It is unlikely that a banker would want to travel back in time ten years. Yes, Apple was just about to unveil the iPad, and Navy Seals stormed a home in Pakistan and killed the most wanted terrorist in the world. Life back then was a little less technical because mobile banking was not quite mainstreamed, and no bank ever questioned whether a Pokémon would be digitally hiding behind its teller counters. But 2010 was a dark time for the banking industry; in 2010, the Great Recession's wake rocked Wisconsin banks.
At the turn of each decade, it is often inevitable that industries, and people for that matter, reflect on how far they have come and what the future may hold. The Wisconsin banking industry is no exception. In the past decade, Wisconsin banks evolved from standing shoulder-to-shoulder, ready for battle against a crumbled economy and a misinformed reputation, to a thriving industry that embraces the ever-changing technological world. However, what has not changed over the years is the thing that will make Wisconsin banks strong going into the next decade: resiliency.
Thinking back to 2010
There's no denying that 2010 brought challenges to the Wisconsin banking industry. With the world still reeling from the impacts of the Great Recession and increased federal regulatory pressure, Wisconsin banks were faced with a difficult task: they had to fight to deliver a healthy banking environment to their customers. No aspect of financial services was untouched by the recession, yet commercial and community banks were left to pick up the pieces.
"The recession was all-encompassing: housing, land development, agriculture, and commercial real estate… There were no safe havens," said Robert Just Jr., retired president and CEO of Mound City Bank and WBA Chair in 2010. "What banks did to survive was remarkable; we closed ranks and fought for our good names."
This resiliency was indeed remarkable, but unsurprising. Wisconsin banks never saw the magnitude of bank closures or failures to the same degree as other parts of the country, including some from neighboring states. They had fewer causalities than others in the industry because they stuck to their core competency: supporting their communities. Wisconsin banks hold traditional values of conservativism and put their customers first. They fought to uphold their communities even in a turbulent economic environment.
"Wisconsin banks have historically been prudent in their underwriting and conservative in how they manage their balance sheets," said Rose Oswald Poels, president and CEO of the Wisconsin Bankers Association. "I think that helped them be able to weather the challenging times in 2010."
Weathering the storm was certainly no easy task. In addition to the overall impact of the recession on the economy, the crisis triggered a domino chain reaction of regulations that all but crippled some banks. Prior to 2008, regulators did not express many concerns during bank evaluations. However, the recession changed everything. Panic electroshocked regulators into a reactive mode and banks found themselves whiplashed from the new scrutiny imposed upon them. And then, of course, Dodd Frank hit.
"Dodd Frank was approved in 2010 and it just unleashed a waterfall of change in the regulatory and risk management piece of banking," said Matt Sitkwoski, executive vice president and chief financial officer of Bankers' Bank, Madison. "A lot of bankers had to re-educate themselves. It wasn't necessarily a bad thing, but it was challenging."
As if banks did not have enough on their plates, they were also faced with a full-frontal attack from the media and others from outside the banking industry. It is no secret that risky moves made by certain Wall Street investment mortgage brokers and firms caused the severity of the recession. However, commercial and community banks bore the impact and were unjustly blamed for the actions of the bad apples in the industry.
"We suffered because of this, but it wasn't the community banks that caused this… It was hard to get that message out," said Jeff Niesen, senior vice president of Bankers' Bank. "I remember back in the time, if you said you worked at a bank, people would say 'oh, you're one of them' and I would say 'yes, I am, but this wasn't caused by us.'"
Despite this misrepresented perception from those outside the industry, Wisconsin banks continued to grind through the tough economy with an eye for the future and for the communities they served in. That ability to see the glass half-full during economic hardship distinguished them from other financial servicers in the industry and helped them thrive later into the decade.
"If there are challenges, that means that there are opportunities to differentiate and succeed," said Mark Meloy, CEO of First Business Bank, Madison and current WBA Chair. "I always felt like 2010-2012 were some of the fastest moving, most exciting times that we had because we were able to take advantage of some recovery moments and deliver products and services that clients and prospects were asking for, and doing it in a way that was faster and better for them."
Today's banking environment
As the calendar approaches 2020, the Wisconsin banking industry looks quite different than it did entering 2010. Community banking has been at the center of the economic recovery, and it has seen major payoff for this effort, especially in the last five years. Bank capital is much larger and Wisconsin banks have developed sound lending markets, which has contributed to a flourishing economy. It seems like a long time coming for many bankers in Wisconsin.
However, the industry also faces a dramatic shift in the way that individuals engage with their bank. There is no denying that the mobile phone explosion now encompassing all aspect of human interaction has revolutionized the way Americans bank.
"Mobile banking has changed everything from the client's ability to authorize wire transfers to simply looking up account balances," said Meloy. "That client or potential client now looks at the entire financial landscape on a 360-degree basis entirely with their phone these days."
Further, the culture shock of mobile phones also developed new competition that community banks in Wisconsin had never faced before.
"I think there was always increased competition into the new millennium for bank customers. This disintermediation has been going on for many years, but I think it's really intensified," said Sitkwoski. "The new players, whether they be fintech or online lenders or whatever the case may be, challenge the ability for community banks to defend their customers and defend themselves, and there are aspects of the marketplace that are reaching to grab their customers to take them away."
The expectations of customers have also shifted. Millennials in particular focus more on the experience of their business in a different way than older generations. They want their banking to be as fast-paced as their lifestyles. This shift has changed the way that community banks need to evolve, as these new products have subtly given consumers reasons not to come into the bank. However, something that has not changed over the years is that community banks are very good at engaging with the communities they serve in. As Just said, "face-to-face interaction will never go out of style."
This concept is no understatement and differentiates Wisconsin community banks from their online and national competitors. Throughout his travels, Niesen has found a direct correlation between a vibrant community and a strong community bank at the center of it.
"They'll treat their customers how they should be treated. I'm not going to imply that regional banks and national banks aren't doing so, but at the community banks you're more than just a number," he said. "They haven't extended beyond their capabilities within their communities and that's something they continue to do well."
Sticking to their core competency has helped many community banks, especially family-owned banks, remain independent in an environment that has seen an increase in mergers and acquisitions in the past few years. According to Sitkowski, the quality of capital is significantly stronger than it was in the early 2010s. While this is good from a safety and soundness standpoint, the return on equity is lower and a bank needs to earn more to be successful. He attributes the increasing number of consolidations to this new challenge. But, as seen during the early post-recession years, Wisconsin's community banks are resilient and able to take on whatever challenge is thrown their way.
"I think Wisconsin banks have a nimbleness and are able to adjust to whatever environment they've found themselves in," said Meloy. "I think that's the hallmark of the Wisconsin banking industry for a very long time and continues to be."
Thinking of the future
It is nearly impossible to predict the future of the Wisconsin banking industry. The industry metamorphosizes itself to economic, political, and cultural factors. However, experts in the field unanimously predict that the trend of consolidation is here to stay in the short future, and banks need to adapt.
"I think it's inevitable that we'll continue to see some consolidation in the banking industry, not only in Wisconsin but nationwide," said Meloy. "I also strongly believe that the competitive environment really goes far beyond what we've always considered competition, and I think that's going to grow and with it provide opportunities for us to succeed."
Oswald Poels agrees that mergers and acquisitions are unlikely to disappear in the next decade. However, she is hopeful that this trend will begin to plateau because community banks are often more than just financial servicers; they breathe life into the towns they serve.
"Communities really need local banks, and their presence is really important, not just because of the traditional banking services that are needed in the community, but also for the philanthropical support and just the vibrancy of the overall local economy," she said. "We really need local banks."
Local banks will only survive if they are able to be as adaptable as they were during the early 2010 years, yet strategic with their decision-making into the future. Oswald Poels believes that this means going into the new decade, banks need to develop a strong succession plan for the future and also peer network with other banks to share ideas about how to best serve their communities.
Niesen adds that community banks need to develop and nurture partnerships with technological firms with aligned goals that best service their customers. However, whether it is 2010 or 2029, Wisconsin banks will succeed so long as they stick to the values that make them vibrant, dependable, and unique.
"I think community banks need to get past this perception that the community bank cannot survive, regardless of the size," said Sitkowski. "Community banks have a viable role going forward and they will survive with the right partnerships and relationships."
Kallien is a content creation associate/editor at WBA.
Bankers Bank is a WBA Gold Associate Member.