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Wednesday, Feb 8, 2023
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Local Bankers Balance Profits and Social Impact

The banking industry’s collective resilience to the pandemic thus far has been notable. In a matter of weeks, firms transitioned fully remote and executed an untested operating model.

Despite some challenges, many banking operations were executed smoothly — customers were served, employees were productive, and regulators were reassured. Overall, Banks effectively deployed technology and demonstrated unprecedented agility.

Most notably, the biggest change seems to be the purpose of banks. As the world and society now expect banks to help address income inequality, racial and gender inequity, and climate change.

The San Diego Business Journal had a chance to discuss the biggest banking trends in 2020, the importance of investing in cybersecurity, and the future of social impact investing.

Going Digital

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Many non-banking industries were comfortable operating with a remote workforce, said Tony DiVita, chief operating officer at Bank of Southern California, adding that the banking industry in general has been slower to get comfortable with a remote workforce.

“It’s primarily because we are a client facing service industry,” said DiVita. “This past year banks followed quickly and embraced the remote work environment out of concern for employee and client health and well-being.”

“There is no replacement for face-to-face contact, but digital banking services proved that this channel can effectively serve clients well, while still growing the company,” he added.

Kris Ilkov, corporate banking regional director at Umpqua Bank, said relationship banking has never been more important due to the unprecedented pandemic.

In regards to latest trends, Ilkov said most clients have shown increased demand for “working capital cushion” in their facilities, upsizing their existing revolving lines of credit.

“We have seen some clients experiencing a rebound in their normal activities, which requires additional capex financing, whether that is in specific equipment, IT (software) infrastructure or heavy equipment,” said Ilkov.

“There is also a strong rebound in overall M&A activity with stronger clients well positioned to take advantage of financially impacted players in their industry,” he added.

Rick Bregman, San Diego market president at Bank of America, said consumers and businesses are managing and authorizing payments, depositing checks remotely as well as scheduling appointments at record rates.

“Four out of five (81%) small business clients are now digitally active, and sales of products and solutions through digital channels increased at double-digit rates nationwide from 2019 to 2020,” said Bregman. “These were trends in the making for many years prior, and for well over a decade Bank of America has been heavily investing in online and mobile platforms that have paid off for our clients.”

Investing in Cybersecurity

In the COVID-19 era, banks and financial institutions are working hard to digitally transform themselves while also providing the strong security and convenient experience customers want.

Tony Sciarrino is a managing director and segment head for middle market banking at JPMorgan Chase, said in order to protect the firm and its clients, the bank has invested in innovative cybersecurity technologies including threat intelligence, strict risk management, and employee education, among other approaches.

“To help businesses protect against potential threats, we recently launched Fraud Protection Services — a new digital hub with advanced fraud prevention tools and security features, including enhanced check monitoring and protection,” said Sciarrino.

“We also offer timely insights and best practices to help our clients identify and respond to potential threats facing their businesses,” he added.

John Maguire, chief executive officer at Torrey Pines Bank, said the firm reached out often to customers to help educate them on the role they have in preventing cybersecurity fraud.

“Torrey Pines Bank makes considerable routine investments in our technology platforms and cybersecurity, so that we are prepared in this critical arena,” said Maguire. “We are committed to delivering solutions that our clients need today, tomorrow, and well into the future.”

Rick Sowers, president and chief executive officer at CalPrivate Bank, said his firm implemented an Enterprise Risk Management framework across all divisions of the company.

“We have continued to make both technology as well as personnel investments in that framework to enhance our overall risk management practices. Most notably we added to our leadership team with the addition of a chief technology officer who works closely with our chief information officer,” he added.

“Security and regulatory compliant framework is always at the forefront of the Bank’s long-term strategy,” said A.J. Moyer, president and chief executive officer at C3bank. “We engage with consultative Industry experts, third party vendors and software platforms to ensure we have all the proper tools, information and platforms to ensure regulatory compliance.”

Opportunities and Challenges

Greg Garrabrants, president and chief executive officer at Axos Bank, said a benefit of having a digital-first banking model, is that it has provided “low overhead costs” that allow them to offer customers an incredible value proposition.

“It’s not just a matter of competitive interest rates; I’m talking about offering customers agency mortgages with no fees, and checking accounts with no overdraft fees — fees that in many cases have caused regulatory headaches for other banks,” said Garrabrants.

“With rates projected to remain low for some time, we’re focused on adding capacity in mortgage banking. We currently have about 60 open positions in mortgage banking alone — everything from entry-level processing assistants to underwriting and processing managers,” he added.

Dan Yates, chief executive officer at Endeavor Bank, said smaller community banks, nationwide, punched well above their weight during PPP. Noting that, in this latest round many of the larger regional banks elected to outsource PPP or reframed from participating at all.

“The very largest banks relegated their clients into technology portals and did not offer them easy access to front line highly trained staff that could guide them. This caused great stress amongst small business clients seeking government stimulus to survive,” said Yates.

“Perhaps there has been no better time in recent history for local community banks to best illustrate their value proposition,” he said.

Social Impact Investing

Bank of America’s Bregman, named two of the biggest financial topics being commonly discussed with clients and community partners, racial equality and ESG.

“Today, clients of Bank of America’s wealth management businesses have billions of dollars in balances with a clearly defined environmental, social and governance (ESG) approach. More and more Merrill Lynch advisors, for example, use five or more sustainable and impact investing solutions to help meet their clients’ financial needs,” said Bregman.

“Today, our clients are more conscious about social impact investing and making sure that each investment they make stands,” he added.

In addition to social impact investing, a number of banks have committed billions of dollars to help racial minorities after nationwide protests last year rekindled awareness of systemic oppression.

“The existing racial wealth gap has restricted growth opportunities for small businesses and strained the economic mobility for millions of families,” said Sciarrino.

“JPMorgan Chase recently announced that we will commit $30 billion over the next five years to drive an inclusive recovery by expanding, enhancing and improving access to existing products and services across the country to Black and Latinx communities.”

“Part of this commitment will include broadening access to capital to small businesses. The firm will provide an additional 15,000 loans to small businesses in majority-Black and -Latinx communities by delivering over $2 billion in loans,” he added.

Steve Espino, division director at Banner Bank, said there’s always room to do more to accelerate change on important issues like social and racial injustice.

“It’s a complicated issue that requires a multi-faceted approach from us, our industry and frankly all businesses and organizations, said Espino. “A few months ago we created the Banner Bank Small Business Opportunity Fund and launched it with an initial $1.5 million investment.”

“The Fund is augmenting the economic viability of COVID-19-affected minority-owned small businesses — with a focus on underserved small businesses owned by black, indigenous and people of color (BIPOC) as well as businesses located in economically disadvantaged rural and urban communities,” he said. “We’re proud to share that being a good corporate citizen is not a new focus or fad for us.”

2021 Outlook

As the pandemic continues to persist, C3bank’s Moyer said it will be important to continue to stay engaged with their customers so that they can support them where needed.

“The pandemic is impacting businesses in different ways, so continued engagement with customers is the best form of financial partnership we can provide,” he said.

Bank of Southern California’s DiVita is betting there will also be an increased focus around banking alternatives.

“In addition to the banking industry becoming more comfortable with a remote workforce, I believe alternative ways to bank will continue to be a focus and will continue to evolve in our industry,” he said.

CalPrivate Bank’s Sowers, said with the extended work from home environment, Bank’s leadership teams should be primarily focused on maintaining a strong company culture.

“This is brand new territory and what we know for sure is that we need to talk about it openly, engage in conversation about the difficulties it brings for our Team with their kids, parents and spouses and fellow Team members and that supporting them through it will continue to enhance our employee experience,” said Sowers.

“Understanding, empathy and the willingness to engage in open dialogue are major skill sets being put to work right now for all of us in leadership,” he added.

Firms also predict clients will continue to seek trusted advice, with many asking questions about how best to navigate the complexities facing their businesses and families and appreciate having seasoned bankers they trust to talk to.

“Clients simply want to bounce ideas off of us on things like how to maneuver through uncertain times. It’s the human connection that simply cannot be replaced,” said Espino.

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