Banking’s Leadership Shortfall

Community and small financial institutions are having trouble attracting successors to the C-suite following years of consolidation and limited hiring.

Texas banks are suffering from a two-pronged talent shortage. And it starts at the top. They’re having trouble finding seasoned leaders who are ready to become CEO, a challenge that originated in the 1980s when oil prices plunged and the commercial real estate market went bust. Those factors, coupled with deregulation, created a lack of jobs and a dearth of training programs. Young talent chose other industries. 

Today, millennials are shunning entry-level jobs in banking for career fields they perceive as having better earning potential, such as investment banking. “People don’t consider it a sexy career,” says Dan Bass, a Houston-based managing director of investment banking at Performance Trust Capital Partners, an advisory firm for community banks.

Consolidation in the industry doesn’t help matters—it means fewer places to work and fewer banking jobs. Between 1984 and 2011, the number of federally insured banks shrank by almost 59 percent, while institutions worth more than $10 billion saw their assets grow from 27 percent to 80 percent, according to the FDIC. Small banks, in particular, have less money to pay employees because their profits are thinning. 

They’re now complying with heavy regulation in the wake of the Great Recession and the low interest rate environment the Federal Reserve has maintained in recent years. Although fresh graduates probably won’t command the inflated wages of, say, the dot-com era, “it is still difficult for smaller community banks to pay college-graduate level salaries for untrained personnel,” says H. Gary Blankenship, chairman and CEO of Bank of the West, a Grapevine-based institution with about $417 million in assets. “Those circumstances make it difficult for community banks to generate much interest among college-age students to consider a banking career.”

The leadership shortfall raises questions about what will happen to community banks as a whole in Texas. “If we don’t have good leaders at our local banks, how is our financial system going to run? How will it work properly?” says James Kolari, a finance professor and director of the commercial banking program at the Mays Business School at Texas A&M University. “Any business is only as good as the people it has. Right now, we have a problem in banking.”

Shunning the Sector

More than 38 percent of Texas’s 1,800 commercial banks vanished between 1985 and 1992, partly due to the twin collapses of oil prices and commercial real estate values. The Texas State Historical Association says 470 banks failed.

“It is still difficult for smaller… banks to pay [top- level] salaries for untrained personnel.”

H.Gary Blankenship, Bank of the West
The industry’s implosion caused long-lasting harm to Texas banking in a couple of ways, experts say. Banks statewide hired sparingly for seven to 10 years, Bass says. Perhaps just as importantly, most large banks in Texas did away with management training programs for promising young talent. These programs lasted between 12 months and 18 months and would introduce as many as 50 to 60 new hires to all areas of a bank, from operations to check clearing and lending, says Kevin Hanigan, president and CEO of LegacyTexas, a more than $7.5 billion-asset bank based in Plano. Large institutions like JPMorgan Chase maintained training programs after the Texas bank crash, but generally ran them out of New York. “All the training programs in Texas died,” Hanigan says.

That not only damaged the operations of the large banks, it also took away a key source of talent for community banks, which could pluck out promising youngsters who preferred the advantages that small employers can provide. LegacyTexas and a handful of other North Texas institutions, such as Dallas’ Texas Capital Bank, today offer training programs in the rough mold of what young recruits received in the ’70s. But because the banks that provide the programs locally often are not the biggest players, the training is more limited in scope. “In the old days, they might have hired 25 people,” Hannigan says. “Now, we might hire five.”

Succession-Related Bank Sales

The talent gap among middle-aged banking executives is an especially significant issue at community banks. “Succession issues are making it more expensive to run a Texas bank, and are an important reason why shareholders are not making as much money,” Bass says. “There are some 50-year-olds, but not a big number. They can be hired away, but they command higher salaries.”

The shortage in executive talent is not as much of an issue at midsized and large Texas institutions; those players generally have long-term succession plans. They also can afford to pay to recruit top executives if their planning goes awry. At smaller institutions, boards of directors sometimes opt to sell the banks entirely if they can’t find suitable successors for their CEOs, executives say. Perhaps not surprisingly, acquisitive banks sometimes look to strike up preliminary talks with small fries whose executive teams are approaching retirement age.

An additional headache has emerged for the C-suites at banks in North Texas in the last 12 to 15 months: There is heated competition for top lenders with 15 years of experience, the career stage when the best loan officers start to accumulate their largest books of business. The strong economy in Dallas-Fort Worth has prompted banks to poach each other’s premium talent.

“They get hired because they bring over [customer] relationships,” Bass says. Top-tier lenders can make big money depending on the dollar totals they can bring with them, as well as how much their loans fetch in interest But there is a flipside: Pay for yourself or lose your job. “If you fall short, you can get let go after a few years,” Bass says. 

Reaching Out to Students

Texas banks are doing more to interest college students about careers in the field and improve their work environments to help retain talent. At Texas A&M, a few $35 billion-plus banks are supporting the program that Kolari heads up for 70 students. “We’ll all end up recruiting there,” says Hanigan, who also teaches at the school.

American National Bank of Texas runs a recruiting and development program for students who are still in college, says Robert Messer, executive vice president and chief financial officer at the Terrell-based institution. American National executives have provided mentor relationships and presentations for high school students, covering resume development, attire, and interview etiquette.

“We predict that our involvement early in the high school education process will aid in increasing student awareness and desire for careers in banking,” Messer says.

While banks provide competitive salaries, bonuses, and equity via restricted stock or options, executives also work to provide the corporate cultures that young people prefer. Bank of the West has lured top young talent from its bigger rivals, primarily because “our expectations and pace of operations might appear to be more realistic,” Blankenship says.

Those younger folks sometimes “realize that they prefer to start and grow their families and be part of a community atmosphere, as opposed to having to relocate to find growth opportunities with the larger organizations,” he says. 

That doesn’t mean the talent war is an easy fight. Bank of the West, for instance, sees the need to attract younger, trained personnel from regional banks when it looks at its current stable of experienced, aging second-tier executive officers. The bank continues to vie for younger personnel seeking “a smaller organization where they might find it easier to navigate and find promotion,” Blankenship said.

Over the past 15 months, LegacyTexas has retained all 50 of its commercial lenders and has brought aboard an additional nine bank or loan officers to boot, Hanigan says. “They just want a place where they can make loans and have access to top management,” he says.

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