Tight labor market, policy fights top of mind for small-bank CEOs

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SEATTLE — Hiring and keeping employees, legislative reform and consolidation are weighing on the minds of small-bank CEOs as 2019 draws to a close.

Economic uncertainty and margin pressure remain big concerns, but the executives — Luanne Cundiff at First State Bank of St. Charles in Missouri, Thomas Fraser at First Mutual Holding in Ohio and Michael Scudder at First Midwest Bancorp in Chicago — discussed those issues and others during a Monday panel session at the American Bankers Association's annual convention.

While a number of big banks have recently announced layoffs, low unemployment rates are causing staffing headaches for smaller banks, the panelists said.

Unemployment around St. Louis has been fluctuating between 2.5% and 3%, making it hard for the $402 million-asset First State to keep employees in the fold, Cundiff said. She said an effective mentoring program has helped.

"There's nothing better for the senior leaders than to have a great conversation with an emerging leader," she said.

The Cleveland market has an unemployment rate of 3%, said Fraser, adding that First Mutual Holding, the parent of the $2 billion-asset First Federal Lakewood, pays up to $15 and $17 an hour for tellers. Fraser's team looks to quickly identify next-generation leaders, while emphasizing the mutual's role in the community in an effort to entice younger workers.

Building the right culture helps, Scudder said.

"You have to be a place people want to be a part of," Scudder added. "It has to be a work environment where people feel challenged."

The executives also discussed the impact of M&A on their markets.

Pricing continues to climb, and Cundiff said the situation has been exacerbated by the "troubling" number of credit union acquisitions of banks. Fourteen banks have agreed to be sold to credit unions this year.

Fraser said his company, which has assets of $18.5 billion, thought it had the high bid for a bank in Kentucky earlier this year before a Tennessee credit union came in at the last minute with a “completely irresponsible” offer to win the deal. Though Fraser did not identify the parties, WinFirst is the only Kentucky bank this year to agree to be sold to a credit union, First South Financial Credit Union in Bartlett, Tenn. The deal was announced in July.

Credit unions' tax-exempt status creates an uneven playing field for M&A. As a result assets that were once taxable become "something other than that," Fraser said.

Acquirers have to understand how an deal fits into long-term planning, Scudder said. First Midwest, which has announced six bank acquisitions since 2015, agreed in August to buy the $1 billion-asset Park Bank in Milwaukee.

"You have to have the belief that collectively one plus one is more than two," Scudder added. "How do we build from there?"

Regarding legislative issues, Fraser pointed to the impact that GSE reform could have on the broader economy. He said Fannie Mae and Freddie Mac need to be recapitalized immediately and recognized, to some degree, as utilities.

"I worry about a recession and a decline in housing prices," Fraser added. "Even a small spike in delinquencies" could compromise "the tenuous capital foundation of the agencies and [could] create a significant problem for the economy."

Anti-money-laundering and Bank Secrecy Act policies also need to be reworked, Scudder said. As First Midwest has grown, the pressure to accommodate AML/BSA rules has intensified. "Some refinement of that would be a tremendous relief," he said.

For Cundiff, the biggest issue is the debate about banking the cannabis industry.

"I'm tired of talking about marijuana," she said.

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