Bankers say they hear it regularly from their clients: It’s gotten awfully hard to find good talent these days.
As it turns out, the banking industry is no exception, as banks compete for talent with other sectors. The situation appears more acute for community banks and for any organization seeking out commercial lenders, a position for which talent remains in short supply across the nation, according to a recent survey by an industry trade publication.
Part of the issue for community banks is their size. Compared to their regional and big-bank competitors, community banks generally lack the resources and internal structure to support large development and training initiatives. That leads to an empty or shallow pipeline when somebody up the ladder departs, whether to retire or for another reason.
“In a bank like ours, we can’t afford to have that much depth and that kind of training,” said Larry Lueth, CEO of Kalamazoo-based First National Bank of Michigan.
“At a small bank, you can’t have this big farm system where you have these folks. We count our (full-time equivalents) very closely, and we just don’t have the luxury,” said Lueth, who early in his career in the 1970s went through an extensive training program at the former First of America Bank Corp. in Kalamazoo. “I think most small banks are the same way, where they can’t have the farm system. When a lender retires or when one moves on, they don’t have an experienced analyst or experienced person to draw from.”
The decade-old First National Bank of Michigan has three offices in the Kalamazoo area and one in downtown Grand Rapids with total assets of $431.8 million.
The talent issue and the shortage of commercial lenders surfaced as a top concern among bank executives and directors answering the 2016 compensation survey by Bank Director.
Forty percent of survey respondents ranked recruiting commercial lenders as a top challenge and 43 percent said there are not enough talented commercial lenders available. Forty-three percent of survey respondents said they would “pay highly” to fill their open commercial lender positions.
Bank Director cites the retirement of baby boomers and the actions by many large banks to curtail career development programs over the years as key contributors to the industry’s talent shortage.
“The demise of training programs at the nation’s biggest banks, coupled with an aging baby boomer population, is resulting in what could be a mini-crisis for the banking industry,” according to the report highlighing results of the 2016 compensation survey. “Without skilled lenders, financial institutions will be hard-pressed to grow their revenue, since lending is still how many banks make most of their money.”
Citing FDIC data, the Bank Director report noted that in the second half of 2015, commercial loans accounted for 38 percent of all lending by banks in the U.S.
Years ago, community banks tended to hire commercial lenders from a pool of people working at larger institutions, said Phil Koning, CEO of Hudsonville-based West Michigan Community Bank. As regional and large banks held onto their talent and pulled back on development programs, “us community banks now have to grow our own,” he said.
“That’s the struggle of a community bank. We don’t have the mass,” said Koning, who started his career more than 40 years ago as a credit analyst at the former Old Kent Bank.
West Michigan Community Bank has seven offices in Kent and Ottawa counties and total assets of $357.5 million. The bank is “actively looking” to hire a commercial lender or two for the Grand Rapids market, Koning said.
Banks’ tighter margins have exacerbated the talent shortage and cut into companies’ abilities to develop talent, Koning said. There’s also an apparent lack of interest among the younger generation to go into banking after college.
“We are drawing fewer people into this industry,” said Koning, who recalls competing with six other people for his first job at Old Kent Bank in the 1970s.
Nowadays with the region’s low unemployment, banks have “to go out and just seek anybody who’s willing to talk to you,” he said. “It’s so much different.”
Twenty-three percent of Bank Director survey respondents said recruiting young talent remains a key challenge. More than two-thirds actively are seeking to hire people in the millennial generation who range in age from 18 to 34.
Of those targeting the generation, however, 60 percent said that millennials “aren’t interested in working for a bank,” according to Bank Director.
“It seems that banking is not as exciting,” Lueth said. “It had an allure when I was graduating (from college) and getting into banking.”
Koning wonders whether the lack of interest stems in part to the black eye the entire industry got from the Great Recession that followed the 2008 financial turmoil and Wall Street’s issues. Whether fair or not, the public’s perception of the banking industry was altered by the economic turmoil, Koning said.
“Given all of the negative publicity the banking industry has received over the last several years, is the industry attractive to young people? Not sure, but that is a question I would have,” he said. “Our industry still has excellent jobs and significant opportunity for young people, but do they want to get in an industry that is negatively portrayed?”
A STRUGGLE WITH MILLENNIALS
In terms of recruiting, banks have had the same experience as other industries in appealing to the younger generation.
Among respondents to the 2016 Bank Director survey, 71 percent credited their bank’s success in attracting young talent to a culture that “millennials feel comfortable in.” Fifty-nine percent credit their successful recruiting efforts to “a clear path for advancement” and 55 percent attributed it to strong corporate reputation.
When pursuing young talent today, banks need to take a different approach than when Sean Welsh, the president for PNC Bank in the western Lower Peninsula, began in the industry more than 30 years ago.
“They’re different in what they look for in companies and where they work and why they work there,” said Welsh, who serves on the executive committee for Talent 2025 Inc. in Grand Rapids. “They work for companies for what they stand for, and can you deliver fulfillment.”
It’s a much different world than it was when Welsh entered the banking industry.
“Whoever was going to pay me the most money, I was probably the most interested in that job,” he said. “That’s just not the way this new generation thinks.”
On top of questions about career advancement and compensation, college students and graduates considering a career in banking, for instance, often want to know about PNC’s philanthropic giving, or the bank’s values. They commonly ask “how are we making a difference in our community,” and the commitment to environmental stewardship, sustainable business practices or early childhood development, Welsh said.
“Then they want to start talking about, ‘OK, what’s the job every day look like,’” he said.
Quite often, community banks will seek to lure away talent from another institution, especially following a merger or acquisition. West Michigan Community Bank, for example, was able to hire four commercial lenders a year ago from The Bank of Holland following its merger with Chemical Financial Corp.
Two of FNB of Michigan’s recent hires came from larger, regional banks as well. In another instance two years ago, a lender Lueth has known professionally for years joined the bank after eight years of talking casually about it.
“We’re just almost always networking to make sure people know of us and we know of them,” he said.
The potential to bring on needed talent when somebody at a competitor decides to seek another opportunity elsewhere is one reason why John Porterfield, regional president for Comerica Inc. in Grand Rapids, said it’s critical to maintain ties with colleagues and the local professional network.
Comerica this year hired a commercial lender for the middle market in Western Michigan who came to the bank from another local financial institution.
“Any good banker is aware of who the talent is in the local marketplace. You try to retain relationships, even if they’re at a competitor, so that as needs arise, you can think of where you might go to try and fill an open position,” said Porterfield, who oversees a market that covers the western half of the Lower Peninsula. “Know who’s who — that’s a key thing we need to be aware of. Who’s out there and where are they at?”
As the availability of talent tightened for the industry following the Great Recession and in the economic recovery, bankers say they put more emphasis not just on recruitment but also on retention through career development initiatives.
Comerica a few years ago started a formal leadership development program that identifies “high potential” and “high performing” client relationship managers “where we feel they’ll have a real growth opportunity within the organization,” Porterfield said.
Participants are given assignments and topics on how to improve the bank or make the bank more efficient and to “explore areas that need more attention,” he said. They are assigned mentors and work on a project for six to nine months that culminates in a presentation to the executive committee.
FNB of Michigan started an internship program five years ago, and in the last two years, participated in a commercial lending competition for college seniors.
Organized by the Risk Management Association’s West Michigan chapter, the Commercial Lending Challenge involved teams of seniors from Grand Valley State University, Western Michigan University and Hope College who evaluated a commercial lending scenario. Bankers served as judges for the competition and students on winning teams received a total of $3,500 in prize money.
Out of the competition, FNB of Michigan last year hired a WMU graduate as a credit analyst, a traditional entry-level job toward becoming a commercial lender.
“Ultimately, it’s to attract and get seniors interested in banking as a career,” Lueth said of the competition. “We’re happy to do more of that to attract some of the young folks to get into banking.”
While larger banks have not experienced the talent shortage to the degree community banks have, Porterfield said institutions like Comerica do have to pay more attention to retaining and developing talent.
Just like with other industries, talent retention is of strategic importance for a bank, Porterfield said.
“I don’t know if we have to work at it harder, but it is a very conscious effort today,” he said, adding that members of Comerica’s West Michigan mid-market business unit have an average tenure of 20 years. “Given the competitiveness of the industry, it is a very deliberate and very thought-out part of our business activity, whether it’s for leadership development or to make sure the staff have good opportunities for growth with this organization.”