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Community bankers may need to recalibrate skills to survive in today’s world

By Ted Carter
Dolan Media Newswires

Community bankers who have thrived by building business and relationships may need to recalibrate their skills to survive in today’s world of loan defaults and sinking real estate values.

Further, they may have to convince more than their boards of directors that they have the right stuff. If a bank’s deficiencies have brought it under regulatory scrutiny, regulators will insist on management changes if that’s what it takes to save the institution and protect depositors, said John Allison, Mississippi banking commissioner.

That change can often involve the replacing of veteran banking executives with professionals adept at reworking commercial real estate loans and thoroughly understanding regulatory compliance. “One of the things we’re asking for is an evaluation,” Allison said.

Too often, he added, boards of directors are thinking of the bank executive’s past successes and have “their eyes wide shut” to what’s needed to fix current problems. Thus, regulators often are forced to order a “third-party option,” he said.

The objective – gain capital, install proper management and “clear out the deadwood,” Allison noted.

“We’re asking for expertise in whatever needs to be done,” he said.

In some instances, the expertise comes from banking consultants who work throughout the Southeast. They “have a cadre with them that may be able to do whatever we’re asking for.”

The bank boards choose whom to bring in, according to Allison. “We have a list of folks, but we don’t recommend” any specifically.

But in some instances, regulators want a bank’s entire upper echelon, including directors, replaced, he said. “We’re looking at the whole ball of wax.”

The changes often come as part of a consent order, two of which are active in Mississippi – Meadville’s Bank of Franklin and Bude’s Peoples Bank of the South. Those were the first in three or four years, according to Allison.

The state also has a “higher than normal” number of state-chartered banks under non-public “memorandums of understanding,” the banking commissioner said.

In the category of “least serious,” Allison said the state Department of Banking is working with some bank boards on resolutions “to clear things up.”

Allison concedes that his examiners make enticing targets for bank boards that need to fill executive vacancies with financial professionals who have extensive experience in regulatory compliance. Several regulators, he said, “have morphed into workout specialists” in the private sector.

He is comforted, though, by knowing the state pays his staff of 22 banking examiners competitively and offers retirement at 50 percent of annual salary after 25 years of work. “If I can keep somebody for 15 years, I kind of have semi-golden handcuffs on them,” Allison noted.

Bank boards in Mississippi and elsewhere most likely will continue drawing their top executives from within a professional network of local, state and national associations and groups, said John Lovorn, founder of the Tupelo-based Pace Group executive search firm.

“I don’t see them hiring search firms,” he said. “Often, the board chair will think he can run the bank.”

Meanwhile, the pace of change within the banking industry has brought challenges to the banking programs at the University of Mississippi and Mississippi State University. Textbooks of just a few years ago are out of date and the case studies that students will focus on in the next few years are taking place right now.

And “five years from now things will be even more different,” said Michael J. Highfield, MSU associate professor of finance and head of the Department of Finance & Economics.

“For the next couple of years our objectives are really just to keep students up to date on what’s going on. … And emphasizing that they must stay engaged,” he added.

Leaving campus will merely be a transition to a new realm of learning, Highfield said. “At the university level we’ll spend most of our time focusing on the core learning so students will be teachable when they leave here.”

Landmark banking reform passed by Congress and signed by President Obama in late July will occupy a lot of class time, said Ken Cyree, dean of the University of Mississippi School of Business Administration and Frank R. Day/Mississippi Bankers Association chair.

Banking graduates will soon be navigating a law that has “a lot of potential for landmines that we don’t even know about,” Cyree said.

Students this year will hear much more about loan risk and portfolio theory, he added. “The crisis has pointed out how important it is to pay attention to fundamentals” and not ignore the “basic underpinnings of finance.”

Cyree said he will attend a symposium in October at which a speaker will address “the tricks of buying failed banks.”

Two years ago, “that wouldn’t have been a topic.”

For industry professionals, the changed practices brought on by the Great Recession, banking crisis and financial reform make continuing education more vital than ever, Cyree and Highfield say. Get enrolled in the Mississippi School of Banking presented by the Mississippi Bankers Association April 3 through April 9 and the Graduate School of Banking at Louisiana State University sponsored by the MBA and other banking associations throughout the South, the professors advise.

Highfield is an instructor for both programs. He said the industry is in such flux that he can’t be entirely sure of the curriculums. “We’re having to do a lot of rewriting on the fly.”

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