Community Bank CEO Outlook 2022: Your priorities for the new year

How long is your to-do list?

Like most other community bankers, you spent many long nights processing Paycheck Protection Program (PPP) loans, planning how to do business in a pandemic and much more throughout 2020 and 2021.

And as local economies continue to stabilize and many challenged industries bounce back, 2022 may be the year community bankers put the rubber to the road by revisiting goals and turning them into action items.

“When I talk to other CEOs across the country, they tell me the same thing: PPP borrowers who were first rejected by their larger bank decided to stop being customers there and brought over their entire relationship to the community bank that gave them a PPP loan.”

—Janet Silveria, Community Bank of Santa Maria

So, what’s at the top of community bank leaders’ to-do lists? According to Independent Banker’s 2022 Community Bank CEO Outlook Survey, it’s making more loans to offset a flood of deposits, as well as finding and keeping key talent in this new era for workplaces. Leading the challenges for bankers responding to this year’s survey are increasing loans (56.1%) and increasing earnings (54%).

“Customers are sitting on a lot of cash, and they have not needed to borrow using traditional loans at the pace they were before,” says R. Blake Chatelain, president and CEO of $2.9 billion-asset Red River Bank in Alexandria, La. “Plus, continued economic uncertainty has caused many borrowers to be cautious in their growth plans.”

Fortunately for Red River Bank, loan demand is picking up in Louisiana as cities stabilize from the pandemic and businesses reopen. However, continued supply chain issues might still hamper business customers’ growth for a time, Chatelain says.

Janet Silveria, president and CEO of $402 million-asset Community Bank of Santa Maria in Santa Maria, Calif., says loan growth is needed because community banks like hers are sitting on quite a bit of liquidity, in part because Paycheck Protection Program (PPP) borrowers also opened new checking accounts there.

“When I talk to other CEOs across the country, they tell me the same thing: PPP borrowers who were first rejected by their larger bank decided to stop being customers there and brought over their entire relationship to the community bank that gave them a PPP loan,” Silveria says. “As a result, we’re more challenged with liquidity than the larger banks.”

What will drive profit in 2022?

So, where to put those deposits to use? Nearly half (46.8%) of community bank leaders say income from commercial real estate (CRE) loans is the revenue stream most likely to drive their profitability in 2022. That’s followed by residential mortgage lending (36.3%), small business lending (32.1%), commercial and industrial (C&I) lending (30%) and agricultural lending (23.6%).

While demand for CRE and construction lending remains robust in the Santa Maria Valley, Silveria says C&I loan demand is “lackluster,” and many businesses still have unused lines of credit. “But we still need more of everything to keep pace with deposit growth,” she adds.

Badger Bank in Fort Atkinson, Wis., is facing increased competition in its home market from other banks, nonbanks and even credit unions that are aggressively pricing loans to businesses, says president and CEO Steve Dehnert. To counter such competition, the $186 million-asset community bank plans to hire another lender to seek deals across the state, sticking to smaller towns and avoiding the saturated Milwaukee and Madison, Wis., markets.

Ponce Bank, a $1.5 billion-asset community development financial institution (CDFI) in Bronx, N.Y., will continue its mission to fund microloans to new small businesses in New York City’s low-income neighborhoods, says president and CEO Carlos P. Naudon.

“There has to be a follow-up to PPP loans to small businesses, and we view that as one of our missions. Because if we don’t strengthen our small businesses, we can’t strengthen our communities.”

—Carlos P. Naudon, Ponce Bank

“PPP loans at least gave them a lifeline, so, post-pandemic, we’re trying to reach out to the surviving entities and help strengthen them so they can continue to grow,” Naudon says. “There has to be a follow-up to PPP loans to small businesses, and we view that as one of our missions. Because if we don’t strengthen our small businesses, we can’t strengthen our communities.”

Holding onto talent

Another top challenge for community banks in 2022 is attracting and retaining qualified staff. Nearly half (48.1%) of respondents listed it as one of their primary business challenges.

“It’s particularly difficult today in the environment that we have, where a person being hired has so many choices, including staying home with their kids while working remotely,” Naudon says. “I think many people today are making a lot more short-term decisions to satisfy them over the next few months, versus having a long-term commitment and more of a mission.

“We are very much a mission-driven organization, so our challenge is to find the talent that is a match, and that’s very tough to do now.”

Badger Bank is having trouble finding staff “across the board,” from operations to tellers and trust officers. “We don’t even get applications,” Dehnert says. “It’s a struggle.”

In 2022, existing staff—Dehnert included—will continue to wear multiple hats until labor market conditions ease.

While Red River Bank also finds it a challenging labor market, especially for frontline tellers and administration staff, it sees an opportunity to lure away dissatisfied bankers from bigger banks that have either exited smaller markets in Louisiana or drastically reduced in-person services, Chatelain says.

“A lot of customers aren’t happy about that, and a lot of bankers aren’t happy as well,” he says, “so we continue to add experienced bankers to our team.”

“In this very low interest-rate environment, deposits aren’t necessarily what we want, but that’s where we are. We’re here to service our customers.”

—Steve Dehnert, Badger Bank

Using deposits in 2022

Several things were not much of a concern at all for bankers in the survey. For example, just 2.1% are worried about direct effects of COVID-19 and only 4.2% feel they need to grow deposits in 2022.

“We’re flush with deposits. It’s crazy how much our deposit base has grown,” Dehnert says. “So much money has been pumped into accounts from stimulus checks, and people aren’t spending it. Even PPP money is sitting in deposit accounts. In this very low interest-rate environment, deposits aren’t necessarily what we want, but that’s where we are. We’re here to service our customers.”

At the Community Bank of Santa Maria, deposits grew $71 million from Sept. 30, 2020, to Sept. 30, 2021, while loans grew just $18 million, and current loan demand is still not keeping pace with deposit levels.

“Deposits are necessary, and we need to have that service for our customers, but they are not free; they cost us money,” Silveria says. “So, we have to look at how we can pay for those deposits. Typically, it’s not tough to make loans, but if we can’t get enough loans to pay for all these deposits, we have to find other ways.”

Launching new revenue streams

In this environment, many community banks are looking for alternative methods of making money, including starting new businesses under their holding companies.

“For example, we don’t do mortgage lending right now, because we don’t have the compliance expertise and staff knowledge,” Silveria says. “But perhaps we could find a team somewhere else that has such expertise and start another entity under the holding company that would do mortgage lending.”

Another community bank structured a new entity in a similar way, Silveria says. The institution hired a Small Business Administration (SBA) lending team to work at a newly created entity under the community bank’s holding company. “Those are the types of things we could look at in 2022 to increase non-interest income streams,” she says.

For much of the community banking sector, earnings for the past two years have been supplemented significantly by making PPP loans. If earnings drop off this year, Silveria worries investors will get concerned.

“But the message we need to send to everybody is that community banking remains strong,” she says. “Their respect and perception in their communities has been strengthened even further through the pandemic, and we just need to re-emphasize the role we’ve played during the pandemic. In 2022, community banks will continue to play a vital role, and we need to get that message out.”

---