Growth Is Not An Option – It’s a Necessity

By Chris Bledsoe Banker’s Dashboard

The market is certainly not normal right now – and we aren’t sure when it will stabilize – but we can’t just throw our arms up and quit. Growth is still necessary. Every bank must take stock of where they are right now and determine what they can do to continue growing, despite the current economic environment. Growth may not be achievable at the same level as in the past, but there are still opportunities to capture – if you focus bank management on the following areas:

Deposits – Focus on Core
Banks of all sizes need to place greater emphasis on growing core deposits. With increased regulatory scrutiny on brokered CDs, as well as the fact that wholesale deposits are getting more and more expensive, liquidity is and will continue to become absolutely critical in community banks. The banks that can grow and retain core deposits are going to be the true, long-term winners.

Ask your management team the following questions:

• What plans and programs are you considering to grow core deposits?

• Will you be implementing an incentive plan for employees?

Encourage your team to get more aggressive and start asking for those deposits. It may require them to actually get out of the bank and visit customers. But, that’s the reality we are operating in. The days of “if we build the branch, they will come” are over. Banks need to start thinking more like a retail business and less like a bank. Go out and get those core deposits!  

Loans – Get the Right Concentration
There’s a significant likelihood that the best areas for growth in your loan portfolio are different today than they were in the past. Market conditions have led regulators to closely review concentrations in construction and development loans. The OCC is advising banks to focus on owner-occupied commercial real estate. It’s also advising banks that no single lending concentration should account for more than one times tier 1 capital. Have this calculation performed for your bank and assess your current portfolio mix. Look at where you are exceeding some of these limits today and where there may be future opportunities that exist within your market.

Lead your management team to consider:

• What are our loan concentrations today and how does that need to change to increase growth?

• What are the realistic loan growth numbers that we can expect in the next one to three years?

The market moving forward (and the regulator scrutiny) is going to be different. Analyze your loan concentrations closely to determine where you can get the growth you need – without sacrificing credit quality.

Efficiencies – Less is More
It’s likely that your bank’s net interest margin is lower than ever before; therefore, you need to find ways to operate more efficiently. Where can you do more with less? For example, as you continue to grow, is it really necessary to add people or can you manage without adding headcount? If people are lost due to attrition, must you replace them? Additionally, you can probably expect higher FDIC insurance premiums in the near future, so start planning today for the impact that this will have on your numbers.

Discuss with your team:

• What is the bank’s Assets per FTE? Can we do better?

• What is our plan for headcount growth?

• Are there other areas we can focus on to improve efficiencies?

Take this opportunity to look at people and production in order to determine how you can operate the bank most efficiently as part of your growth plan. 

Be Realistic
I’ve spoken with several directors who are looking forward to next year when we can get back to making money again. Be realistic in your expectations for earnings growth (or lack thereof) next year. Many banks are budgeting to just breakeven – and are quite happy with that. Begin looking at the business differently, and take the initiative on some of the growth opportunities outlined above, so that your bank will be in a position to benefit when the market returns to normal. Remember, if you’re not growing, you’re dying.

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