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Earlier this year, nearly 400 senior executives from community banks and credit unions shared their thoughts on the current state of our industry. Detailing their thoughts on regulatory burdens, where they see opportunities for growth, the impending storm of CECL, and technological innovations, this report offers comprehensive insights into the minds of today’s community institutions executives.

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Published by fmsdesign, 2017-10-27 11:12:25

FMS Research: The Growth Outlook for Community Institutions

Earlier this year, nearly 400 senior executives from community banks and credit unions shared their thoughts on the current state of our industry. Detailing their thoughts on regulatory burdens, where they see opportunities for growth, the impending storm of CECL, and technological innovations, this report offers comprehensive insights into the minds of today’s community institutions executives.

FMS Research
THE GROWTH OUTLOOK FOR COMMUNITY INSTITUTIONS
October 2017


FMS Research
THE GROWTH OUTLOOK FOR COMMUNITY INSTITUTIONS
October 2017
T he wide array of challenges facing community institutions – ranging from
an outsized regulatory burden to increasing competitive pressures – suggests something of a bleak outlook. Yet 70% of the executives in Community Mindset: Bank and Credit Union Leadership Viewpoints 2017 described themselves as either extremely or somewhat optimistic about the state of their industry.
What’s behind this optimism? The prospect of growth. Rather than settling for mere survival in the face of the very real challenges facing their institutions, these leaders are focusing instead on a future de ned by technological innovation, robust loan portfolios and innovative new products and services that will bolster their viability for years to come.
When presented with ten potential growth factors, community institution leaders were clearly focused on one in particular – technological innovation –
with 73% of respondents putting it at the front of the pack. Rounding out the top three were growing the commercial loan portfolio, which 70% saw as important for their institutions’ growth, and adding new products and services at 69% (Figure 1).
COMMUNITY MINDSET:
Bank and Credit Union Leadership Viewpoints 2017
Earlier this year, FMS commissioned a
survey of 400 senior executives representing community-based banks and credit unions with asset sizes ranging from $200 million to $4.99 billion – including CEOs, CFOs, compliance officers and VPs of finance and accounting – about the challenges facing their institutions and their thoughts on the state of the industry. From concerns surrounding CECL to the challenges and opportunities of emerging technologies, the research uncovered the pulse of the industry.
FIGURE 1: FACTORS IMPACTING GROWTH
Respondents were asked to indicate the importance of 10 factors to the growth of their business. This graph represents the percentage who rated the priority in question as either “very important” or “somewhat important.”
Technological innovation Growing the commercial loan portfolio Adding new products / services Attracting and retaining talent Cost containment Growing the consumer loan portfolio Getting more from the investment portfolio Adding / expanding wealth management services Pursuing M&A Adding branches
73 70
69
68
68 67
66
60 54
47
Most important factor for growth for the largest asset size
($2 - $4.9 billion)
0 10 20 30 40 50 60 70 80
2 Financial Managers Society / The Growth Outlook for Community Institutions FMSinc.org/Research

Technological innovation and adding new products and services seem to go hand-in-hand, both being ways institutions are stretching themselves and breaking new ground. However, the fourth most important factor for growth (out of the ten choices in the survey) was attracting and retaining talent – proof that a tried-and- true business priority like nding and keeping the right people is still a key element of success for community institutions, even as ashy new technology dominates the limelight.
On the other end of the scale, the survey
results were just as notable for what fell to the bottom of the list of growth priorities. There,
in something of a reiteration of the dominance of technological innovation, adding physical branches came in as the only option that less than half of respondents (47%) saw as important for growth. Between the top and bottom of
the list, it’s fair to conclude that community institutions see expanding their virtual footprint
to be a far more critical element to their future success than expanding their geographical reach. Another potential growth factor not garnering much interest was the pursuit of mergers or acquisitions, with only 54% of respondents deeming it important. While some industry thought leaders have predicted a resurgence in the M&A market for community institutions, many seem to still be holding off as they take stock of a shifting economic environment.
Digging into the Differences
Not all community institutions are alike, especially when it comes to how growth priorities are viewed in light of asset size and institution type. While technological innovation and adding branches were rst and last, respectively, almost across the board, the results weren’t always quite as unanimous, and the importance of some of the other choices on the list varied between large and small institutions (Figure 2).
FIGURE 2: TOP GROWTH PRIORITIES BY ASSET SIZE
While community institutions have a lot in common, size makes a difference – not only in what they consider important, but in how strongly they believe in it.
80 75% 60
40
20
74%
Growing the consumer loan portfolio
73%
Growing the commercial loan portfolio
73%
Adding products and services
73%
80 60 40 20 0
80 60 40 20
75%
Technological innovation
69%
Cost containment
64%
Growing the commercial loan portfolio
$200 - $499 MILLION
$500 - $999 MILLION
72%
Growing the commercial loan portfolio
$2 - $4.9 BILLION
0
Technological innovation
80 78%
60 40 20
$1 - $1.9 BILLION
76%
67%
Getting more from the investment portfolio
65%
64%
64%
Attracting and retaining talent
00
Technological Adding innovation new products
and services
Cost containment
Growing Technological the innovation
consumer loan portfolio
FMSinc.org/Research Financial Managers Society / The Growth Outlook for Community Institutions 3


For example, the largest institutions surveyed (those with $2-$4.9 billion in assets) said that getting more out of the investment portfolio was their most important growth factor at 67%, with growing the consumer loan portfolio second at 65% and technological innovation only tying for third at 64%.
Differences arose in the responses from community banks and credit unions as well. While largely having more in common than not – with technological innovation and growing the commercial loan portfolio among the top three priorities for both – adding new products and services occupied the number two spot
for credit unions (70% found it important), while community banks rated it only fth out of ten growth priorities. Similarly, attracting and retaining talent tied for second among community banks (70%), but only ranked sixth on the list for credit unions.
Tech on Top, Branches at the Bottom
In general, technology was something of unifying growth factor for most respondents in
the survey. As more of their customers migrate more of their lives to online platforms and mobile devices, community banks and credit unions are working to be sure they’re in position to be able to continue to serve them, which is undoubtedly why technological innovation stood out as their top growth priority at 73%. Technology, of course, is a multi-faceted issue for institutions, and survey respondents made
it clear that growth may come in the form of improvements to existing customer-facing online or mobile functionality, more robust data analytics, e ciency-inspired cost reductions or a combination of these initiatives.
If technology was the clear leader, however, branches were just as evidently less of a consideration (Figure 3). While 47% of respondents saw adding branches as an important factor for growth, that sub-50% mark was only good for last on the list. Elsewhere
in the survey, 36% of respondents said they’re looking to add branches, but the rest said they were planning to either hold steady with their current network (46%) or close branches (18%).
FIGURE 3: BRANCH STRATEGIES
Even though the physical branch remains an important part of the delivery mix for community institutions, less than half of respondents see it as a key component to their future growth.
47% of respondents consider branches an important factor for growth
ARE PLANNING TO ARE LOOKING TO HOLD STEADY WITH
ADD BRANCHES THEIR CURRENT BRANCH NETWORK
ARE LOOKING TO CLOSE BRANCHES
4 Financial Managers Society / The Growth Outlook for Community Institutions
FMSinc.org/Research


Why are branches slipping from many community institutions’ radars? Executives may be thinking in terms of dollars and cents, and
in many cases branches represent more money going out than coming in. When asked about the best opportunity for cost management – which 68% of respondents see as an important factor for growth – 18% noted that cutting branch expenses represented their best cost management option (Figure 4). On the other hand, cutting costs via improved e ciency through technology was the most popular choice, with 65% seeing it as the best route to cost savings.
Growing Together
Overall, most community institutions seem to
Published by:
1 North LaSalle St., Ste. 3100 | Chicago, IL 60602 [email protected]
Mark Loehrke
Editor and Director, Publications and Research
Hilary Collins
Assistant, Publications and Research
be of the same general mindset when it comes to what needs to be done to stimulate growth going forward. However, aside from adding branches, every potential growth option was considered important by more than half of the respondents in the survey.
In other words, while certain factors have clearly risen to the forefront in the pursuit of growth
– technology, commercial loan portfolios,
etc. – it’s likely that striking a balance between competing priorities will ultimately be the strategy that propels these institutions into the future.
Research taken from “Community Mindset: Bank and Credit Union Leadership Viewpoints 2017.” Visit FMSinc.org/ Research for the full report and additional analysis.
FIGURE 4: BEST COST MANAGEMENT STRATEGIES
Sometimes the best way to grow is to simply corral some of the costs that are holding an institution back. In fact, 68% of respondents consider cost containment to be a “very important” or “somewhat important” path to growth, and they have a clear idea of where those reduced costs will come from.
IMPROVE EFFICIENCY CUT BRANCH RENEGOTIATE VENDOR THROUGH TECHNOLOGY EXPENSES CONTRACTS
©2017 All rights reserved. No part of this report may be reprinted or reproduced in any form or used for any purpose other than educational without the express written consent of FMS.


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