Can Community Banks Win over the "Nintendo Generation" While Still Appealing to Their Grandparents?

The next decade will see a gradual, but powerful, changing of the guard at the top of America's community banks. Earlier this year, the joint ABA/ABA Banking Journal Community Bank Competitiveness Survey found that over the next decade, six out of ten CEOs will be passing through the ages of 60-75. So there will be younger people, very likely, coming to the helm of the nation's community banks. This prompted ABA Banking Journal, as part of this special report, to exercise a bit of age discrimination. A roundtable discussion was organized in which the invitees had to be 50 years old, or younger. The participants are identified in the box on this page, to the left. We wanted to see what they, specifically, thought of the future--as they'll be creating so much of it. DEPOSITS: ANCHOR OR MILLSTONE? The free-wheeling discussion, summarized here, took the group to many facets of the community banker's challenge. But it started with a question that goes to the core of what banking, but especially community banking, has long been about. ABA BJ: With all the funding alternatives out there, do deposits matter anymore? LAZAR: Yes, but not as much as they used to. You need to try to enhance relationships with customers and the deposit relationship is one mechanism you can use. But in terms of funding loans, the Federal Home Loan Bank is what we consider our primary source. HANSON: We have relied on Home Loan Bank funding heavily over the last four years, and we're about to reach a point where even with that, growth is being capped. Without deposit growth, at some point you're going to reach a brick wall and we're trying to do things to address that. KELLY: My bank has tried to look at deposits in new ways. We've introduced an account which pays more but requires people to mostly use electronic transfers. We've got a premium money market account that tries to pull in high-balance money that would normally go to a brokerage. We've also used some sweep accounts internally, using repurchase agreements. We've also noticed that in some larger markets, once you get the loans in, the deposits will follow. If that pattern continues we'll build it into our strategy. RADIX: There's another important factor here. Our regulators think that deposits matter. Items like Federal Home Loan Bank advances are borrowed funds and our regulator (FDIC), at least locally, gets itchy when it sees our liability dependency ratio rise. So until some regulators get into the 20th century, deposits are going to matter. And a bank still needs that core cost of funds in order to make decent margins. You can borrow from the Federal Home Loan Bank at 7.25% [late May], but I sure as heck would rather have NOW accounts at 2%. TRAINOR: We're seeing wealth shifting to a whole different generation--people who are not nearly as loyal to the bank as their parents used to be. My bank is based in a small community, but we're part of a much larger company. Locally, we're having to develop strategies to try to keep those deposits, but company-wide, we're also developing strategies to obtain funding in other ways. One is deposits brought in over the Internet. RADIX: You're always going to have people who constantly shop for the best deal in everything, not just their banking relationship. They read Consumer Reports. They get on the Internet and find the cheapest place. If 100% of your customers were that way, you probably couldn't stay in business. I don't think loyalty will go completely by the wayside, but we're going to have to earn loyalty. We see it time and time again--help out a customer and they'll be loyal. But you won't hold everyone. LAZAR: We're dealing with a more highly educated consumer than we had before, and that is a challenge. The brokers have done a good job of educating the consumer: Hey, the market's gone down, it's time to buy, and then they hear about their neighbor making money, and so they start doing that. …