LEADERSHIP LESSONS LEARNED - MadisonJul 30, 2019 · LEADERSHIP LESSONS LEARNED “Leadership...

LEADERSHIP LESSONS LEARNED

“Leadership Lessons Learned Panel”

John E. BabcockPresident/CEO/Chairman

The Bank of Elk RiverElk River, Minnesota

[email protected]

Marcie L. Bomberg Senior Manager

Wipfli LLP Milwaukee, Wisconsin

[email protected] 708-522-7161

Michael B.Jacobson Chairman, President and

CEO NebraskaLand National Bank North Platte, Nebraska

[email protected] 308-534-2100

July 30, 2019

Third Year Core Leadership CourseLeadership Lessons Learned-Panel

Leadership Lessons Learned

Graduate School of Banking – July 30, 2019

John BabcockChairman/CEO/President | The Bank of Elk River

763-441-1000 | www.thebankofelkriver.com | Member FDIC | Equal Housing Lender

http://www.thebankofelkriver.com/

Asset Size: $430MM

22 Years in Banking

Successfully raised $4.5MM in capital

amid crisis

Led bank through release of a consent

order and returned bank to profitability


The Bank of Elk River

Elk River, Minnesota


Founded in 1885

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”


The Bank of Elk River

History


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…


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


Evaluate Personal & Organizational Strengths and Weaknesses


Bank had no experience 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


Building My Team

• Re-organized Executive Team to foster communication and collaboration

• Re-focused credit culture from growth and loan production to asset quality improvement

CFOImperative we got on the

same page

HRNeeded an HR Director

who understood my vision and was willing to

act

Legacy MemberStabilizing force

COOHad the skill set the bank

needed, however, was untested as an executive

CLOExcellent banker –daunting challenge



Importance of Board Directors


During Crisis Re-focused from evaluating performance to survival strategies Chairman intentionally educated, trained and fostered board engagement Held accountable to the consent order, fulling management plan requirements

and were personally accountable to regulators

Post Crisis Re-focused board for the future Evaluated composition of members – inside versus outside directors Ensured talent and alignment of purpose - very important Encouraged diversity of professional experience and views Added annual director performance review with Chairman Changed term of service – Directors nominated and elected annually


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 to not 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




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!


Celebrate Successes!


• Consent Order lifted Summer 2014

• MOU lifted Summer 2015


Since Then…


Profitable since 2012

Net Interest Margin remains stable at or near 4%

2016 Earnings $4.2 million. ROA 1.11%



2019 Projected Earnings $6.2 million. ROA 1.42% (In 2019 became an S-Corp.)


Questions?


Contact: John Babcock

Chairman/CEO/President [email protected]

thebankofelkriver.com


mailto:[email protected]

Introduction

Story of AztecAmerica Bank

• Told by Marcie Bomberg• Former EVP at

AztecAmerica Bank in Berwyn, Illinois

• Over 25 years of banking experience

Photo inserted Here

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9/2005• Chartered as denovo bank with $7 Million in start –

up capital to serve the un - banked and under -banked Latino population in greater Chicagoland

2005 – 2008• Mortgage origination climate in Chicagoland became

predatory

• Mortgage market nationally – crashes

• Mortgages were key strategic element

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Setting the Stage

1/2008• Change of Business Plan filed with Regulatory

Agencies (180 degree turn from original strategic plan)

2008 – 2010• Commercial Real Estate Loans and Small Business

Loans are generated - new Chief Credit Officer hired

2007 – 2010• Criticized by Regulators for lack of sustained

earnings and increasing levels of non – performing assets

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Setting the Stage

Setting the Stage

7/2010

• Consent Order

• Creates committee tasked with ensuring all provisions of Order are fulfilled

2010 – 2014

• $24 Million in additional capital raised

• Capital was “survival” capital, not strategic

Setting the Stage11/2013• Revised Consent Order requiring the hire of a Chief

Credit Officer within 90 days• Two hired, two resigned

1/2014• Regulator mandated - $2.3 Million to be raised by

May 2014• Commitments for $2 Million in first quarter, clock ran

out

5/2014• Republic Bank of Chicago acquires Aztec

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

• Regulatory pressures when ratio of non – performing loans increased, ALLL adequacy, and Regulator mandated write-offs and write-downs.

• Significant decrease of capital levels

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Contributing Factors

2. Balance Sheet Structure and Income Statement:• Switch from thrift – like balance sheet to commercial

• High concentration of commercial real estate loans

• Low amounts of commercial checking accounts• 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.

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Contributing Factors

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Approach to Problem Solving• Look for the cause of the problem, don’t just fix

it• Team approach to a difficult issue is best –

break down silos!• Ask for assistance - colleagues, experts,

regulators


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Communication is Key• An honest and consistent communications strategy

with all (Board, Shareholders, Employees, Customers, and the Public)

• Ensure focus towards positive, helpful measures and lets people know how they can help early in the process

• Create relationships


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What’s Next Threat?What Keeps You Up At Night?• Regulatory Risk• Cybersecurity• Fee Income• Competition from FinTech/Non Traditional Banking Alternatives• Relevancy


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Difference Between Surviving and Thriving?What I’ve Learned…• Planning is Key – Strategic and Capital• Create Infrastructure to be Nimble• Learning from the Past – History Repeats Itself• Bring in “Outside Voices”• Encourage Creativity and Innovation• Right People in Right Places


Why It Matters

“If you don’t know where you’re going, you might not get there.”

– Yogi Berra

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Contact Information

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Marcie Bomberg Senior Manager

Wipfli LLP 708.522.7161

[email protected]


Michael Jacobson

• NebraskaLand Financial Services, Inc.

• NebraskaLand National Bank

• Asset Size $740MM• 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: $740MM• Gross Loans: $440MM• Net Loan losses since inception:

Less than $275,000• No OREO• Historically No Non-performing

Loans (*******)

Bank Overview (continued)

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• Non-public C-corp. 12% Tier I Capital• 2001: 26 Employees• 2018: 103 Employees• 75% of employee base employed by

the Bank for more than 10 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!

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 otherscould do it better, faster, and more accurately at lesscost 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.

Portfolio Growth Strategy

6 Key Strategies

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Portfolio Growth StrategyKey #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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Portfolio Growth StrategyKey #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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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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Stay Ahead of Compliance.

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

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Portfolio Growth Strategy

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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.


The interest rate cannot be high enough to substitute for excess credit risk.

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QUESTIONS?

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Contact: Mike Jacobson

Chairman, President & [email protected]

www.NebraskaLandBank.com


http://www.NebraskaLandBank.com/

LEADERSHIP LESSONS LEARNED - MadisonJul 30, 2019 · LEADERSHIP LESSONS LEARNED “Leadership...

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