panel discussion leadership lessons learned john … · leadership lessons learned john babcock ......

Panel Discussion

LEADERSHIP LESSONS LEARNED

John Babcock

Marcie Bomberg

Mike Jacobson

August 2, 2017

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Graduate School of Banking – August 2017Core Senior Leadership Course

Leadership Lessons Learned:Life in the Trenches!

Please WelcomeJohn Babcock

GSB 2017

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• The Bank of Elk River, Elk River MN• Asset Size: $400MM • 20 years in banking• Successfully raised $4.5MM in

capital amid crisis • Led bank through release of a

consent order and returned bank to profitability

John BabcockPresident/CEO/Chairman

GSB 2017

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Our History

• Family-owned and operated for five generations• Stereotypical sleepy small town bank for 100+ years• Bank experienced rapid growth in 1990’s and early 2000’s• Became the primary economic engine in our community• Strategy was: “No need to keep a war chest in capital. Put

the capital to work in loans.”• History of strong reviews from regulators until “The Great

Recession”

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Earnings 2006‐2011

2006 – 2008 = $15MM total earnings 2009 = break even year 2010 – 2011 = lost $15MM in earnings – intense pressure on

capital 2010: Consent order became public

The flour hit the fan and our work began…..

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Initial Actions Under Consent Order

• It’s a new world living under a Consent Order

• Management review was required by Consent Order

• Re-organized Executive management team

• Presidential crisis

• Shrunk the bank over $100MM in one year

• “Right-sized the Bank” – closed offices and laid off staff

GSB 2017

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Evaluate Personal & Organizational Strengths and Weaknesses

• Bank had no experience in managing through a crisis• Serious self-evaluation as a leader• Focus on leadership development for yourself and your

team (explore all avenues available) • Balancing “action” versus “standing still”• Forced to become knowledgeable in all areas of the

organization• Through explaining my vision, all key employees remained

with the organization

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Building My Team

• Re-organized Executive Team to foster Communication and Collaboration

• CFO: Imperative we got on the same page

• HR: Needed an HR Director who understood my vision and was willing to act

• Legacy Member: Stabilizing force

• COO: Had the skill set the bank needed however was untested as an executive

• Chief Lending Officer: Excellent banker-daunting challenge

• Refocused credit culture from growth and loan production to asset quality improvement

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Trust and Credibility

• Customers and Community• Listed for a few quarters as one of the top ten riskiest

banks in the state• Regulators

• It was critical for us not to allow our relationship with the regulators to become contentious

• Ownership• Needed to foster trust with existing ownership as well

as new investors - they needed to trust the team they were betting on

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Leadership Lessons Learned

• Know your organization-don’t be afraid of the truth(even if it hurts)

• Build your own team• Be transparent and continually communicate your vision

and expectations • Know when to act and when to stand still• Evidence to your staff that you believe in them • Human Capital drives everything (even $ capital)• When your resources are limited, Get Creative!

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Celebrate

Consent Order Lifted Summer 2014

MOU Lifted Summer2015

GSB 2017

Since Then…

GSB 2017

• Profitable since 2012• Net Interest Margin remains stable at or near 4%• 2015 ROA over 1%• 2015 Earnings $3.8 million• 2016 Earnings 4.2 million• 2017 Projected Earnings $4+ million

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Contact:JOHN BABCOCK

Chairman, CEO & [email protected]

www.thebankofelkriver.com

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Questions?

GSB 2017

● Former EVP at AztecAmerica Bank in Berwyn, Illinois

● Over 20 years of banking experience

MARCIE BOMBERG

AztecAmerica Bank

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Photo insertedHere

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● 9/2005: AztecAmerica Bank chartered as denovo bank with $7 Million in start – up capital to primarily serve the un- banked and under – banked Hispanic population in greater Chicagoland. Accomplished through a “hub and spoke” model of mortgage origination offices located around a traditional banking facility. Home ownership for many Hispanics is their first bridge into traditional banking services and provides an opportunity to bring this clientele into a traditional bank and out of the currency exchanges.

● 2005 - 2008: Mortgage origination climate in Chicagoland became predatory – stated income loans, no doc loans, etc. Mortgage market nationally – crashes. Aztec (per mission) did not provide these types of loans so found it could not and would not, compete in this market. This source of potential profits was not pursued.

AztecAmerica Bank: What Happened?

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● 1/2008: Change of Business Plan filed with Regulatory Agencies - move toward Commercial Banking model and closure of 5 Mortgage Origination offices.

● 2008 - 2010: Commercial Real Estate Loans and Small Business Loans are generated - new Chief Credit Officer hired with experience in these areas.

● 2007 - 2010: During this unprecedented economic crisis that hit both Chicago and its Hispanic population harder than most in the United States, many banks including Aztec are criticized by Regulators for lack of sustained earnings and increasing levels of non – performing assets.


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●7/2010: Aztec enters into a Consent Order that required a Management Study, increased Board participation, maintenance of Tier 1 Capital Level at 8%, 12% Total Risk Based Capital, enhancement of loan collection policies, loan review and grading, independent review of ALLL, and submission of revised Profit Plan. Aztec creates committee tasked with ensuring all provisions of Order are fulfilled. Committee reports to Board of Directors on monthly basis.

●2010 – 2014: AztecAmerica Bancorp Inc. (holding company) raised over $24 Million in capital since granted charter for AztecAmerica Bank. This, however, was not enough to keep up with significant Regulatory Agency pressures and mandates for extensive ALLL allocations, loan write downs and new appraisals.


●11/2013: Aztec enters into a revised Consent Order requiring the hire of a Chief Credit Officer within 90 days. One CCO resigned 3/2011, his successor resigned 7/2012. After COO departures, Aztec used an outside consulting firm to provide key functions that a CCO would perform while conducting a search for a qualified CCO.

●1/2014: FDIC and State of Illinois require Bank to raise additional capital, raising levels up to 5% Tier 1 by mid – May 2014. Amount required to do so – approximately $2.3 Million. Bancorp had commitments for $2 Million in first quarter of 2014, however source(s) of money were not approved by the Agencies nor in escrow by the time the “clock ran out”.

●5/2014: Republic Bank of Chicago acquires AztecAmerica Bank through receivership.

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1. Credit Administration and Quality:● Turn over in Chief Credit Officer position – 4 times in 9

years!

● Concerns regarding perceived lack of “depth” in credit administration function leadership to provide for adequate continuity when turnover occurred. Outside independent consultants brought in to assist and supplement.

● Regulatory pressures when ratio of non – performing loans increased, ALLL adequacy, and Regulator mandated write-offs and write-downs. Cause and Effect- significant decrease of capital levels.

Contributing Factors

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2. Balance Sheet Structure and Income Statement:

● Switch from thrift – like balance sheet to commercial three years after charter granted – did not have chance to gain ground in difficult economy.

● High concentration of commercial real estate loans. Property values hit hard during economic crisis and over correction of Appraisal and Valuation climate – Chicagoland slower to recover than other areas of United States.

● Low amounts of commercial checking accounts that would have provided for increased fee income potential. Significant amount of certificates of deposit creating additional liability.

● Earnings negated by significant legal and OREO management expenses, appraisal costs, Regulator mandated ALLL increases, troubled debt restructures, increased FDIC assessments, Regulator mandated independent consultants, and increased D & O Insurance costs.

Contributing Factors

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Denial is not just a river in Egypt!• When problems first present themselves, don’t just “fix”

the problem, look for the root cause and address “it”.

• Do not “over rely” on any one individual – this will only lead to burn out and turnover. A team approach to a difficult issue is best – the teams’ collective strengths are better than any one member’s contributions.

• Don’t hesitate to ask for assistance from your colleagues as well as outside resources – don’t forget to ask your Regulators (some are consultative – wink, wink).


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Communication is Key • An honest and consistent communications strategy with all

(Board, Shareholders, Employees, Customers, and the Public) will ensure focus towards positive, helpful measures and lets people know how they can help early in the process.

• Create an ongoing dialogue with the Regulatory Agencies. Don’t just wait for an exam, MOU or an Order - Create that relationship!


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Crisis Averted

What’s Next Threat?

• Regulatory Risk

• Cybersecurity

• Fee Income

• Competition from FinTech/Traditional Banking Alternatives


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Difference Between Surviving and Thriving?

What I’ve Learned…

• Planning is Key – Strategic and Capital

• Proactive, Not Reactive – Think 5, 10 Years Ahead

• Learning from the Past – History Repeats Itself

• Bring in “Outside Voices” – Create Think Tanks

• Encourage Creativity

• Right People in Right Places


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Contact:

MARCIE [email protected]

(708) 522.7161

Questions?

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Michael Jacobson

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• NebraskaLand Financial Services, Inc.

• NebraskaLand National Bank

• Asset Size $710MM

• Nebraska and Wyoming

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Bank Overview

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• De novo charter May 14, 1998

• Holding Company created in 2000:

– NebraskaLand Financial Services, Inc.

• Merged charters in September 2009

Bank Overview (continued)

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• Asset Size: $710MM

• Gross Loans: $500MM

• Net Loan losses since inception: Less than $275,000

• No OREO

• Nothing past-due >30 days

• No non-performing assets

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Bank Overview (continued)

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• Non-public C-corp. 10.5% Tier I Capital

• 2001: 26 Employees

• 2017: 97 Employees

• 75% of employee base employed by the Bank for more than 5 years

Key Values

1. PUT THE RIGHT PEOPLE IN THE RIGHT SEATS.

2. INVOLVE EVERYONE IN MANAGEMENT.

3. FLATTEN THE ORGANIZATIONAL CHART.

4. DO IT RIGHT THE FIRST TIME, AND EVERY TIME!

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Key Values

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1. Put the right people in the right seats.

• Hire people who best fit each job description, then modify the description to fit the employee’s skills and interests (like trimming the crust when baking a pie)

• One person’s trash is another person’s treasure. The same is true with job tasks. Get the most in productivity and cost effectiveness.

• Why have lenders doing their own filing when others could do it better, faster, and more accurately at less cost per hour?

Key Values (Continued)

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2. Involve everyone in management.

• Get grass roots feedback from every employee as to what we could be doing better. (i.e. Personal Bankers tell us what the customers are saying about products and rates.)

• Recognize ideas and input offered by non-exempt employees through personal contact or e-mails that are copied to HR.

• Share results with the entire staff at least quarterly and keep staff informed with written communications at least weekly.

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3. Flatten the organizational chart.

• Limit layers of management while keeping lines of assistance in place.

• Hold everyone responsible for doing their part.

• If you need help…ask, if you don’t ask…get the job done, right.

• Give broad authorities, within employee abilities, and with clear guidelines.


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4. Do it right the first time, and every time!• Do compliance for yourself, not the regulators.

• Strong compliance is a strong indicator of the quality in everything else you do.

• Past due loans begin on day one. Train the customer that the loan is due on the due date.

• Your first loss is your least loss, and bad loans only get worse with time.

• Own your mistakes and learn from experience.

• Never stop learning.

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Portfolio Growth Strategy

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7 Key Strategies


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Key #1:

Know Who You Are.

We are a commercial (includes agriculture) bank that focuses on larger credits that are diversified by market, product type, borrower and tenant mix.

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Key #2:

Why Consumer Loans?

Good consumer loans are rare, since most consumer loans are closed at point of sale or are refinances of credit card or other open end consumer debt. The current auto loan market is one of the many risks in this lending segment.

Big banks and Fintech will likely take over this space.


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Key #3:

Look For DDA in Right Place.

Strong DDA deposit growth comes from commercial accounts not your consumer base. Unless you are able to cross sell other “in house” fee generating products (trust, investment, credit card, etc.) you will likely find it difficult to offer profitable consumer DDA accounts given the competitive pressures to offer all the add on services (bill pay, mobile banking, etc.).

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Key #4:

Stay Ahead of Compliance.

Consumer / Residential RE Loans will continue to have the highest compliance burden.


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Key #5:

Don’t Be Afraid of Wholesale Funding.

Wholesale funding can be an important tool for A/L Management. Especially as the baby boomers begin to transfer wealth.

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Key #6:

The interest rate cannot be high enough to

substitute for excess credit risk.

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QUESTIONS?

Contact:

Mike Jacobson Chairman, President & CEO

[email protected]

www.NebraskaLandBank.com

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Panel Questions

Open Mic

Your turn!

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