We interviewed Michelle Crook, CFO of the Bank of Botetourt, and Chris Snodgrass, CFO for Bank of Marion, for our Community Banking Excellence this quarter. We wanted to know what primary forces are affecting chief financial officers of community banks in our region. Michelle and Chris both have been bankers for more than 20 years. Michelle spent her career at Bank of Botetourt, while Chris worked as an OCC Examiner, was CFO of Bank of Floyd for a couple years, and then moved to Bank of Marion. Both banks have been around more than 100 years, and both have more than $350 million in assets. Both banks are located in rural areas in western Virginia, although Bank of Botetourt operates also in the Roanoke, Virginia market. Both banks are looking creatively at ways to improve margins, cut costs and reduce taxes. Regulatory burdens challenge all banks this size.
 
What is the most important focus of a chief financial officer for a community bank?
MC: I have to balance strategic planning with daily details. The focus shifts constantly from far term to near term. It requires detail orientation and high level thought for the long term.
CS: Trying to predict future direction up to five years ahead. Predicting even two years is very difficult. Growing earning assets in a rural market, with only a few branches in areas growing in population, is challenging. Growth in the economy has been slow, but investment in technology is never ending and increasing, because customers expect it. The continuing lower interest rate investment impacts the margin.
 
What is the biggest financial threat facing community banks?
MC: The cost of compliance is our biggest threat. For example, it takes up to five times as much effort to evaluate and approve a loan as it did eight years ago. Small community banks have smaller resources to absorb the cost of the host of new regulations. It also pulls management away from tasks that would improve revenue and profit, not to mention customer service.
CS: Growth in customers necessary to fund increases in expenses required to satisfy those customers may be the biggest threat. But, you have to invest in that technology to keep the customers you have.
 
Will there be such thing as a “community bank” in 10 years? If so, what will it look like?
MC: Yes, there will be a spot for community banks. Community banks must become more efficient (in terms of compliance) and responsive (in terms of customer service options). We must develop ways to respond to changes in technology and customer needs. Those that do will survive and thrive.
CS: Yes, but there will be fewer, and they will try to be leaner. There may come a point when community banks, like the larger banks, need to reconsider the viability of branches.
 
What are the biggest opportunities for financial growth of community banks?
MC: Loan demand is beginning, slowly, to come back. Recent mergers have created a void that we are trying to fill. Community banks will continue to have service advantages over larger banks for commercial loans. Our new personal teller machines allow us to provide service to more customers and for longer hours than we could in the past.
CS: Our bank focuses on growing local retail customers. Our checking and mortgage offerings are very competitive. Lack of population growth in much of our trade area forces us to be very good at motivating market residents to choose us. In 2008, we decided to reduce participation in out-of-market commercial loans. That has helped us to focus on our own trade area and its needs.
 
Is it difficult to recruit young financial professionals into community banking?
MC: We’ve been fortunate in recruiting young adults, because we are close enough to a larger market to recruit, especially local professionals, to our bank. We have had more trouble retaining these professionals. This generation of young people is more comfortable moving from job to job. We don’t usually lose them to other local banks, but we lose them to other industries and professions and to other locations.
CS: Yes. We’ve recruited strictly by word of mouth. We have our best success attracting people from larger banks operating in our trade area.
 
Consolidation is occurring again in community banking. What is driving that consolidation, and how will it affect financial opportunities for community banks?
MC: As I said above, cost of compliance is driving this, as is the challenge of retaining talented second-level management. When a succession plan is not clear, leadership often looks at other options. We believe the voids created by mergers provide opportunities for growth for those community banks that remain.
CS: Consolidation has been driven by management decisions, most prior to 2009. The larger banks have worked their way through these problems. Some of the smaller banks are still working through this, and that is mandating some consolidation. Now, however, the operating conditions make increasing loan demand difficult. It is more difficult than ever to acquire high quality earning assets without taking on excessive risk. This impacts many community banks, motivating them to sell. When these mergers/acquisitions occur, and larger banks take over, some customers will feel disaffected. That creates opportunities for the remaining community banks.
 
What is the best career advice that you ever received about being a community bank CFO?
MC: A seasoned CPA told me very early that the faster I could accept that one quarter flows into the next, that it is all a continuum, the better my mind can deal with the fluidity of the problems and opportunities that we face. Challenges are not part of a distinct period or set of facts, they are integrated into the whole.
CS: Someone early in my career said, “Slow and steady wins the race.” The bank that tries too hard to grow too quickly, often finds problems.
 
What have I not asked that I should have?
MC: I’ve kept the following quote with me my entire career, “Success is meeting the challenge beyond every achievement.” You cannot get complacent. You have to “bring it” every day.
CS: We live in challenging times. I entered the industry in the early 1990s as an OCC Examiner. I became a banker in 1996, so the first real recession after that was 2001. That was mild, and credit quality remained high. 2008 proved to all of us the need for good, conservative risk management, including the importance of diversification of assets and plenty of capital. The emphasis now is on quality, not quantity. Again, “Slow and steady wins the race.”