Bankers from three of the Wisconsin banks that have converted from a national to a state charter in the past year said the positives outweighed any potential pitfalls they considered.
“We had a close working relationship with the Office of the Comptroller of the Currency (OCC) over the past few years. As the bank gained significant strength, there were a number of banking industry centers of influence that were suggesting the bank consider the benefits of working with a more local regulator who understands the local economy and its business cycles,” said Baraboo State Bank President & CEO Corey Davis.
The idea began to get traction with the Board of Directors as the bank compared itself to the community banks in its region. “Switching to a state charter would align the bank with its community banking partners in our market. There was a clear savings in fees related to examinations and an increase in the bank’s legal lending limit,” Davis said.
Fortifi Bank (formerly The First National Bank of Berlin) President & CEO Eric Cerbins, who has 38 years of experience working at national banks, said that the regulatory process had changed over the past few years.
“I’ve always been with the OCC; I’ve always enjoyed working with them. They do their job; they follow the regulations that are there. I just know that it had been a little more burdensome than we had been accustomed to,” Cerbins said.
“I had a couple people come to me and say, with all the oversight that’s going on, we’re kind of losing sight of our community banking culture,” he said. “I would guess that on average in a month we had 50 people-hours involved in target exams that were continually going on between the regular 18-month exam process.” He estimated the cost to the bank to be as much as $40,000 to $50,000 per year in staff time alone.
He brought in Cheryll Olson-Collins, administrator at the Division of Banking at the state Department of Financial Institutions (DFI) to talk with the board and the executive team.
“After talking to her, we then found out we’d probably save close to $80,000 a year in regulatory expense. To me, that was a bonus – I wouldn’t have even guessed that,” he said.
Bank leadership had previously considered switching charters in 2005, Cerbins said, but changing the bank’s name was an obstacle. “Probably one of the most difficult things in the whole process is the name. We’ve been First National Bank of Berlin since 1891,” he said. (The bank had been chartered under the name Sacket, Fitch & Company in 1876.) However, this time the bank – which now has nine locations from Waunakee to Green Bay – decided a name change would be beneficial as well.
NBW Bank President & CEO Jerry O’Connor said his bank (previously The National Bank of Waupun) had also considered a charter conversion about 10 years ago but stepped away from it when the economic crisis hit.
This time, the decision came down to costs when deciding between remaining with the OCC or switching to DFI and the Federal Reserve Bank. First, the cost of staff time. “It is a considerable difference – DFI or Federal Reserve are in and out of here in two weeks and we’d have a report at the end of two weeks. With OCC, we would have a three-week exam with at least twice as many people and it would typically take five to six months to get a final report,” he said.
“And then you come back to the monetary difference – there’s two ways of measuring monetary value. One was a significant reduction in the cost of the exams, and two, a state-chartered bank has a higher legal lending limit. When we put those two items together and stretch it over 10 years, it’s about a million-dollar benefit. So, the monetary benefit certainly outweighed any other considerations,” O’Connor said.
Communicating with Customers
All three banks worked with outside legal counsel throughout the charter conversion process, which was completed within four to seven months.
“Baraboo State Bank used existing bank staff manage much of the other conversion processes. There was a considerable amount of time allocated to updating the name on various systems the bank utilizes. Considering the long legacy of our organization, it is a diligently ongoing process to find all of the nooks and crannies which display the old name,” Davis said.
Fortifi Bank – which had begun the process of changing its name before applying for a state charter – put an internal team together to do everything from brainstorming the new name to managing communications.
“We looked at it as two projects, really. It was the legal change of charters and the change of our longstanding name,” said Fortifi Bank Executive Vice President and Chief Operating Officer Wendy Seaman. “I think the key to success for us was the comprehensive marketing program our team put together.”
The components of the program included individual conversations with customers, a link on the bank’s website to a dedicated site to explain the name change, a video on the bank’s Facebook page, letters to customers, and a few weeks later, press releases to local media.
“All of that was coordinated and rolled out over a couple months so our clients were informed, and I think that’s what made it so positive overall,” Seaman said. “There are a lot of banks in our small towns being bought, so it was really important we communicated that we were the same bank.”
NBW Bank also began working on its name change before the charter conversion process. “The only downside we considered was, would the public be amenable to the name change? So that one required that we really put our minds together to come up with the communication plan, and I think we overcame that,” O’Connor said.
“One of our staff members came up with a great response when customers would ask, ‘Well, what does NBW stand for?’ It was, ‘I could tell you it’s three initials, NBW, but if you want to know what it stands for, it’s that we’re the Nicest Bank in Wisconsin,’” he said.
Advice for Others
“I think this is a good move to make for some banks in Wisconsin. It’s not necessary to be paying excessive exam fees. In 2017, I paid $66,000. By contrast, the annual cost for DFI and Federal Reserve combination is around $22,000 a year. It’s just hard to walk away from that,” O’Connor said.
“With DFI, if I have a real issue, I can drive to Madison and sit down and talk with all the principals involved,” he added.
O’Connor recommended talking with other banks who have been through the process about details such as their communication plan.
Cerbins said that as a state-chartered bank with a higher legal lending limit, Fortifi Bank will be able to better serve customers and may buy back some of its loan participations.
He said that thinking ahead is key to cost savings – for example, planning in advance allowed the bank to use up supplies with the previous name and implement the name change in incremental steps. Although most of the work has been completed, the bank’s new signage will go up in the next month.
Baraboo State Bank’s Davis and the others recommended that bankers reach out to DFI early on for more information. “Make sure you ask plenty of safety and soundness questions to compare and contrast how the state regulator would view your bank versus the national regulator. DFI really did present themselves as wanting work with our bank to make the state charter conversion as easy as possible,” he said.
Mahan is a freelance writer for the Wisconsin Bankers Association.