Profitably Serving the Working Class: What Financial Services CEOs Can Learn From Citizen s Bank CEO Phil Baldwin

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Randell Ford
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Profitably Serving the Working Class: What Financial Services CEOs Can Learn From Citizen s Bank CEO Baldwin Leadership and strategy are two of my favorite topics, and I have been both amazed and

1 Profitably Serving the Working Class: What Financial Services CEOs Can Learn From Citizen s Bank CEO Baldwin Leadership and strategy are two of my favorite topics, and I have been both amazed and encouraged by the leaders I have met with recently in the financial services industry, particularly as they adapt their strategies to the digital era. As I meet with CEOs of small to mid-sized financial institutions regarding their leadership styles and the challenges they face, I am especially interested in how they are leading their teams into the new financial services business model where they are competing against huge institutions as well as non-banks such as Wal-Mart. The financial services industry has indeed changed, and CEOs have to be more skillful than ever as they balance the new business model, regulations, and risk management. Meet Baldwin, CEO of Citizen s Bank in Batesville, AR As part of my ongoing discussions with community banks CEOs, last week I had the chance to speak with Baldwin, CEO of Citizen s Bank in Batesville, AR. We talked about his plans to help Citizen s Bank grow, and what led him to take that bank s role as CEO at the end of What I found in our discussion was a refreshing blend of capitalism and the desire to make lives better for working class people and small business owners. Most banks I have worked with have a sincere desire to serve these markets, but their product lines and distribution channels are not well structured to do so. In contrast, possesses both the desire to make it work for these segments, and the experience in making it happen. Copyright CEO Velocity,

2 There are five key points that stood out to me about : 1. Strong Background in Finance and Accounting Several years with Ernst and Young exposed to financial issues in banks across the nation, and prepared him to serve as CFO in two banking organizations. This gives him a keen eye and deep experience managing the bank s profitability, safety, and soundness. 2. Broad Experience in Bank Mergers and Acquisitions Participating in over 100 bank mergers has given the expertise needed to successfully bring together different organizations. This will help Citizen s Bank grow at a faster pace than they have experienced. 3. Leadership Roles Outside Banking s experiences as national board chair for United Way of America and his current service as Board Chair of the Winthrop Rockefeller Foundation exposes him to current challenges faced by middle and low income families. In addition his three years of service in retail and credit counseling provide a unique perspective on how banks can do things differently to make money and better serve people. All of this will help differentiate Citizen s Bank from others. 4. Blending Strong Financial Principles and Serving Working Class People Social entrepreneurship is a popular topic, but in banking? In a time when many banks are staffing with private banking and wealth management, s experience allows the bank to profitably serve a market that many banks have struggled with. 5. Close Fit with Board and CEO Values s combination of experiences and interests seem to make him the perfect fit to lead a bank that is focused on working people. It is great when a leader s experience and values so strongly mesh with those of the organization. The bank s board showed wisdom in choosing because moving forward will not require changing direction. Instead, his leadership will help the board meet its objectives at a quicker pace. Challenge Questions to You Before we get deeper into my discussion with, I d like you to stop right now and ponder the following questions based on the five key points mentioned above: 1. How strong is your institution s financial talent? Copyright CEO Velocity,

3 a. How much variation have they been exposed to not only in your institution, but across the industry? b. Is your financial team keeping you appraised continually on key issues and risks? Are they modeling out 3 month, 6 month, 12 month, and multiyear scenarios that let you create flexible strategies? 2. What is your M&A due diligence and integration process? a. Are you looking not only at the targeted institution s financials and talent, but also at their customer base and market opportunity? b. What is your process for retaining top talent, letting others go with dignity, and integrating organizational cultures? 3. Are you looking outside the financial services industry to find best practices that add value to your customers? a. When was the last time you or someone from your leadership team attended a conference in another industry or had a speaker from a different industry talk to your management team? 4. Do you truly believe profits can be made serving working class people? a. What have you tried historically? b. Who in your organization is actively investigating this issue? c. What experimental products or delivery channels could you try with this segment? 5. How strongly do your values match those of your board? a. Are there areas where you need to develop closer alignment? b. How closely are the values of your senior leadership team aligned with yours and your board s? Copyright CEO Velocity,

4 Now that you ve carefully thought through those all-important questions, let s proceed with the rest of the discussion. Keep the following diagram in mind as you put together the pieces of how leads Citizen s Bank: Baldwin s Leadership Strengths at Citizen s Bank Deep Financial Experience M&A IntegraAon Experience Beyond Banking Serve Working Class Fit with Board Values Details of My Discussion With Baldwin, CEO of Citizen s Bank, how did you become interested in banking and social entrepreneurship? I m a CPA, and my initial position when I left school was with Ernst & Young s banking practice in Little Rock. We served banks all across the country. I was hired away by a client, Frank Hickingbotham of TCBY Yogurt. I became the CFO of Mr. Hickingbotham s banking organization and worked with him as he bought a series of banks to create a regional banking organization, prior to its Copyright CEO Velocity,

5 sale to First Commercial Bank. For about a year I was Director of Corporate Finance at Dillard s, and was involved in public and private financing activities. I worked closely with New York based attorneys and on one occasion had been arguing one of these attorneys over a disclosure in the Form 10K. I said to my wife there must be more to life than that. Fortunately I got a call from Southern Bancorp, a rural development bank in Arkadelphia, AR owned by large nonprofits and foundations that wanted to use the banking model to provide capital access in rural communities. Using my banking skills and corporate training to help people in those communities intrigued me. I went in as CFO and then served for 10 years as CEO. The experience opened my eyes to how hard it is for a lot of people without education and income, and how the deck is stacked against them. After Southern I went to Atlanta to become CEO of a nonprofit credit counseling company. We were giving financial advice to people who were just trying to cash flow themselves through each month. We helped them work their way out of credit card debt, and did a lot of work with folks in trouble with their homes. The company served about a million people per year over the internet and phone. We negotiated a contract with AARP to be one of their national call centers and provide financial counseling to their membership. I learned that there are many of people in the United States struggling, and no one helping them. They don t fit the traditional model of the type of person a bank or financial planner would be interested in. Is it best to serve working class people as a non-profit or for profit organization? If you re a non-profit and rely on government or private grant money you can be in trouble when your funds dry up. It s best if you can do it in a self-sustaining way from profits. From my banking side I am always trying to balance the Copyright CEO Velocity,

6 organization s mission with profitability, safety and soundness. I believe in helping people but not in such a way that it puts the organization at risk. That s what happened to the housing industry in You have to pay attention to the bottom line, however there s an opportunity to do something for the working class that s not currently being done well. What Interested you in the CEO Position at Citizen s Bank? Citizen s Bank in Batesville was built for working class, blue collar, low income it s a wonderful life type people, and that intrigued me. It s a mainline bank but has its DNA wired toward working America. How do you plan to grow Citizen s Bank? Right now we re about $550 million in assets with 10 locations, and we want to expand in Arkansas and beyond. As an example, we ve recently opened up loan production offices in Fayetteville and Hot Springs. We ll open de novo branches with really strong people, as well as look for acquisition opportunities. There are big opportunities for small banks to come together where you re big enough to be efficient but not too hard to manage. You need to be about $1 billion in assets to bear the regulatory burden efficiently, to have enough scale. Most of my work has been around mergers and acquisitions. I have been involved in over 100 bank mergers, and am very comfortable integrating banks and their various cultures, systems, processes, and customer bases. We have the capital and our board has the desire to expand that way. How can banks profitably serve low to moderate income people? Banks are not charitable institutions. They have to make a profit to keep investors and stockholders happy. Most of these folks are not broke, they re just very Copyright CEO Velocity,

7 challenged. There has to be some creativity applied to serve them. The key is to be able to use one on one direct counseling and technology to reduce costs. To do it at scale you want to be in partnership with a nationwide organization that already has scale, like an Equifax. When a bank looks at a branch in a low to moderate income area as a non-money maker they re saying, our products and services don t fit the people in this area. Some of the most expensive money is a payday loan, but if someone needs cash they don t care about the interest rate. I know a banker who ran a payday lender to see who uses that service. It s basically three types of people: Someone who is desperate, like the mother who needs money Friday so her kids can eat; those who need cash Friday because they need to make their car payment in advance of their paycheck; and those who make good money but don t manage it well. People go to these lenders because they can t get what they want from banks. If banks were providing the services payday lender customers need those folks would be going to banks. The challenge is, how do we as banks make a difference for those people? The fast movement of technology will allow us to provide services to people like we couldn t before. We have to figure out the right technology that will work and allow people to trust us. It s important to get these folks to trust us because they ve been burned in the past. Citizen s Bank is well trusted in our communities. We re the bank that s helped them when they ve needed it. What do you see as your most crucial leadership duties? Developing a vision along with the board of directors and being able to communicate it and create excitement around it. My role is to communicate it to the employees and show them how they can get there. One challenge at a community bank is getting people to understand the growth process and get excited about it. Copyright CEO Velocity,

8 The good to great approach of getting the right people in the right seats is critical. Making sure your technology is ready ahead of time is really important before you start expanding. It comes down to people, systems, and capital. There s really no real secret sauce. It can be hard working with people and helping them, but I enjoy that. It can be nerve wracking though. I enjoy watching people do things they never dreamed they could do and do it well. When you give people the right tools and training it is fun to watch them bloom. What are the greatest opportunities and challenges you see for your bank and the industry in 2015? Technology and demographics are driving changes in banks. Technology is so much more advanced than I ever thought possible, but to my kids it s a common, ordinary part of life. The younger generation sees the world so differently. They get their news from the internet, watch Netflix, and don t shop in stores. They re a big challenge to bankers. The American Banker s Association says 60% of bank customers haven t been to the bank in 5 years. Millenials don t even know branches. Technology and demographics are rapidly changing what a bank needs to do. It has really opened up the payment systems. Wal-Mart can serve many of these people better and cheaper without being a bank. Down the road in 50 years or so, will we even need banks? Will they be relevant? Bankers have to adopt a more retail based attitude like a Macy s or Dillard s. My one year at Dillard s showed me how much better retailers are at servicing their customers than bankers. Most bankers don t have a clue what the best products are for their customers Copyright CEO Velocity,

9 What are some ways community banks can best serve small and medium sized businesses (SMEs)? Your average banker is not a very good business banker because they don t get trained on the same pressures a business owner gets trained on every day. The best way is to talk to your customers. Many times small business owners are afraid to talk to bankers because they don t want them to know they re struggling. You need an open dialogue to help your banker understand your challenges. An example is a doctor who told me the hardest thing about his business was cash flow. It is seasonal and cyclical, so he d like the ability to factor his accounts receivable and improve his cash flow. That s different from drawing on his line of credit. Having a dialogue with your customers is the best way to go because every company is different. That s what small town bankers always used to do, and that s how you best meet the needs of your customers., thanks so much for our discussion. I really like where your headed with Citizen s Bank. You have some great strengths and a chance to really differentiate the bank while helping a lot of folks. I applaud you for that. Thank you. I enjoyed the conversation. Stop by if you re ever in Batesville. McClymonds is a veteran leader in the financial services industry and expert at creating and executing profitable strategies that make businesses grow. His company, CEO Velocity, is a strategic consulting firm that helps CEOs of financial services firms and small to mid-sized enterprises create greater customer loyalty, profits, and company value. You can reach at , scottm@ceovelocity.com Copyright CEO Velocity,

Formula for Community Bank Success: What Financial Services CEOs Can Learn From First Community Bank CEO Dale Cole

Formula for Community Bank Success: What Financial Services CEOs Can Learn From First Community Bank CEO Cole Leadership and strategy are two of my favorite topics, and I have been both amazed and encouraged