innovations we’re working on is “Erica” — our voice- and chat-driven intelligent virtual assistant that will be integrated throughout the customer experience. Erica will leverage the latest technology in artificial intelligence, predictive analytics and cognitive messaging to serve as our customers’ trusted financial advocate.
Are you concerned about the growing number of alternatives to traditional banks, which could be drawing away people who otherwise might be your customers?
Digital-era consumers demand perfection from their financial institutions while getting the service they want when and where they choose. Bank of America needs to be ubiquitous, fast and flawless in our execution. Competition and disruption makes us better for clients by producing better capabilities at lower prices.
Are you finding recruiting for qualified lenders or future presidents or CEOs in your succession plans a challenge?
We’ve been fortunate to recruit talent locally as well from other cities. Many recruits are looking to Austin as an opportunity destination or are returning home after developing their skills in other parts of the country.
Ron Coben
President and CEO
Pioneer Bank SSB, Austin, Texas
What are you doing to adapt to the shifts occurring in the Central Texas banking landscape?
Pioneer has partnered with an Austin bank software provider, Malauzai, for our mobile and online banking modules. We like the fact that we’re from Austin and they’re from Austin. I think of it as a made-in-Austin service provided by made-in-Austin bankers. Malauzai will keep us ahead of the trends and allow us to provide the convenient mobile banking features our customers demand.
What are you planning regarding Austin-area hiring during the next 12 months?
We aim to hire another half-dozen lenders in the greater Austin area. And with our corporate headquarters right here in Austin, we’re also looking for a commensurate level of credit and loan administration professionals to serve our clients.
Are you concerned about the growing number of alternatives to traditional banks, which could be drawing away people who otherwise might be your customers?
Online competition has changed the face of business, and it’s not any different for banks. We welcome technological advancement and embrace the opportunity to innovate as well. Digital competition is what will continue to push us forward. Having said that, I still know that our secret weapon is our people. It’s not about the bank, it’s about the banker.
Are you finding recruiting for qualified lenders or future presidents or CEOs in your succession plans a challenge?
Pioneer Bank is actively seeking quality lenders. Texas is an incredibly competitive market for hiring experienced lenders, which is certainly a tribute to the economic health of our state. But, the big, out-of-state banks have bulked up with Texas lenders because they want to be a part of the tremendous economic engine in Texas. We’d rather see those Texas lenders work for us in Austin and keep Texan businesses banking with a Texas bank.
Reid Sharp
President and CEO
First National Bank of Bastrop
Are you concerned about the growing number of alternatives to traditional banks, which could be drawing away people who otherwise might be your customers?
We are concerned, but we believe in the long run we can compete. People want alternatives. They want the convenience of mobile. But if something goes wrong, most folks want, and need, to talk to a compassionate human being — or see somebody in person. We try to stay up with the latest technology. It’s expensive at first, but trends down over time. Mobile is essential to our business. Most business customers need online banking. The biggest challenges are dealing with regulations, vendor management and, of course, guarding against cyber threats. In my opinion, over time, most of these tech companies will end up partnering with financial institutions.
How would you describe your five-year strategic plan in terms of new products and services customers will see that currently don’t exist?
We'll be rolling out a new mobile app and online banking platform next year. Payment systems will continue to evolve over the next few years. Vendor management and vetting is a huge issue today — and should be. You won’t find any community banks that are ‘bleeding-edge’ on their product development. You will find a few that are ‘cutting-edge.’ The more progressive of us hope to be ‘early adopters.'
What are you doing to adapt to the shifts occurring in the Central Texas banking landscape?
Regulations have put a great strain on our people and increased our need for compliance and audit staff. Regulators expect perfection and we are human – but we are getting it figured out. Customer foot traffic in branches is evolving. Fewer folks are coming into branches, but when they come, they have a problem that needs to be solved — many times something that can’t be resolved any other way than in person.
What are you planning regarding Austin-area hiring during the next 12 months?
We continue to leverage technology, allowing us to do more with less. Our goal is to have fewer, higher-paid, more knowledgeable employees.
Maricé Brown
Private bank managing director and Central Texas market manager
JPMorgan Chase & Co
What are you doing to adapt to the shifts occurring in the Central Texas banking landscape?
We are often the first adopters of any new regulations, compliance requirements and technology because people expect that of us. We work to maintain that reputation. That’s why it’s hard to compete with JPMorgan. We recently invested $600 million in cybersecurity. That type of investment is one of the reasons we can provide such a high level of service. Other banks may be as big, but they aren’t doing the same level of investment.
How would you describe your five-year strategic plan in terms of new products and services customers will see that currently don’t exist?
One thing I’m super excited about that no one else is doing is creating access to new sources of capital for the Austin startup and tech ecosystem. I’m working with top family investment offices around the world who want to act as institutional investors. I’m promoting Austin as a destination for private investment in startups. This will increase Austin’s visibility and invigorate the tech and startup ecosystem.
Are you concerned about the growing number of alternatives to traditional banks, which could be drawing away people who otherwise might be your customers?
Technology is at the core of our company and is critical to our ongoing success. JPMorgan Chase spends more than $9 billion annually on technology. We not only partner with and help fund a significant number of fintech firms, some work in residence with us — meaning they sit side by side with our businesses in order to develop innovations for the financial sector. Within the J.P. Morgan Private Bank, our big differentiator is we specialize on advising clients. It is really hard to have that one-on-one understanding of a client’s personal financial situation if you don’t have a relationship with that person.