Community banks are excellent at fostering close relationships, supporting local businesses, contributing to important causes and providing a sense of financial security in the communities they serve. For these and other reasons, those communities come to rely on independent financial institutions for a broad range of products, services and support. 

By investing time and effort into succession planning, these “hearts of Main Street” can keep beating even if a top executive retires or some other unforeseen circumstance arises.

According to the 2023 ICBA Compensation and Benefits Survey sponsored by Crowe, only 20.6% of respondents feel “prepared,” while 59.4% of the respondents feel “somewhat prepared” for the succession of C-suite executives and the CEO to the next generation. 

And succession planning, which involves identifying and developing future leaders, is critical for even the smallest community bank. 

Jack Hartings, chairman of the board at Peoples Bank Co. in Coldwater, Ohio, says community banks should start the succession planning process early, as opposed to waiting for the inevitable to happen and then scrambling to address it. Hartings says $800 million-asset Peoples Bank embarked on its succession planning journey roughly two years before he retired from his 30-year tenure as CEO and president.

Hartings admits that ramping up a succession planning effort after someone has held a top leadership position for three decades isn’t easy, but it can be done. He credits the two-year runway with helping to smooth out the transition. 

“The trick is to think out at least two years, work with your board and vet candidates to ensure you select someone who will be the right fit,” says Hartings, whose successor was a 20-year employee of Peoples Bank. “He already knew our culture, our goals and our processes.”

If your community bank is looking for opportunities for your next-generation leaders, check out ICBA’s LEAD FWD Summit, which will be held September 9–10 in Milwaukee. Community bank leaders will learn, network and grow their leadership skills at this dynamic event.

After the two-year succession planning period, there was still work to be done. Peoples Bank hired an outside coach to help the new CEO ease into his new role. Hartings held regular, casual meetings with the new CEO in the latter’s office. This helped the incoming leader learn and absorb knowledge in his own environment, versus always being called into the boardroom. Hartings says those interactions were valuable because they allowed him to share advice and insights over time. 

The community bank also got its board involved in the candidate interviewing process, with each board member encouraged to ask the individuals two questions. “This gave board members a chance to ask questions they felt were important and then use the responses to evaluate multiple candidates,” says Hartings. “That worked out very well in our situation.” 

Succession planning ensures continuity of leadership and bank strategy; prevents disruption from unexpected leadership changes; and builds confidence among customers, investors and regulators.

“Succession planning is an essential part of talent management,” says Valerie Utsey, ICBA EVP and chief people officer. “Proactive planning prevents costly and disruptive talent gaps.” On the other hand, lack of planning can leave banks vulnerable and scrambling to fill in those gaps at the last minute. 

To avoid these and other succession-related problems, Utsey suggests using external training through ICBA Education ( courses such as Succession Planning for Your Community Bank’s Future (and Survival) and Strategies for Succession Planning and Talent Management.

“By investing in the next generation of leaders today, you'll ensure your bank's success for years to come.”
—Valerie Utsey, ICBA

Shadowing and soft skills

Banks can also implement internal training by having rising stars shadow current leaders and focus on soft skills like communication, adaptability and vision—all of which are more critical than ever in the modern workplace. 

“The higher you move up in an organization, the greater the importance of soft skills for inspiring others toward a mission, listening with intention and providing a safe place for people to work, develop and grow on their own,” says Alice Frazier, president and CEO at $830 million-asset Bank of Charles Town in Charles Town, W.Va. “Soft skills are critical to your effectiveness as a leader.”

Frazier also recommends ICBA Education and the Barrett School of Banking as two good resources for banks that are kicking off or continuing their succession plans. 

The latter’s one-week executive leadership program, for example, provides a “broad perspective” across operational areas of the organization, she says. 

Internal training programs are also important and “create conversations that help incoming leaders understand what it really takes to lead through and up to higher levels of the organization,” says Frazier. 

Bank of Charles Town recently added executive coaching to its leadership development program, with individuals attending from six to 12 coaching sessions during which they discuss potential growth opportunities within the bank, overcoming leadership challenges and effective time management skills. Collectively, these strategies are positioning the community bank for a smoother transition to a new leader when the time comes. 

“My predecessor passed away seven years ago, at which point the bank went out on a search,” says Frazier, who was subsequently hired as the bank’s new president and CEO. “Since then, we’ve continued to expand the breadth of our succession planning and improve various areas for bench strength, knowing that our executive team is now within five to six years of ‘normal’ retirement age.”

Utsey says human resources leaders can contribute a lot in this area, and particularly if they focus on future-proofing the bank by making succession planning a strategic imperative. 

“By investing in the next generation of leaders today, you’ll ensure your bank’s success for years to come,” she says.

5 succession planning tips for community banks

  1. Identify individuals within your organization who have leadership qualities.
    “Be sure to factor soft skills into the identification process,” says Jack Hopkins, president and CEO of CorTrust Bank in Sioux Falls, S.D. “As a leader, you have to be able to get along with and manage people effectively.”

  2. Leverage the power of mentoring.
    Pair up seasoned leaders (mentors) with potential successors (mentees) to share knowledge, experience and guidance. For example, CorTrust pairs up senior lenders with individuals who want to fill the position. “We work out a compensation arrangement for the senior lender, who then takes that person under their wing and helps them become next in line for their position,” says Hopkins.

  3. Find ways to broaden out their experience.
    If the candidate came up through the operations or lending side of the organization, use internal and external training to break down the silos and expand on their experience.

  4. If you’re covering tuition, use clawback clauses.
    If you include these clauses in your employment contracts, your bank can recoup money previously paid to an employee for external training. Hopkins sees this as an important step in the current labor market. “You don't want to pay for them to go to school only to have them get recruited to another organization,” he says.

  5. Expose potential leaders to all areas of the bank.
    CorTrust uses its compliance committee to help employees understand all aspects of the bank’s operations. The 20-person “middle management” committee reviews the various departments and the regulations that cover those operations. “That way, they get exposure to everything within the bank,” says Hopkins.

The risks of delaying

Lucas White, president of The Fountain Trust Company in Covington, Ind., and ICBA chairman, says banks that ignore the need for succession planning may wind up having to sell versus handing the reins down to a new leader. His community bank has total assets of $686 million, 16 locations and a two-pronged plan that focuses both on management succession within the bank and shareholder succession. 

“Shareholder succession is something people don’t think about,” says White, who acknowledges that an institution’s specific ownership structure determines whether it needs shareholder succession planning. If a key shareholder at a family-owned bank passes away, for example, and if the bank hasn’t prepared for the transfer of those shares, it could force the unwanted sale of the bank. “This is a very important reason community bankers need to think about and concentrate on succession planning,” he adds.

“If your bank is publicly traded and actively traded with plenty of liquidity for the stock, shareholder succession probably isn’t an issue, because there’s a ready market for those shares,” White continues. “However, the more closely held or lightly traded your bank is, the bigger the shareholder succession issue may be.”

“You can’t wait until the last minute, because you may not know when the last minute is coming.”
—Lucas White, The Fountain Trust Company

Stepping up to the plate

White recommends a blend of internal and external training focused on potential candidates who at some point may want to move into executive leadership positions. He also advises community banks to be prepared for various shades of “retirement.” 

Some CEOs may want to retire and completely step away from the bank, for example, while others may want to remain a part of the board of directors. Some may want to share the role with the new CEO to give that person time to learn the ropes and experience the day-to-day responsibilities firsthand. 

The last scenario gets complicated if the current leader doesn’t want to relinquish control. Hartings doesn’t see value in allowing this “overlapping” of positions to happen, while White says it can work if everyone is “on the same page and understands their respective roles and the end game.”

Like Frazier, White sees soft skills as critical to leadership success. “Managing people is one of the hardest parts of the job, particularly when it comes to dealing with different personalities, feelings and expectations,” he points out. “It’s not enough to simply develop a succession plan and then worry about managing people after the fact. Leaders really have to be able to communicate well.”

Don’t wait until the last minute

Effective succession planning isn’t a one-time event; it’s an ongoing process that ensures a smooth leadership transition and safeguards the bank’s future. It helps instill confidence in your customers, who know their favorite community bank is going to be nearby for the long term.

By starting early and committing to the process, banks can develop a robust plan that identifies and cultivates high-potential leaders. Beware of any “silver bullet” fixes, Hartings warns, because there aren’t any. 

“As community bankers, we’re already very good at handling exceptions,” he says. “If you have the right individual working through the process and even tweaking that approach along the way, the odds of a good outcome will be much higher.” 

On a final note, White says the time to act is now, not later, when it comes to succession planning. “You can’t wait until the last minute,” he warns, “because you may not know when the last minute is coming.”

What if there's no heir apparent?

What happens if there is no heir apparent, or if the labor market is like it is right now: low unemployment, high employee turnover and fewer available resources to choose from? That’s where you have to get creative, says Jack Hopkins, president and CEO at CorTrust Bank in Sioux Falls, S.D. The $1.6 billion-asset community bank does have an heir apparent in Hopkins’ daughter, but it also has a leadership team that’s nearing retirement age.

“My daughter has been actively involved in the bank for some time, but succession planning is still a concern due to the limited availability of talent right now,” says Hopkins. “Individuals who are now in their 40s and 50s didn’t think banking was ‘sexy’ when it was time to pick a career, so they went into tech and other industries. We have some good young people coming up, but not many people have the ‘breadth of experience’ needed to run a bank.”

That's why CorTrust identified younger talent within the bank, provided internal training, then sent them to banking schools and leadership programs—and that's just one approach to nurturing future leaders.

Valerie Utsey, ICBA’s EVP and chief people officer, says community banks that lack a natural successor among current employees can take these steps:

  • Recruit external candidates and provide support to integrate them into the organization.

  • Merge with a bank that has a strong leadership bench.

  • Contract with a professional employer organization to supply interim leadership while developing internal candidates.

  • Implement a high-potential leadership development program.

  • Use project-based assignments to test and grow rising stars.

  • Leverage industry training programs to close skills gaps.

  • Create an emergency succession plan to mitigate risk.