Independent Banker - January 2023 - 46

2
REVIEW EXPENSES
Every year, Grand Rapids
State Bank, a $270 millionasset
bank in Grand Rapids, Minn.,
does a top-to-bottom review of its
expenses. " You still have to spend
money to make money, " says Jeff
Lee, senior vice president and chief
credit officer. He notes, however,
that there may be free or lower-cost
products that work equally well.
He offers the Expected Losses
Estimator (ELE) as a real-life
example of a free product the Federal
Reserve released to help banks
comply with the Current Expected
Credit Losses (CECL) standard.
Grand Rapids State Bank tested
the product and found it was equal
to, if not better than, what was
commercially available. " Why would
we spend money on a third party
when the Federal Reserve has a very
nice product that we can use for
free? " Lee says.
Community banks should also
make sure they are not overpaying
for third-party services. This
includes core, digital banking
and payment processing services.
They should look at their contracts
carefully, especially if they haven't
been negotiated in the last three to
five years, says Eric Weikart, partner
and leader of strategy and execution
solution group at Cornerstone
Advisors in Scottsdale, Ariz. Letting
contracts auto-renew is a practice
he strongly advises against, as banks
that do this are likely " leaving money
on the table. "
It's also a good time for
community banks to consider their
staffing expenses. For example, there
may be ways to automate certain
tasks and use existing staff more
efficiently. To curb costs, community
banks could also consider hiring
more remote workers, a trend that's
become more common due to the
pandemic, Epperson says.
3
DOUBLE DOWN ON CREDIT QUALITY
In uncertain times, it's critical for banks
to focus on credit quality and monitor
their loan portfolio, Toft says. This involves
making sure annual reviews are up to date and
that the community bank is getting all the financial
information it needs from loan customers. It could
also mean finding creative ways to prod customers
to provide this information if they haven't already,
he says.
Toft also recommends community banks monitor
real-estate tax payments for their commercial loan
clients, since it's more common for borrowers to
make these payments on their own. Sunrise Banks
checks the county's website twice a year to make
sure property taxes are being paid in a timely
manner. If not, it could be an indicator of upcoming
problems with cash flow which could affect loan
payments, even if they have been made up until
that point, he says.
David notes that banks don't always afford the
same degree of due diligence to their $100,000
loans as they do to $500,000 loans, which he
believes is shortsighted. The amount of revenue
generation necessary to offset smaller charge-offs is
an important consideration, and community banks
need to hold loan officers accountable for smaller
loans as well, making sure they are adequately
secured, he says.
46 // ICBA Independent Banker //January 2023
Independent Banker - January 2023

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