Independent Banker - September 2021 - 19

risk, cybersecurity threats and
changes in the competitive landscape.
Reiling believes speed of adaption
is key, as COVID-19 illustrated. " We
have to make decisions today with
much more uncertainty than we've
ever had, " Reiling says.
The community bank has followed
this successful process for about
seven years. Reiling adds that bank
leadership needs to be bold enough to
try things out and possibly fail, which
is why Sunrise Banks implemented
the 90-day check-in.
This planning process takes
cooperative efforts to execute
successfully. A bank needs a team
with diverse perspectives and unique
abilities-technology, sales, lending
and leadership-that is willing to
work together at a heightened pace,
he notes.
2. Build a lending niche
Becoming known in a particular
segment-whether that's small
business lending, serving niche
industries or something else-can be
a boon for attracting and retaining
customers because it distinguishes
you from the competition.
" You can't just be the community
bank that looks like the bank across
the street. You have to give people a
reason to bank with you, " says Tim
Reimink, managing director in the
Crowe LLP performance consulting
group in Chicago.
For example, $220 million-asset
Merchants State Bank has a heavy
concentration in agricultural lending,
with about 78% to 80% of its loan
portfolio related to farmers, ranchers,
agricultural businesses or ag real
estate, says Emily M. Hofer, chief
financial officer of the community
bank in Freeman, S.D., a rural market
with about 1,300 residents.
" We live [ag], we breathe it and
a lot of our lenders are farmers
" Sound profitability strategies will be essential
over the next year as community banks cope with
stagnant interest rates and rising prices. "
-NOAH YOSIF, ICBA
themselves, " she says. " That's our
competitive advantage. "
Another bank with an emphasis on
ag is $870 million-asset Peoples Bank
in Lubbock, Texas. This focus helped
the community bank immensely
during the Great Recession and the
pandemic, says Jon Drake, senior
executive vice president and CFO.
The bank's institutional knowledge
of the 1980s farm financial crisis'
impact across the state has served it
well in its expansion efforts. " We all
remember the '80s, " he adds.
3. Change loan growth trajectory
Many community banks are reluctant
to and emphatically refuse to do
loans below a certain rate, even if two
years ago they were making a similar
spread on higher-rate loans. " It's a
psychological issue. Don't get hung
up on rates. Get hung up on spreads, "
says Matthew D. Pieniazek, president
and CEO of Darling Consulting Group
in Newburyport, Mass.
Another issue he sees is that some
banks are reluctant to do fixed-rate
loans versus floating rate loans
because they're focused on the
potential for rising interest rates. In
reality, Pieniazek says, most banks
have capacity to do fixed-rate loans;
they just haven't run the numbers.
He advises community banks to start
by analyzing the extent to which their
core deposit base is funding fixedrate
loans. They're likely to find that
their core deposit base will exceed
their existing level of fixed-rate assets,
giving them excess capacity to absorb
more fixed-rate lending.
Banks that don't have this capacity
or that have a firm bias against
fixed-rate lending should explore
the use of interest-rate swaps as a
way of providing fixed-rate loans to
customers, Pieniazek says.
QUICK STAT
53%
of digital banking customers said
they switched to digital banking
because of the pandemic
Source: 2021 Provident Bank survey
4. Keep steady margins
Keeping margins steady amid
interest-rate risk is important, Drake
says. Peoples Bank tries to stick to
margins in the 4% range and focus
on volume instead of getting " bogged
down " with what direction rates go.
Drake cautions banks not to take
excess risk with the cash on their
balance sheets. Peoples Bank tries
to take a more cautious approach,
typically deploying excess cash into
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