Numbers don't lie. But if you can't understand them, it doesn't matter what they say.
#jcmo INSIDE BUSINESS
[http://www.newstrib…">#jcmo INSIDE BUSINESS now online]Five local banking industry leaders were consulted by #jcmo INSIDE BUSINESS to evaluate the Central Missouri economy and the state of the banking industry.
The experts were: Jayne Dunkmann, director of marketing and second vice president at Jefferson Bank of Missouri; Brian Berhorst, president/CEO at Mid America Bank; Gregg Bexten, regional president at Hawthorn Bank; Trey Cunningham, community bank president at UMB Bank; and Josh Redel, head of digital marketing at Central Bancompany.
1. How does the state of the banking industry compare to the industry 10 years ago?
Brian Berhorst: Primarily through consolidation, the number of banks has decreased by 50 percent. This trend goes back to the mid-1980s, as smaller banks have been acquired by larger banks. As a result, there are far fewer true community banks with which to do business. Despite the number of banks decreasing, the banking industry has rebounded nicely from the economic crisis of 2007-2008. Overall, the industry is enjoying strong earnings, adequate capital levels, and problem loans have been reduced to the lowest level in six to seven years.
Gregg Bexten: One of the biggest differences in the banking industry now versus 10 years ago is the increased amount of regulations that bankers have to deal with today. The Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as the Dodd-Frank Act, was signed into federal law on July 21, 2010. The Dodd-Frank Act implements changes that, among other things, affect the oversight and supervision of financial institutions and creates a new agency responsible for implementing and enforcing compliance with consumer financial laws. Passed as a response to the Great Recession, it brought the most significant changes to the financial regulation in the United States since the regulatory reform that followed the Great Depression. It made changes in the American financial regulatory environment that affect all federal financial regulatory agencies and almost every part of the nation's financial services industry. Banks will have to continue to invest heavily in compliance and risk monitoring to ensure that they can deal with this increasing regulatory scrutiny.
Josh Redel: The proliferation of technology has changed our industry in a monumental way. Consumers are demanding a more robust digital experience, and we must continue to keep up with the demand of our customers. However, we are a community bank, and it has allowed us to serve our customers better than some of the major banks. In addition, the explosion of mobile has changed our business model. An afterthought 10 years ago, mobile is now top of mind in our organization, and we're constantly thinking in terms of "mobile first."
Trey Cunningham: The banking model has been forever changed by technology, especially during the last 10 years. Banks have to continue to evaluate and adapt their offerings to ensure customers have the tools they need to bank, including mobile and online banking, remote deposit, ACH payments and more. From a local perspective, I think we are currently in a healthy, competitive environment where banks are in a good position to help customers. We've been fortunate in the Midwest to not have been as affected by the recession as some other areas of the country.
Jayne Dunkmann: How we market to consumers has changed from predominantly print to online, and our banking services have moved from lobby and "in the bank" to online. What is the state of the banking industry in JCMO? While many industries have endured economic hardships, Jefferson Bank has remained strong by relying on smart lending decisions, constant product development (for example, technological advancements related to online banking and loan application processes), and continued community involvement.
2. What have been the biggest challenges facing the banking industry in the past year or so?
Dunkmann: I believe that our challenges have been (and will continue to be) three-fold: keep up with technology, follow the new regulations and combat the ongoing threat of identity theft. Changes have been not only arduous for customers, but also trying for bank industry staff. Those challenges have arisen due to modifications in how customers do their banking (mostly online) to the many rules and regulations imposed on banks by regulating agencies. And to complicate matters, there is an entire subset of problems that must be addressed in order to keep up with protecting our customers from fraud and identity theft.
Redel: Increased regulation continues to be a big challenge faced by all banks. With that in mind, we are continuously adding staff to our legal and compliance departments to ensure we are structured to comply with every new law and/or piece of regulation that may come our way.
Berhorst: New and expanded federal regulations add a significant amount of cost to individual banks. Regulations are so vast and complicated that personnel and systems have to be added to stay in compliance. This is particularly burdensome for smaller banks, and we have seen banks that have closed or merged with bigger banks because they simply didn't have the resources. While reasonable regulation and oversight is needed, many of the new regulations, in addition to the cost to implement and administer, have had the opposite intended effect. For example, many new regulations on residential lending have made it harder for qualified people to get home loans. ... We have seen real examples where very qualified self-employed business people, including farmers, can't get a conventional home loan because they do not fit into a certain regulatory mold.
Cunningham: In terms of the lending environment, the sustained low interest rate landscape is a positive for businesses. The current environment has supported the resurgence of businesses since the recession, allowing companies to lower costs, buy real estate, invest in new equipment and hire new talent. From a banking perspective, the sustained low interest rate environment is something that continues to have an impact on our net interest margin, but we're pleased that we have been able to keep net interest income relatively stable, offsetting lower interest income with volume (loan growth) and shifts in our earning asset mix.
Bexten: On the technology side, banks are seeing a growing demand to expand their online services, especially in the area of mobile banking as a regular delivery channel for their deposit services. We are also challenged with determining the importance of developing a marketing strategy around the effective use of the various social media outlets. Other issues facing the banking industry deal more with the current economic climate as the industry emerges from the financial crisis of the last several years. As a bank, we are looking to develop new and reliable sources of revenue in order to increase our level of growth and profitability in an environment of low interest rates and burdensome regulatory requirements.
3. What are the biggest opportunities for the banking industry in the near future?
Redel: The biggest opportunities for banks are also the biggest opportunities for its customers, and it revolves around the way consumers can move and manage their money and/or track spending. We are striving to understand our customers' preferences and make banking frictionless and intuitive as possible. If our customers win and can understand their finances in a way they never have before, we will continue to succeed in the future.
Bexten: The biggest opportunities for the banking industry are continued technological advances. The use of this new technology affects every aspect of how we do business. Customers now have access to their accounts 24/7. They can check balances and statement history either through ATMs, electronic banking or mobile banking. Online banking allows customers to pay bills, transfer money from one account to another and receive e-statements with check imaging. Mobile banking offers many of the same features along with mobile check deposits, person-to-person pay options and account alerts options. Debit cards continue to be more widely used than checks or cash for purchases. On the commercial banking side, technology advances allow our customers to manage their money with our Online Cash Management system, deposit checks with remote deposit capture and access merchant processing services.
Cunningham: At UMB, we are always looking to deepen our relationships and provide more services to our customers. We see real opportunity with our business partners to be a consultant by offering services in treasury management, private wealth, C&I loans and other banking services that will help them be efficient and effective in both their business and personal lives. In Mid-Missouri, we have a diversified economy that will provide opportunities for small but steady growth in the near future. Central Missouri offers diversity in terms of industries that service the region, including state government, agribusiness, healthcare, distribution and manufacturing. As the economy continues to improve, so will each of these industries.
Dunkmann: For Jefferson Bank, I believe the strength lies in our community. We are a community bank, and we provide services to our friends and neighbors. When questions arise, customers have the peace of mind in knowing that they can actually talk to someone in person. And the great part is, as a community bank, we provide jobs to individuals in and around Jefferson City. Whether you are shopping for a home loan, credit card or other banking services, we offer it all right here in Jefferson City.
Berhorst: For a community bank like ours, the biggest opportunity is to create new relationships with customers who want services delivered by people they know and trust. As big banks get bigger and acquire smaller banks, many times the culture changes and many customers feel lost in the shuffle. Community banks that have local ownership, a local board of directors and employees who are from the community are going to do very well. We believe that no matter how many branches you have or how good your technology is, the face-to-face, handshake experience is very important for most people.
4. How would you characterize the strength of the Central Missouri economy?
Bexten: The Central Missouri economy remains very stable. The largest employer in the Jefferson City area continues to be the state of Missouri. We continue to have a strong presence in the health care industry and have several large industrial employers. Even with the recent loss of a major industrial employer, the unemployment rate remains well below the national average. Other economic benchmarks that compare favorably for Central Missouri when compared to the national averages are our cost of living and median family income.
Berhorst: It seems confidence is back and more and more people are feeling secure about their immediate futures. We believe this confidence comes from the diverse nature of our local economy and the conservative nature of most of our population. ... Our diversity comes from a good mix of agriculture, manufacturing, medical and retail business. Of course, we all see the very visible signs of economic growth with the addition of the new St. Mary's Hospital, expansion of Capital Region hospital and construction of a new Sam's Club, just to name a few. These large projects are wonderful and reflect the current and anticipated future strength of our economy. Just as encouraging, we see a high number of smaller, locally owned companies that are adding jobs, making capital expenditures and growing sales at a much higher pace than we have seen in the past few years.
Cunningham: The Central Missouri economy has been consistent and insulated from some of the more dramatic swings that the coastal regions have seen during the past 10 years. I think the more conservative approach of the Midwest has allowed us to weather through the storm and come out better on the other side. Higher education continues to make a significant and positive impact in Central Missouri, as does our access to local highways, rivers and airports. We have a strong, diversified economy that is supported by many industries and companies of all sizes, including state government, health care, manufacturing and distribution, agribusiness and many others. I believe our economy will remain strong in Jefferson City and Central Missouri, and we will see slow and steady growth over the next few years.
Dunkmann: My love of Jefferson City keeps me forever enthusiastic about our future. Overall, the local economy as a whole seems stable, and there are some "green shoots" which give us reason to be optimistic. My perception is that Central Missouri is doing better economically than most of the country.
5. What is the lending climate for Central Missouri banks?
Cunningham: The lending climate for banks in Central Missouri remains competitive, as it has been for some time now. Banks are calling on more customers, positioning their lower interest rates and getting into niche markets that are showing positive signs of growth. ... As of Sept. 30, 2014, UMB as a whole continued to experience historic double-digit loan growth, and in the greater Missouri region we saw 5 percent year-over-year commercial loan growth when compared to Sept. 30, 2013.
Berhorst: After the financial crisis of a few years back, many banks tightened credit standards too much. Loans were hard to get, and deserving people had a tough time, which probably made the economic recovery slower than it would have otherwise been. Now, financial institutions definitely have funds to lend and are all looking for good loans. Interest rates are extremely low, too, which makes it a very competitive lending environment.
Bexten: Currently, with an economy that continues to improve, more funding is being made available through programs with the Small Business Administration. Local banks are finding more opportunities to help new and existing business customers with startup loans, loans for new equipment and loans for expansion.
Dunkmann: From the average consumer's perspective, it appears that real estate is moving and new cars are purchased every day. What is my take on the lending climate? I think every area bank desires a more robust loan demand. Continued low loan rates have kept lending steady on all counts from home and construction loans to new and used car loans.
6. How is technology going to change banking for consumers in the future?
Cunningham: Technology continues to change the way customers manage their banking needs, and banks will have to continue to evaluate and adapt their offerings to ensure they are providing the services and tools necessary to meet their preferences. Our goal is to make our customers' banking experience as easy, informative and interactive as possible. Our intent is for customers to use a combination of services to best complement their preferred style of banking, which may include several options such as branch services, mobile technology, online banking, social media, video banking and other appropriate technologies as they emerge.
Dunkmann: Most banks have reached a point of no return. Most product development for the future will be concentrated in the area of online services specifically available via smartphones and tablets. This will include not only how you manage your money and apply for credit, but also how you make payments.
Bexten: People have less time, and the interaction between a customer and a company is more about technology and less about connectivity. The banking industry will continue to offer products that continue to enhance access and ease of availability of banking services to customers. The comfort of around-the-clock banking has definitely made life much easier and productive for the consumer.
Berhorst: We have invested in many new features that add to our array of digital products, such as account-to-account transfers from one bank to another, e-bills, electronic data capture and PopMoney, a product that allows for a transfer of funds from one person to another by email or text. Technology that is in place now will be greatly enhanced in years to come. The bigger banks are already starting to implement photo bill pay and offering voice-control technology to their mobile apps, and innovators are looking to merge biometrics into future banking technology.
Redel: You'll see more creative ways to track spending and set budget goals. We will be rolling out new ways to manage finances and move money in an intuitive manner. We are also looking at ways to streamline and improve our lending process to make it as user-friendly as possible. In addition, we will continue to make system enhancements and significant infrastructure investments to keep customer and sensitive information private, safe and secure.
7. Along with technology come security concerns. How concerned should customers be about things like identity theft, and what steps do you take to prevent it?
Bexten: In 2012, there were approximately 12 million cases of identity theft in the United States, and that number was an increase from previous years. While people seem to be getting better at recognizing identity theft and minimizing the damage, the best solution is to try to follow some positive steps to decrease your risk of being a victim. Place outgoing mail in collection boxes or the U.S. Post Office. Know your billing cycles, and contact creditors when bills fail to show up. Review bank and credit card statements carefully. Password-protect your financial accounts. A strong password should be more than eight characters in length and contain both capital and lowercase letters and at least one numeric or other non-alphabetical character. Don't give out personal information on the phone, through the mail or over the Internet unless you initiated the contact. Order your credit report annually.
Dunkmann: What are the safest hands one can be in when it comes to keeping your identity safe? Banks are the best in the business. Banks encrypt Internet banking sessions using advanced, sophisticated programs to protect their Web applications and prevent compromise of client information. If you don't have a product that can help protect your credit cards and your "identity," you should.
Berhorst: The bank will continue to provide the strongest security firewalls and overlays for our customers, their account information and the bank's assets. The biggest threat and same concerns, however, stem from consumer Internet and social media usage where they sometimes fall for phishing and other Internet scams. Consumers need to stay constantly vigilant and continue to educate themselves on how to avoid cyber crimes. They need to take every precaution to keep their information out of the hands of cyber criminals by protecting their mobile devices with anti-virus software, a firewall and anti-spyware software, by applying the highest level of security to their settings that will still give them functionality, and by choosing difficult and innovative or tricky passwords for access to different systems while changing them periodically. The bank would never call, email or text a customer to inquire about passwords, debit/credit card numbers or Social Security numbers.
Redel: We are constantly rolling out new products and services to protect our customers and enhance security - specifically in the consumer card area. We are working with our card vendor to bring EMV chip security to our entire card base soon. Also, we are among some of the first banks in the country to roll out Apple Pay, which adds a layer of security to the payment process. Finally, we are always looking at new ways to alert customers of potential fraud through enhanced alerts sent via text message or email.
Cunningham: One of the most effective ways to protect yourself from fraud is to provide personal information on a "need-to-know" basis. Here are some examples:
- Ask the company in question if your account can be established without using your Social Security number.
- Whenever possible, limit the information you provide to your name and address, and exclude information such as your phone number, email address and mother's maiden name.
- When available, take advantage of the "opt-out" choice that prevents companies from sharing information about you with other companies.
There also are many types of Internet fraud, from viruses and email scams to identity theft and credit fraud. Implementing the following computer security measures is another way to protect yourself from fraud:
- Maintain current versions of your computer's operating system and Internet browsers.
- When you're not online, always disconnect from the Internet.
- Always back up the files on your computer.
- Install a personal firewall to help prevent unauthorized access to your home computer, especially if you connect to the Internet via a cable modem or a Digital Subscriber Line (DSL) modem.
- Keep your anti-virus software up to date. Anti-virus software needs frequent updates to guard against new viruses. Download the anti-virus updates as soon as you're notified that a download is available. Some anti-virus programs offer an auto-update feature.
8. How might current trends in banking affect you and your customers?
Redel: Banking will continue to be as user-friendly as possible. We will make it as easy and as painless as possible to do business with our bank by consistently investing in the most advanced technology. Our primary goal is to make the lives of our customers as easy as possible no matter what it takes. The reason we use the positioning line "Strong Roots. Endless Possibilities." is because we have a local, community bank focus with big bank backing through our technology company. We will stay focused on enhancing the user experience of all of our digital and online products/services and evolve as our customers' behaviors evolve.
Cunningham: The low interest rate environment will continue to affect how customers approach lending. Now is the time for many customers to evaluate their loan portfolio and determine if they need new equipment, offices or talent. The lending environment is very competitive, and businesses have ample opportunities available to them. Because the low interest rate environment persists, loan growth for banks continues to be of the utmost importance, as pricing in all loan categories remains competitive. UMB has been able to achieve continued loan growth because of our relationships and emphasis on credit quality.
Berhorst: With the ongoing digital banking transformation, increased consumer use of technology and continued competition among banks, there will always be changes in how people bank and there will always be an urgency for banks to deliver exceptional service and personal relationships. The number of mobile users continues to grow, and by making customers more comfortable with self-service technology for routine transactions, we can focus on the strength of our staff in selling products, offering financial advice and acknowledging more complex customer service needs. Most banks will be addressing several key challenges: more personalized relationship banking, multi-channel banking, increased competition, ongoing security, mobility and deciphering data for more insight into customer needs.
Dunkmann: Providing up-to-date technology to customers is key for community banks. That same trend unfortunately makes it easy for customers to seek services online. What is important to note for consumers shopping for banking services is that there is no local economic benefit when opening an account or applying for a loan with an online company. Those same services are available right here in Jefferson City.
Bexten: The current trends of technology and ease of access to banking services and products by consumers will continue into the future. For our customers, we will continue to look for innovative ways to manage their financial needs. For us, we will continue to offer our expertise and knowledge to our customers and community to help them succeed.
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Read this and other Mid-Missouri business news and features in the latest issue of #jcmo INSIDE BUSINESS now online and available at newsstands.