Derek Williams did not plan on a banking career.
After graduating from college in 1984, he considered corporate finance. A recession, and a disappointing interaction with a stockbroker, led him to enter a training program at a community bank.
“Banking wasn’t something I really started out to do,” he told The Bank Slate in a wide-ranging interview. “But I enjoyed the idea of doing something that let me have time with my family and a chance to make the community better.”
Williams has been president of CEO of the $365 million-asset Century Bank & Trust in Georgia for the last eight years. This week he will begin a one-year term as chairman of the Independent Community Bankers of America.
Serving as chairman of the Community Bankers Association of Georgia during the Financial Crisis galvanized Williams’ passion for community banks.
“It cemented my love for the model,” he says. “We’re a part of the community and can actually help people.”
Williams now finds himself again chairing a banking association at a time of considerable uncertainty, given the recent failures of Silicon Valley Bank and Signature Bank and the voluntary liquidation of Silvergate Bank.
What are your thoughts about the recent bank failures? What’s the messaging from community banks?
We never want to see a bank fail. It’s extremely unfortunate. But it is important to note that community banks operate under an entirely different business model — one that’s based locally and is relationship focused. Our member banks are reporting that their customers are not panicking because they trust and have relationships with local bankers, including the CEO. Our customers understand that we are invested in their success and practice sound business practices.
Community banks manage risk on a daily basis and protect their customers’ deposits every single day, just as they have for decades and, in some cases, over a century. Community banks remain well-capitalized and well-positioned to meet the needs of small businesses and consumers. While we certainly empathize with those impacted by the recent collapse, we also believe community banks should not pay for the actions of the largest and riskiest banks like SVB. If a customer is looking for a soft place to land, community banks stand ready to serve customers and communities nationwide.
Any thoughts on the competition for deposits?
I think there will be increasing competition, but community bank customers know that their community bankers have been there for them — supporting the community, working with consumers and businesses to meet their financial goals and helping them through the pandemic. Community banks have the flexibility to work with individual customers to meet their needs. I think that will help them maintain deposit levels as competition increases.
What are the biggest operational issues banks should monitor in 2023?
Community banks continue to have broad concerns about a growing body of potential new regulations, policy and oversight that could add compliance and operational obligation to an already burdensome regulatory climate.
Examples include:
- Recent CFPB language around overdraft fees that could impact community banks operationally – how they process overdrafts and/or what products and services they offer customers.
- New FDIC guidance that requires banks to perform lookbacks and pay restitution, and results in significant compliance expense.
- Increased burden of HMDA reporting for community banks, given a recent CFPB change in threshold reporting requirements. The burden on banks that were previously exempt from HMDA reporting outweighs any benefits of letting the agency and consumer groups access aggregate data points.
Community banks are starting to take better advantage of the options available to use fintech partners to better serve customers. This requires some significant due diligence, making sure we’re using partners that support our model and protect our customers. ICBA is doing a great job through its innovative efforts to help our banks navigate this. The ICBA ThinkTECH Accelerator program is a perfect example.
The payments space is shifting. How should community banks prepare?
It’s an exciting time in the payments landscape and community banks are always looking for opportunities to provide customers with the products and services that help them achieve financial success. FedNow is something ICBA supports and thinks it will be beneficial for community banks and their customers. FedNow will provide choice and access in instant payments. We recommend that community banks at least start as receive-only institutions. This will allow their customers to receive instant payments.
Working with their core service providers early is important, so banks are ready to go when FedNow goes live. Finding the right partners to provide the products and services their customers want before they ask is also important. ICBA has connected with a wide variety of solutions providers that community banks can work with to keep moving forward.
Any thoughts on credit quality?
A rising rate environment is always a concern for businesses with debt, but that’s one of the great things about community banks. We work closely with our customers on an individual basis to help them avoid issues with loan repayment and to advise them when they have concerns. We tailor our loans to each unique borrower’s situation, not a one-size-fits-all box. This is an opportunity for community banks’ relationship lending model to really shine. The current economic environment is ripe with uncertainty – with increasing inflation, a tight job market, and ongoing supply chain issues, some businesses may find themselves in a challenging situation. Community banks are committed to helping them through these challenging times.
The CFPB has been busy. Other regulators have their own areas of interest. Which areas are most concerning for community banks and what can they do to prepare?
From a community bank perspective, all of this is concerning. ICBA and community bankers reject the CFPB’s mischaracterization of overdraft protection services and credit card fees for late payments as “junk fees.” This misrepresents how community banks meet the needs of their customers through overdraft protection and credit card services.
Community banks provide a wide range of products and services that customers may select to address situations in which they’ve overdrawn their accounts, including overdraft programs, free ad hoc solutions, alerts about their account status, account transfers and more. Community banks also offer credit cards under contracts that consumers voluntarily enter into and feature clearly disclosed late fees that deter late payments, help offset issuer costs and represent a small portion of customers’ credit card costs.
Current community bank practices are appropriate and do not constitute surprise “junk fees.” We’re working with the CFPB to ensure its focus on these services does not lead to unintended consequences for community bank customers.
Not only is the CFPB’s focus on fees concerning, but then you have proposed rules regarding climate risk from the SEC and states. Community banks have decades of experience managing concentration risks and responding to extreme weather events and natural disasters in their communities — meaning new, onerous, and expensive climate risk management frameworks are counterproductive.
We’re seeing a lot of regulation and guidance that is happening outside of the rulemaking process. Consumer protection is important, but regulations coming from blog posts and incomplete research on the impact on small businesses will make for poor consumer protection. Just as regulations to protect consumers are important, the procedures to create those protections have rules and laws that need to be followed by the CFPB.
What advice do you have for banks navigating uncertainty in 2023?
Community banks have been around since this country was founded – we are resilient. Being nimble, flexible and adaptive is important for our banks. We need to be able to pivot no matter what is thrown at us and always look forward.
During this time of uncertainty, it’s critical that we maintain a focus on our mission and serving our communities. Of course, working with ICBA on grassroots efforts to promote legislation that is beneficial to our banks and customers, and opposing legislation and regulation that is detrimental for community banks and the communities they serve has never been more important. Community bankers can get involved via ICBA’s Be Heard web page.
Brad Bolton, your predecessor as chairman, was very active on social media. How important messaging be over the next year?
Brad is a tremendously hard act to follow. He’s very impressive. At the end of the day, we both believe in the community banking model. I’m getting more and more comfortable with social media.
Messaging is very important. We’re going to continue to deal with the issues pulbicly and behind the scenes. Community banks really have a good repuation and a proven track record. We just need to stay positive and remain focused on our record rather than going on the attack.
We will continue to address issues that impact our ability to deal with our customers. Overdraft, for instance, is something where the programs are clearly documented, people want them and we won’t let them be called junk fees.
We’ll continue to push for good, tiered regulations. Our whole model is based on relationships, and we have to keep building on the relationships we have with legislators and regulators.