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[Music] hi i'm greg corumbus welcome to banking compliance insights by walters kluwer a podcast series from walters kluwer this series was created to deliver insights on compliance trends and strategies for navigating today's regulatory and risk environments today's episode banking on the way people change we'll focus on adapting banking processes and client outreach in the current environment here to lead our discussion on this subject is walters kluwer banking segment leader samir agarwal and he is joined today by skipper heinz a vice president and credit underwriting manager with mnf bank to share his experience serving customers in this unprecedented time sameer let me pass the conversation over to you thanks greg 2020 has been a tough year for sure we've got a pandemic going on social unrest and it's a challenge that's continually pushed us to put focus on the ways we relate to each other society and the channels we use to connect with each other have changed including how we conduct business today we've invited skipper hines a vice president and credit underwriting manager with m f bank he's here to discuss some of the practical insights into how m f successfully adapted their operations and customer relations during this time and from what i've been able to put together he's found some significant opportunities to help enhance customer care and how they conduct business and serve customers welcome skipper i'd like to start to understand your background and your institution better as it relates to how you've navigated the pandemic and social unrest in the economy thank you samir it is a pleasure to to be here with you today certainly some challenging times that we've all been faced with over the last six months and trying to navigate that has certainly been a chance to revisit how we do business on on all levels and as you mentioned deal with each other on a daily basis this time has been really interesting for m f bank we were chartered in 1907. we're one of 21 minority owned banks in the country which is down from about 50 in 2000 and we are the second oldest black-owned bank in the country we're headquartered in durham north carolina which was once known as black wall street and have seven locations throughout the state approximately 75 of our loans are extended to the black community as a minority depository institution community development financial institution and a founding member of the national bankers association which originated as the negro bankers association our history is storied with supporting black communities and other underserved minorities so you can imagine what all of the social unrest and the black lives matter movement has done to our communities and the demographics we serve wow it's definitely a different angle to our conversation than than most of our customers and which makes it very intrigued um to kind of have you on today what i'm interested in is tell me a little more around how the social unrest has started to impact your business has business gone up because of it or are you in more of a a distressed mode based on what's happening socially you know as unfortunate as what's going on he is we've actually benefited a little bit being a minority and black-owned bank you know the black lives matter movement is you know not necessarily new but obviously earlier this year it got reignited and what we have seen is a migration of people within that community and in those minority demographics flocked to our bank in may alone we saw a 30 percent increase in deposits and new accounts from individuals and the black business community and so at a time where we're not able to allow people into the branches at a time where we're having to operate differently we've seen an increase in activity that requires a lot of interaction with with customers the other thing that we've seen is earlier this year the office of the comptroller of the currency you know a federal banking regulator updated the law to provide clarity around cra credit to non-minority banks that partner with minority designated banks and so the attention that this social unrest and and movement has brought on the banking community is that large banks who have always been supportive if you will of the minority banks it's been taken to another level and they are investing in minority banks and our president jim sills has probably entertained 20 different large national banks you know with interest in investing in our bank knowing that 75 of the loans that we make in our communities are to the black and minority owned individual businesses and and individuals skipper that's really intriguing and what what i'm sensing here is it's a social movement that's transcended into a political movement and ultimately creating almost a a win-win for institution with your demographic and so i want to talk a little bit first about the social movement and with individuals that fall into the minority category moving accounts to your bank what's happening in your local community with with other banks do other banks fall short now um with how they're performing and and that performance is coming over to to your institution or is it kind of a competition situation where okay you're gaining but also they have other places that they're winning where you're not i think it's probably a combination obviously there is a loss of business on their part when when somebody leaves and comes to bank with us as a community bank we can't be all things to all people but we are focused on serving our demographic and fulfilling our community development you know mission if you will and so i think that while we're probably the biggest beneficiary there are other ways that those banks are probably finding out how to capitalize as well so from an operations perspective i know you quoted us that there's a large increase in in your business tell me what you've had to do to adapt into this environment so we've got you you're winning because of social unrest but then we've got this pandemic going on our branch lobby's still open or has your team been restructured or positioned to operate in that world in north carolina there's still a number of restrictions you know on us by the governor and and rightly so but our branches are open by appointment only and so the doors aren't open for people just to walk in our drive-throughs are open and you know we've got all lanes open rather than just two you know like we used to so with the branches not being open we've had to result to using alternative channels to transacting business with with our customers where utilizing virtual appointments and having webinar facetime conversations if you will if someone needs to get into the branch say to get into a lock box if you will we'll schedule appointments and obviously we've got all the safety products at hand masks gloves things of that nature but basically the branches are in effect close and our customers have had to adapt to that and we've been re-educating our customers to utilize these other channels which they have not been exposed to or had a reluctance to use as a secondary source of transacting business he can be a couple examples of the tools that you're using um are using virtual meetings now is that yes both internal and external yeah we're doing virtual meetings internal and external continuously working to improve our ability to open accounts online and apply for loans online the use of our mobile banking application and the use of our online banking application usage has skyrocketed as compared to what it was before so in the introduction it was mentioned you know changing the way people bank and banking on the way people change the pandemic is definitely doing that customers and businesses are adapting to that pretty resiliently change is never good in most people's minds doing things differently but everybody has kind of risen to the challenge and understanding that we're all in the same boat do you find customers adapting and accepting or does it create more frustration with your customers you know honestly samir we haven't seen a lot of frustration from our customer base surprisingly so given the stress and strain that they're under but they have been very accepting of that i use the word resilient you know everybody from the millennial to the older adult they've adapted and they've adapted well and i think have welcomed some of these new channels with the knowledge and having experiences somewhat that you know this really is a good way to do business and it's something that i think will probably continue to be a channel that they'll use in the future would you consider the current economic environment that you guys are experiencing putting you in a better place or having to have learned faster than some of the competitors in terms of you know you've got higher volumes because of the the social piece of it and how would you rate yourself compared to the local competitors i would rate ourselves excellent compared to our competitors what has really occurred is there are lots of things that we had on the horizon that we wanted to do to sort of improve the way we approach our customers and the opportunities they have to interact with us and we've accelerated that into let's start doing those things now because our customers need to have those available to them in the realm of camaraderie what would be the number one piece of advice you would give a competitor that's a really good question samia you know we're all friends in in the banking business and we're competitors i think we all need to understand that we each have our strengths and we each have our weaknesses but at the end of the day our job is to invest in our communities and support our customer base to get through whatever the near future holds for us and we need to do that together i'm going to rewind a little bit let's go back to cra that's the other kind of tone even though the increase in business kind of says all right here's how we operate in the pandemic and i think you guys are doing well from what you were telling me how are you seeing another increase in your business via cra so large institutions trying to partner with you in terms of origination and is that mainly because the larger institutions don't originate themselves or how are they getting cra credit yeah from a banking perspective and there's another level of support for minority banks that i will touch on but from a banking perspective the fact that 75 percent of our loans go back into our communities to blacks and other minority groups is tremendous and other institutions and i mentioned the change uh or the clarification and the cra guidelines is that a non-minority bank can put you know 10 million dollars on deposit with us knowing that you know seven million five hundred thousand of that is going to go out to support the minorities in our community and they get credit for that because they are providing capital to us to deliver to that community and that demographic that's a great way to do it so it's not even warehouse line this is pure investment from the means of a deposit and then using the capital ratios to really use from a banking perspective and deploying funds it's pretty smart pretty smart way to get cra credit pretty smart way to to also reinvest in the community are there other other ways one of the other things that has occurred throughout all of this with the attention that this has given minority banks is large corporations and large non-profits not just non-minority banks are seeing it as a way to invest in minority institutions for social purposes because we're the vehicle with which to help the black and and minority communities um it was in the news uh what 30 60 days ago about netflix pledging roughly 100 million dollars for that purpose to support minority organizations and part of that included i think a 25 million dollar pledge directly to minority financial institutions where they would place those funds on deposit so we could deploy that out to help those people in our communities i would imagine that this would come out as a viral tactic for many institutions i mean it's it's almost risk-free to some degree other than the large amount of money um that's being put but it's being put in a deposit account it's not being put in you know an investment account so that's very very interesting do you expect that to take on more and more i mean netflix is doing it do you see other corporations kind of following suit yeah there have been a number of others as i mentioned we're a founding member of the national bankers association and they are receiving inquiries from a number of organizations like that on a really large scale and being part of that organization uh allows them to kind of help all of the member minority banks do that but to answer your question you know yes there have been quite a few other large organizations and small follow the lead of netflix as to how long that will continue who knows a lot of this social unrest is is very well founded it's getting a lot of attention hopefully that will bring about as you said in the opening an opportunity for us to improve all of us as citizens of the country but how long that will last i don't know what keeps your management team up at night what are the things that you guys worry about in the current operating environment well i think they're really two primary things is you know obviously we're concerned about shareholder value and the thing that that every company is is worried about but at the end of the day we're worried about keeping our employees safe taking you know every step that we can to serve and protect our customers and help them through these troubling times you know a lot of people think that the pandemic is maybe created an environment where people are spending less time at work when in fact you know we're spending more time at work and reaching out to those people in our community to find out how we can can make a difference so it's really about our people and it's about the people in our our community obviously you worry about you know what the long-term effects are going to be what the government's support and response is going to be and continues to be we all want to get back to whatever the new normal is and with that starting with there being a ability to get back to not having to wear a mask and you know that's probably not going to occur until till the vaccine is released seems like a concerted focus on on two main goals to kind of keep the business moving we look at your business are you more centric on the consumer side or on the commercial side more on the commercial side a lot of commercial real estate we do a lot of lending to faith-based and non-profit organizations and so we deal with a lot of churches and we deal with other non-profits we deal with a lot of commercial real estate and are looking to diversify more on the commercial side so that our our faith-based is is not such a large percentage of of our portfolio even though it's a a great part of our portfolio but we are a commercial bank we do do consumer lending but that's a small part of what we do were many of your clients able to take advantage of the sba's paycheck protection program yeah we're proud of of our involvement with the the ppp loan program we helped 172 businesses secure ppp funding with gross dollars of about 16 million and of course 75 percent of those pretty much went to the black and minority owned businesses and that may seem small in the grand scheme of things but it's huge for a community bank of of of our size and you know we've put some numbers together about probably saving 1300 jobs in our communities and we're fortunate that we were able to do that to commendable for a huge effort and did you guys end up using a software or did you this was homegrown just human capital processing now we uh we have a lender services provider that's a partner of ours that helps us with our sba lending which we do and previously did before the pandemic so we were we were set up and they were prepared to support that effort for us so we couldn't have done it without their their help because we just wouldn't have had the resources internally to try to manage all of that in such a short amount of time do y u anticipate any negative impact like from from the loans being made to like are there any forbearance requests or any deferrals that are being asked for now from your clients you know initially when you know things kind of when it was determined that hey this thing is kind of here and it's serious and you know the states and the government you know started kind of shutting everything down um we had already put a plan in place to to help people with deferrals businesses and consumers and so we did in april and early may we extended i can't remember the exact number but it's in the hundreds um about 90 million dollars in loans were deferred and most of those were deferred for 90 days some of them for 180 and we're staying in close touch with those people and their payments started resuming in august and september and you know fortunately they've been able to get back to some sort of operation that's allowed them to start making payments again and hopefully that will just continue so that must have been a huge stress for the operation of the bank and and you know was the decision to go there it's just you know that that's how you support your community it was more qualitative than anything quantifiable well i think it's it was what we had to do it was what we needed to do you know um it was the right thing to do for for lack of a better way to put it there was you know there still is a lot of uncertainty out there but you know hopefully things i think things have kind of calmed down from that original hysteria if you will or initial hysteria but you know when all of this sort of came about it was like like a huge unknown and if nothing other than to show our support for the customers and fortunately having the being in a capital position to be able to do so um we were very proactive and and offering deferrals so i'm very curious about how you guys do your forecasting i mean i can drive in my small town here and see many businesses just turn over even in a lot of empty shop space just waiting for new businesses to to come in once the economy turns how's mnf kind of looking at those portfolios and which customers are kind of at risk and how do you evaluate what to do with those those situations yeah forecasting is always a challenge in this situation you know obviously that that level of challenge is even higher than we could ever imagine it would be when we're trying to figure out where's business going to come from the risk indicators have changed right yeah exactly and you know the first thing we did when we realized this was not a just a little short-term bubble is you know we took our portfolio information and looked at the industries that were you know at high at risk and what was the makeup of that in in our portfolio and you know made the decision uh there there were certain industries where we would not you know extend financing uh temporarily until the crisis and everything was kind of understood about that you know you you've got a situation where businesses are being forced to close and they have no choice at that point and so i'll use restaurants as as an example they were one of the hardest hit right off of the bat fortunately ppp was a way to sort of help them at least through the short term so those restrictions for us are still in place we'll be doing two things as we'll be carefully monitoring and who we target you know there are certain industries that have benefited from the changing behaviors amazon just to name the one that everybody thinks about but everybody's gone to that online platform and things of nature to drive business and the medical field if you will but so we're we're targeting industries some we're not targeting like we were in the past and i think that probably for the foreseeable future we will be relying on small business administration and other guaranteed loan programs to give that additional support to help do things that we might not be able to do conventionally until our economy has a chance to recover that's an interesting point do you feel that many people in this in the lending space are going to start to rely on sba loans versus traditional commercial loans yes i do think so certainly in the community bank space i think it's critical that be part of our approach uh you know in the large bank space you know they may have a some different thoughts about that uh but i do think it's critical for us and and in many cases what that does is it doesn't make a bad deal good if you will but it may make a good deal better because it might offer some advantages to the borrower that helps them preserve cash flow makes sense just really makes sense on a strategic play and i don't know if you meant to to state it this way but the way i'm i'm receiving it is that is some great advice for competitors or other community banks that are in this space of how do you navigate and strategize about your next move samir sorry to interrupt but i think uh you know a really good example of that is you know in the late 80s with the snl crisis um and coming out of that in the early 90s the sba and guaranteed programs was a huge part of that recovery effort and it might need to be in this one too when we talk about that being one of the avenues are there any other avenues like do you look at other opportunities that are now coming about one is clearly you know guarantees around commercial lending are there any other opportunities to streamline operations or to enhance how customers are cared for from a banking institution you know there's only so much you can change in what a loan package if you will looks like and the types of loans that are made but what you can change is how you go about that approach and that's something we really need to work on particularly in the the business space we can't go visit a business owner today for the most part they can't come visit us and so you can't necessarily drop off information and things of that nature and we've got to figure out a way to use technology just like we do on the consumer side and in so many other aspects of the business world to engage with the business and and commercial client to improve that process so i think that's the opportunity you know the big differentiator between banks regardless of of size is how you treat your customer and how responsive you are while being able to maintain a good close personal relationship where they feel comfortable and you and you can instill that trust we've all got to work on that and that's an area of of opportunity that i think we excel at but something that we can't just sit where we are and rest on our laurels we've got to to make things better in in the business space does that mean that it's inclusive of the medium that we're communicating like it took a while you know for text to take on but now you've got text and other types of communication whether a mobile device or or not that customers just get drawn to does that mean banks have to adapt have you guys adapted to that type of communication on mobile and non-mobile mediums yeah we have some but this experience that we're going through now has identified that we need to do more of that and we need to do more of that faster you know i think what kind of historically for community banks who don't may or may not have the the resources to have the most current technology you know as some of our our competitors you know a lot of times our customers and our employees think of these alternative channels like online banking like mobile banking like you know scheduling virtual meetings with your customer so because they can't come to the bank well now they don't even have to leave their home and and see you face to face you know those are things that were all out there and considered secondary and this pandemic has forced us to use those and i think that's a good thing because what we considered secondary has now become primary and going forward it just opens up a completely new avenue that while it may seem a little less personal in fact can be more personal and a lot more efficient because you're having a conversation with each other and nobody having to drive to get there or doing things after hours you know you hear numbers from time to time about how many people do their banking you know in the wee hours of the morning or the wee hours of night yeah big decisions are made i think i was reading between 11 p.m and 1 a.m in typical households now it's almost as if there was a fortune teller in our in our midst the 80s of the united states if you remember back to the future they they depicted a lot of interaction taking place on the family television screen whether it was work banking other types of services everything took place through video on one of those screens and it almost feels like we're now living in that environment you're right you know it's one of those things that you always said some people have that some people do that and now it's like okay everybody's doing that that's a lifestyle change so in that environment how do you guys think about growth where is growth in that environment now now it's not about strategic geographic placement of where am i at the right time or right right place for that matter now interaction and opening you know a new interaction or lead has changed how do you position yourself for growth in this world that's another good question samir any growth is going to be initiated two ways one is being out in the space where the demographic is that you want to grow in you've got to be in that space and you've got to either do that through marketing targeted marketing um you know all of the social media stuff um you know i think social media has been a huge aspect of the black lives movement and back in 2016 there was a a movement that got a lot of energy at that time that it was all because of social media and bank black week and bank black month and things like that so you you've got to be in that internet social media space to attract attention to your demographic but you know at the the base of every good relationship you've got to make some connection with them and reaching out to people you know providing an avenue for them to reach out to you but the approach to a banker reaching out to people you know i was never a big fan of of trying to do too much over the phone because i like the in person so you can imagine how much i've had to change over the years so i think that you're going to have to target and you're going to have to reach and you're going to have to be efficient and responsive and you know be better than the other guy down the street well skipper it's been a pleasure to speak with you today i think there's excellent amount of information that you've been providing and a lot of guidance into how to operate and what you guys have done and demonstrated by your business in itself navigating the pandemic is one thing that most of us are going through navigating another piece of it where the social movement is meeting you know a real economic and political movement is another great to hear your suggestions and and how you've navigated through those and let me um you know just say thank you and i think that our listeners are going to really you know gain some insights into how they can apply them to their institutions well thank you samir really appreciate you having me on and uh wish you all the the best uh all of us in in in the days ahead that's walters kluwer banking segment leader samir agarwal joined by skipper heinz a vice president and credit underwriting manager with m f bank walters kluwer is the host of this podcast and a market leading provider of advisory services and technology solutions for optimizing compliance and risk management programs for more information and additional guidance please visit waltersclewer.com or call 1-800-3 please join us for future podcasts focused on navigating emerging trends in regulatory compliance [Music] you