ABA Banking Journal - March/April 2016 - (Page 42)

> CEO ROUNDTABLE Demographic Destiny for Community Banks? From challenges to rural banks to the rise of millennials to regulatory pressure on growth areas-community bankers discuss the outlook for the industry. BY EVAN SPARKS IN THEIR BEST-SELLING mid-20th century books of U.S. electoral politics, analysts Richard Scammon and Ben Wattenberg were fond of saying that "demography is destiny." The same is true in the community banking sector. As populations age in rural areas and shift from suburbia and the country to big cities-and as the baby boomers give way in the workforce to millennials-demographic changes will be felt keenly by community bankers. During a recent roundtable discussion with four top community bank executives, strategies for navigating these changes came to the fore. Growth a challenge in rural markets Demographic patterns of migration between urban and suburban markets and rural hinterlands continue to drive change in the banking industry. In rural areas, "the biggest challenge is growth of any kind," says Jeffrey Smith, chairman of the $764 millionasset Ohio Valley Banc Corp., based in Gallipolis in rural southeastern Ohio. Challenges include net outmigration as young people move for school or in search of jobs. Peter Judkins, a banker in rural western Maine, observes that more than 90 percent of his state's population growth takes place in Maine's three largest urban areas. "The death rate is faster than the birth rate in our state," he explains. "So, there's a real concern- 42 ABA BANKING JOURNAL | MARCH/APRIL 2016 even if there were opportunities- that there won't be people to fill those opportunities." Declining opportunities remain a challenge in the towns served by Judkins' $345 million Franklin Savings Bank, based in Farmington. "We saw the shoe industry go down. We saw the textile industry go down. Now the paper industry is being challenged pretty significantly. I don't know where it's all heading," he says. Meanwhile, banks in markets on the receiving end of demographic shifts are leveraging those opportunities. Jim Cornelsen is president and CEO of the $1.2 billion Old Line Bank in Bowie, Md., a suburban community just outside of Washington, D.C. The D.C. area is experiencing the opposite trend of rural markets as educated professionals in their 20s and 30s flock to revitalized center-city neighborhoods, along with a healthy share of older adults downsizing from suburban homes and moving into multifamily buildings. Old Line has capitalized on this trend in CRE lending, but has also had to shift its branch strategy. "A lot of our clientele has moved back into the District," Cornelsen says. "Branches just don't need to be as close together, but you've got to do it with branches"-and city rents are high. Old Line has responded by shrinking its branch network by a net 20 percent net in the past year even as it opens new ones. "I think most banks are scared to do consolidations," he adds, but he says that banks can get away with spacing branches farther apart and with smaller footprints. Millennials and the shift in retail banking technology Retooling the retail banking operation is a key strategy for handling another demographic shift-the growth of the millennial generation (roughly, those aged 18 to 35). For bankers, the generation and its preference for virtual, instant, peer-to-peer financial services is exemplified by Smith's 30-year-old daughter, who is still on her first pad of checks from the account she opened with Ohio Valley Bank at 18, since she conducts her banking via her mobile devices. All the bankers around the table agreed that streamlining the retail banking experience is part of their strategy. The Midland-based FirstCapital Bank of Texas has reformatted all of its branches to take out traditional teller lines, says bank

Table of Contents for the Digital Edition of ABA Banking Journal - March/April 2016

CHAIRMAN’S VIEW
UPFRONT
PICTURE THIS
LEGAL BRIEFS
LEARNING THROUGH LITERATURE
PUMPING IT UP
CRE AT A CROSSROADS
LAYING A FOUNDATION FOR INNOVATION
A PASSION FOR ADVOCACY
MARKETING
CEO ROUNDTABLE
WHY BANK CONSOLIDATION IN THE U.S. WILL LIFT OFF IN 2016
ABA COMPLIANCE CENTER INBOX
PAYMENTS
CYBERSECURITY
FRAUD
BOOKS FOR BANKERS
BOARD MATTERS
FROM THE STATES
CORPORATE SOCIAL RESPONSIBILITY
INDEX OF ADVERTISERS

ABA Banking Journal - March/April 2016