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Positioning Your Bank for a Sluggish Economy

By: Scott Kavanaugh

Many community banks have faced their toughest challenges recently. Loan defaults have escalated and forced the failure of many institutions. Even those that survived may have curtailed lending out of necessity while dealing with these serious issues. Now, just when it seems like the worst is over, comes a new set of challenges that are different ó but just as difficult ó as what bankers just went through.

The most serious threat comes from the big banks bailed out by the Troubled Asset Relief Program ó Citigroup, Bank of America, JP Morgan Chase and Wells Fargo, to name a few ó that are now more dominant than ever. These mega-banks are putting extreme pressure on community banks to compete for loans, which further reduces margins. If that is not bad enough, the financial regulatory reforms passed this year will require even small banks to implement and monitor some 274 new regulations, a daunting task that certainly will increase costs.

As the economy emerges from the recession, itís time for community banks to be more aggressive about growth and competition. In todayís banking climate if youíre not moving forward, then youíre going backward. And you probably wonít make it far into the next decade.

If you havenít already started to reassess the way you do business, do it now. Take a hard, unvarnished look at your bankís strengths and weakness. Of course, you should look at your bankís loan volume, deposits and overall balance sheet. But you also should consider your competition, your client base and your position in the marketplace. No two banks are exactly the same, so thereís not a silver bullet. But having guided First Foundation Bank through this grueling process over the past three years, there are some helpful approaches I can share.

Find Out What Your Clients Really Think

Donít assume that you know what is really important to your banking clients. How your bank is perceived by the people it serves can be eye-opening. Two years ago, we sent a detailed survey to our client base, asking them to give us feedback on our products and services. Not only did we ask if they were satisfied with what the company offered, we also wanted to know which products or services they valued more than others and whether there was anything they would like that we werenít providing. One of the more surprising findings was that we needed a more consistent brand message, a clear statement of our values and a concise definition of who we are and what we do.

Listen to Your Employees

Every employee from the C-level suites to the reception desk probably has ideas about how you could do things better, faster or more efficiently. Not everyone, however, is comfortable voicing their opinions. We found the best approach to be an online survey that allowed employees to answer questions thoughtfully and anonymously without any fear of repercussion. This helped management focus on issues related to our processes, our procedures and our work environment. For example, one message was that employees wanted to know more about what the other business units of the company were doing, so we instituted a periodic employee orientation, a newsletter and an online company calendar.

Differentiate Yourself From the Competition

Based on real feedback from clients and employees, explore what sets your firm apart from the community bank down the street and how you can build on that difference. Is your bank in a convenient location? Does your staff excel at customer service or long-term relationships? Is it truly a local institution that has been around for decades or even generations? How involved are you in the local community? Big banks may offer lower interest rates or more services, but some clients may prefer to support local businesses over national banking chains. Whatever it is that distinguishes your bank ó as long as itís authentic and the promise is met ó should be promoted in every way possible, whether itís in your tagline, on your website or in your advertising.

Expand Your Services in Meaningful Ways

If you canít come up with a compelling reason that clients should choose your bank over the rest, then you need to create one. There may be new products you can offer that will entice new clients or retain your current ones. If you donít already provide mortgage or trust services, consider expanding into those areas or affiliating with a reputable company so that you donít lose clients to larger institutions. Introduce new services such as online tax preparation or liquid CDs. Some banks now offer more comprehensive financial services such as investment management and wealth planning. Whatever you do, remember it is not good enough to simply create new services, but to actually execute on delivering those services.

Stay In Close Touch With Clients

There is a lot of money chasing after good quality borrowers these days. If you want to stay top of mind with your most-valued clients when they need a loan, it pays to keep in touch. Our firm makes it a priority to schedule educational conference calls, economic forecast luncheons and investment seminars with current and prospective clients. In addition to holiday cards and gifts, we communicate year-round via a quarterly electronic newsletter, market commentaries, economic updates and our signature Bank Notes. You can even explore the use of social media if you are comfortable with the protocol and it fits your clientele. Relationships are more important than ever in hard times.

If you want to position yourself to not only survive, but thrive in the next several years, you must commit the time and resources to rethink your business approach and create a viable solution that works for your bank. If you donít prepare now, youíre going to lose ground at best. If you do, youíll come out better on the other end and be well positioned for the recovery.

Scott Kavanaugh is CEO of Irvine, Calif.-based First Foundation Bank, a wholly owned subsidiary of First Foundation, a 20-year-old financial institution that provides integrated investment management, wealth planning, consulting, trust and banking services. For more information visit

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