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Stop drowning us

ABA Community Bankers Council Chairman Bill Grant says compliance even has “tweener” banks like his struggling to rise above the flood 

Stop drowning us

Every winter, Maryland banker Bill Grant joins other hardy souls at nearby Deep Creek Lake and, stripping to his bathing suit, jumps in.

This manic act, done for charity, isn’t an endurance contest. “You plunge in, turn blue, and get out,” says Grant, 58. But it does provide an interesting contrast with his banking life. Grant and his fellow plungers have the sense, when they find themselves up to their chins in ice-cold water, to move.

However, when Grant, chairman of ABA’s Community Bankers Council, finds himself and his bank up to the neck in compliance duties, he and fellow bankers can’t just “get out.” They have to sit there, steeping, hoping they won’t drown.

The environs of Oakland, Md., headquarters of Grant’s First United Bank & Trust, have another Washington connection dealing with water. The northern branch of the Potomac River—the same river that flows through the nation’s capital—starts nearby.

So, Oakland, in the extreme western corner of Maryland, sends Washington a steady flow of pristine mountain spring water from its rural environs, via the river. Washington returns the favor by sending back an increasing flow of toxic regulation and compliance duties.

Some deal.

Understanding a widespread frustration

Grant, chairman, president, and CEO, holds the unusual distinction among community bank CEOs of having been his bank’s first compliance officer. Grant didn’t begin in Compliance. A lawyer by training, his first love—which continues—is with trust and estate work. He and First United’s chief financial officer, Carissa Rodeheaver, came up through Trust. As a trust officer, he was given the compliance job because of his law degree. He says of the added work, “It didn’t take me but an hour a week.”

But increasingly, compliance has been taking a toll on his bank’s business, beginning long before the Dodd-Frank Act came on the scene. Costs come two ways: expenses and lost opportunities.

Grant says $1.4 billion-assets First United spends an estimated $3 million a year on compliance costs, and that’s not even counting an estimate of Dodd-Frank’s eventual impact.

As an example of the second issue, lost business, he points to the bank’s decision a few years back to stop making mobile-home loans.

Under amendments to the Home Ownership and Equity Protection Act, the bank found that its mobile-home loan program fell under the “predatory” classification. Grant disputes that—the loans presented a higher risk to the bank, for which, he says, it charged a slightly higher rate.

“We just stopped offering mobile-home loans,” says Grant. “And when you look at how many of our branches are in Appalachia, where mobile homes are a viable housing alternative, that’s discouraging.”

Dodd-Frank issues over the horizon worry Grant too, especially the introduction of Unfair Deceptive and Abusive Acts and Practices (UDAAP).

“Community bankers have a long tradition of serving their communities and their customers,” points out Grant. “Deceptive practices are not part of this tradition. In addition, there is an array of laws and defined regulation already out there to protect customers. Dodd-Frank does not define what practices may now fit within UDAAP. Rather, it is left to the Consumer Financial Protection Bureau to define and implement these new rules.”

The onslaught continues. “Many banks are struggling with their economies,” says Grant, “but it is compounded by the ways the regulations have been written. It is a massive burden to small community banks. I fear that the burden may cause some to evaluate options they might not otherwise consider.”

Running a “tweener”

Grant has more thoughts on the bank-regulator relationship, but they’re best appreciated in the context of his bank’s operations. First United is the result of a series of mergers and de novo branch growth over decades that saw the original First National Bank of Oakland expand from Garrett County, Maryland’s westernmost section, to serve four counties in that state and four more in West Virginia.

Grant grew up in Oakland and very much remains a local boy. Likewise, in Oakland, First United remains a local bank. It can be hard to spread oneself over a $1 billion-plus bank. But Grant has found a way to enable hometown flavor to be spread throughout the bank’s 28 offices, which span from Morgantown, W.Va., to Frederick, Md., more than 160 miles away.

Overall, Grant says First United enjoys and exploits the position of being a “tweener”—of an in-between size. The bank is larger than many competitors, and so can do more for customers than smaller banks. Larger loan limits and a large trust function represent two examples. But it is also smaller than many other competitors, so it can exploit, through its method of regional organization, the traditional pluses customers experience with a community bank.

In this day of email, “First United is the only bank that comes to see us,” says Jeff Pyles of Morgantown Printing & Binding. Grant’s bankers spend a good deal of time away from their desks, and dress the part for visits—ties and jackets, and the equivalent for women.

Don’t form the idea that First United bankers still use rotary telephones. Grant himself would be lost without his iPad, and everyone’s got mobiles—the bank offers mobile banking, after all. But the belief is that there is no substitute for live visits to customers.

“We try to call on our top 20 customers several times a month,” says Larry Kessel, vice-president and commercial lending officer. Besides differentiating the bank’s service, Kessel says, this frequency also turns up leads to potential new business.

Triple-pronged strategy for business

Three factors help make First United’s approach to community banking work: focus on appropriate business customers; organizational structure; and adaptable brand.

1. First United’s “COBO”s. The core of the First United customer approach is COBO—the Community Oriented Business Owner. Targeting smaller companies in its markets enables the bank to serve the business needs as well as the personal needs of the owners, and, in turn, helps it win the business of the firms’ employees.

2. Regional organization, community orientation. First United is organized into several regions, each headed by a market president. The market presidents participate in the bank’s strategic planning effort, and are the heads of customer service in their regions. They report to Robin Murray, the bank’s senior vice-president and director of retail banking. Grant is in frequent touch with the market presidents himself, and enjoys visiting local operations and customers.

Grant says the market president concept has done well for First United.

“I’m not particularly well-known in Morgantown,” he explains, “but Dave Kelley (market president) has spent 37 years there, and he is well known. He and I can go into any restaurant, and Dave knows the folks there.”

The bank maintains an advisory council of COBOs drawn from all regions that helps it keep up with trends and spread the word about developments at the bank.

3. “My Bank” ... where it fits. Many promotions for First United precede the bank’s name with the words, “My Bank!” This is a marketing strategy the company launched a while back to rise above the names of the banks acquired and merged into First United.

This branding isn’t rammed down each market’s throat, but adapted appropriately. In Garrett County, for example, First United has 111 years invested in the “First” name; Grant would never throw that aside just for corporate consistency. On the other hand, in the part of Maryland formerly served by Myersville Bank, First United stresses the “My Bank” over the bank name.

Branding market by market calls for fine-tuning. Grant relies on Murray and Jeannette Rudy Fitzwater, senior vice-president and director of corporate services, to be the “keepers of the brand,” in consultation with the market staffs and headquarters.

How the bank’s approach will change as banking becomes less centered on physical branches remains to be seen. Grant says no further branching is imminent, though he could still see First United filling in territories where it already has a network.

Philip Rodeheaver, market president for multiple regions, notes that online banking, mobile banking, and remote deposit capture have been reducing branch traffic. The bank has been striving to balance the need to control costs with the desire for customers to have some live banking hours. Grant acknowledges that the staffing costs, more so than the expenses of brick-and-mortar, make branches a heavier weight on earnings.

Brown folders versus reality

Going the extra yard to know its markets and keep up with customers doesn’t exempt First United from economic forces. The bank has had a couple of rough years, with 2011 being a turnaround time. Developers in some markets overbuilt as Garrett County, a popular tourist spot in the days of the great railroad hotels, enjoyed a resurgence of growth for recreational living and residential housing with a “hometown feel.” The bank has taken its lumps on the commercial real estate front, and also took some hits on trust preferred holdings in its investment portfolio due to the “other than temporarily impaired” accounting standard. Those investments had been made to bolster earnings while expansion in the mid-2000s came on stream, but no one anticipated the ratings downgrades and the falloff of bank collateral that would come during the financial crisis.

“What is troublesome is the sheer volume of regulations with which we must comply,” says Grant. “From exam to exam, the focus and priority may change.

Aggressive provisioning and chargeoffs hurt capital and earnings, and often impede the bank’s ability to design and implement individualized solutions for borrowers.” In instances where the bank works with a troubled borrower, accounting and regulatory requirements mandate writedowns of the balance. “Some might view that as a disincentive to work with borrowers,” says Grant.

Often, new regulations are enacted without guidance, says Grant. “We have had instances where modeling is mandated but we are not provided with guidance on the appropriate methodology. Regulations should be accompanied by guidance so we know what they are looking for, and how to comply.”

Beyond this, Grant believes the examiners too often look only in the loan file in front of them.

“There’s a lot more to a loan than what’s in the brown file folder,” he says.

“There’s a lot of gray in our business. Particularly in this recession, there are many customers in these gray areas who need us to work with them.”

Walking in bankers’ shoes

Grant believes the structure and system of regulation does not provide for a comprehensive understanding of the bank’s environment, its customers, or its local economy. In addition, many examiners have never worked in a bank. “I wish there was some kind of a mechanism for the lead examiner to spend two or three days out of the bank, talking directly to the bank’s customers,” he says.

Grant’s brought up such ideas to banking lobbyists, and they’ve told him it’s a pipe dream. Still, he says such practices could lead to a higher appreciation of what small businesses are dealing with, and alternate approaches to their sustainability.

Community bankers try to send this message to Washington, he adds, but it isn’t received. He concedes “there are some players who are on the edge and they can’t pull back, and we do eventually have to let them fall.” But those who can be helped shouldn’t be dismissed.

Grant says the bank has a borrower in the coal business who is a poster child for forbearance. The strip miner needed modifications and additional credit to get his operation out of a tight spot. The bank worked intensively with the borrower to come up with a plan. Regulators grumbled, but the bank went ahead.

“He’s now ahead of schedule, in meeting modified terms of the request we had from him,” Grant reports. “Regulators should have a more balanced outlook on our working with such customers.”

Grant adds that had this deal been proposed at the height of community banks’ troubles, this customer might well have been put out of business instead.

While examiners have somewhat softened, here and there, as council chairman, Grant hopes to help ABA achieve passage of H.R. 3461, the multi-faceted Financial Institutions Examination Fairness and Reform Act.

Besides requiring exam reports to be timely and to make the basis of findings clear, the legislation would ask regulators to provide clear and consistent guidance regarding the treatment of loans.

ABA lobbyists give the legislation a decent chance of passage. Contemplating those odds just might make Grant’s winter plunge a bit easier.

Steve Cocheo

Steve Cocheo’s career in business journalism has taken him to all 50 states and nearly every corner of banking in institutions of all sizes. He is executive editor of ABA Banking Journal, digital content manager of, and editor of ABA Bank Directors Briefing. He coordinates the popular Pass the Aspirin and First Person features and wrote the booklet series Focus On The Bank Director. He is the only journalist to have sat in on three federal banking exams, was a finalist for the Jesse H. Neal national business journalism awards, and a winner of multiple awards from the American Society of Business Publication Editors.

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