0:00:00.0 ANNOUNCER: The financial views and opinions expressed by the host and guest on this program do not necessarily reflect the viewpoints of 107.7 The Bronc, Rider University, or Certified Wealth Management and Investment. The material discussed is not designed to provide the listeners with individual financial, legal or tax advice.
0:00:16.0 ANNOUNCER: Show me the money!
0:00:19.6 ANNOUNCER: Where’s my money man?
0:00:20.7 ANNOUNCER: Master, master.
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0:00:25.5 ANNOUNCER: It’s time to grow your bank as 107.7 The Bronc presents, Master Your Finances with Kurt Baker, a certified financial planner professional with Certified Wealth Management and Investment. Kurt and his team of financial guests will help you turn those singles into seas of green, and plan your financial future accordingly. Now, here is your money managing host for the hour, Kurt Baker.
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0:00:54.0 Kurt Baker: Are you aware of how community banks can assist you in economic situations, particularly an inflationary one? Do you know what resources community banks can offer? Pat L. Ryan, President and CEO of First Bank and a member of its board of directors will teach you everything you need to know about community banks. Today we’ll inform you about the value of having a good corporate neighbour in your backyard. Pat, thanks for coming on again. And you’ve been on before, and last time you were on, we had not had a number of things happen. One, we didn’t have a pandemic occur, and two, inflation was relatively low. So we’ll have a little less than an hour, so we’ll try to cover as much as that as we can. But I guess the one that I being a… Dealing with small business owners all the time, how have you seen that kind of affected and how do the community banking industry, how do you guys respond to the small business owner when all this started to happen and so forth? Do you wanna tell us that story a little bit.
0:01:50.3 Pat Ryan: Yeah, sure, happy to, Kurt. And thanks for having me back. You’re right, it is a different time for sure, than when I was here in the past. There’s a lot going on right now, and I think there’s a lot of anxiety, the anxiety that existed for all of us during COVID and the health concerns has sort of shifted to financial security anxiety related to where are interest rates headed? What’s happening with the economy? And I think, now more than ever, it’s important to be close to your financial advisor, certainly your community banker should be on that short list of financial advisors. And there’s a lot that people can and should be thinking about right now, with rates moving up, we’ve got an inverted yield curve, we’ve got GDP that’s been negative for two quarters in a row. There’s a lot of different things for folks to be thinking about. So I think it’s timely to have this discussion, and looking forward to the chat, so.
0:02:42.8 Kurt Baker: Yeah, you just mentioned the negative yield curve. Now, I know what that is, but just for the listeners, you wanna describe what that is, and some of them may not know what you’re talking about.
[chuckle]
0:02:49.3 Pat Ryan: Yeah, yeah, yeah. Can we…
0:02:50.7 Kurt Baker: And how does that impact the banker, how does that impact us as consumers or as business owners? How does that actually impact us a little bit?
0:02:54.0 Pat Ryan: Yeah. I appreciate you pointing out, I get a little jargon heavy sometimes. So thanks for…
[chuckle]
0:03:00.1 Kurt Baker: That’s okay. We all do that. And it’s all good.
0:03:00.4 Pat Ryan: But the terminology, negative yield curve, really just looks at what the interest rates are like on a short-term basis compared to on a long-term basis. So for example, the most liquid, the most actively traded market is US treasuries. And so you can look at what your yield would be on a, say a two-year US Treasury, compared to, say a 10 year US Treasury. And then, most times, the interest rate you would earn if you lent money to the government for 10 years would be higher than if you did it for two years. But right now, given what the Federal Reserve has been doing with their federal funds, which is the overnight rate, what you see is, the yield on a 10-year US Treasury is actually a fair bit lower than a two-year US Treasury, which means if you are going to buy treasuries, you would actually earn less money if you were doing it… Lending it out over 10 years versus two years.
0:03:57.2 Pat Ryan: And that usually is a signal of potential economic slow down. Because if you think about it, why would somebody take a lower yield over a longer time period? The only reason would be if they think the rates are ultimately coming down again, they may be better off, over the 10 years, locking in a rate of, say 270, versus getting 3% on a two-year, ’cause you could get 3% for two years, but then if rates come back down, you might get a lot less than that for the remaining eight years, so.
0:04:25.9 Kurt Baker: Right. So that’s interesting. So, now that we’ve had a little bit of a shift here, so we’re coming out of the pandemic, so business owners now, unfortunately, some of them are gone, but others are doing well and some in the middle, not sure what to do, and on top of that, the rates are going up. So how are you seeing that dynamic occur for the different segments of the business ownership? And the fact that rates are starting to go up, and went up pretty significantly in a short period of time, how is that affecting the business community and the banking community?
0:04:51.7 Pat Ryan: Yeah, it’s interesting, ’cause right now what’s happening with interest rates is largely driven by what’s happening with inflation. As most folks know, the inflation readings have been very high over the last several months and several quarters, and that’s been pushing the Federal Reserve to move up to short term interest rates. So, inflation by itself can be bad for businesses to the extent that it increases your input costs. So, depending on your type of business, your main components of your costs may be going up because of inflation, which can be a challenge. Now, part of the reason that the Federal Reserve is raising rates and inflation is moving higher is ’cause most businesses are passing those increases on to their customers. And so what we’re seeing is, even though expenses and costs are moving up for businesses, revenue is moving up in line. So, currently, most folks are actually doing fairly well, or better. Because the other thing that’s happening is businesses are struggling to get staff. And at the end of the day that creates long-term challenges, but in the short run, and assuming they can still produce their product or service, and they’re selling it at an even higher rate, their short-term profitability is better because they’re doing it with fewer people, in essence, they’re finding ways to become more efficient.
0:06:05.7 Pat Ryan: So I think, for the time being, businesses are doing fine, but everybody’s rightfully concerned about what the future holds and how much higher are rates gonna go, and so… Everybody got used to paying 3 and 4% for debt, and that made operating businesses a little bit easier. Now, rates are in the 5% range. And that is an added expense that businesses have to incur. But I think we all need to remember that those 3 and 4% interest rates were unusually low, and I think over most cycles, most businesses will tend to pay between mid-4, up to 6%, depending on what the economic situation is. So I think, in some ways, what we’re seeing is a normalisation of interest rates, it just feels difficult because we got used to paying a lot less for a long time, so.
0:06:58.8 Kurt Baker: Right, that’s very true. And I guess, yeah, you mentioned that the labour shortage is a little bit of an issue. So, I mean I go to restaurants, this stuff I know, some of them have shorter hours, they have… They have labour shortage and so forth. So how does the community bank help the business owners now that the rates are a little bit higher? And how do you look at the business itself? Because you must be looking at it a little bit differently. If I’m a restaurant owner a three or four years ago, you’re probably analysing my numbers a little bit different than you might be now. So are there any adjustments you’re helping business owners figure out? Or how do you determine… ‘Cause we don’t really know what’s happening, so you have to… Do you get in a different risk profile? I guess is what I’m saying.
0:07:37.8 Pat Ryan: Yeah, yeah, exactly. The risk profiles change, although admittedly for the time being, I think most businesses, the ones that survived the economic shocks from COVID are actually doing a little bit better both because profit margins have improved for the reasons we discussed, and their balance sheets are better because they were able to use stimulus funds to pay down debt and do other things. So, in general, I think businesses have less leverage which makes them stronger in terms of their ability to withstand the uncertainty. So it’s an ironic situation ’cause I think a lot of businesses are doing better than they have in a long time. Their financial position, based on their balance sheet, is stronger than it’s ever been. Yet, there’s enough storm clouds out there that people, despite looking good on paper, are actually feeling quite nervous. And the important thing to do with your banker is just to think through the scenarios, do some stress testing, run some numbers. Most businesses will take a look at, “Here’s what I think I’m gonna do next year, or over the next couple of years.” But, run a couple of different scenarios, what does it look like if rates really move higher? What does it look like if demand starts to moderate or come back down? What does it look like if all of a sudden you lose a key contract or a key customer?
0:08:57.2 Pat Ryan: And those are the kind of scenario analysis that can be very helpful so that you make sure you’re in a decent position if some of the potential bad things happen. At the end of the day, there’s always potential for bad things to happen. I think most business owners that have survived over long periods of time have done it by making sure they’re protected in those downside scenarios. And that’s where you know conversations with the bank can be really helpful.
0:09:21.1 Kurt Baker: Yeah, I think, if anything, we’ve learned how to adjust and how to pivot during the COVID, the shut down, ’cause literally some of them had to close for quite a while. And so they’ve done kind of the ultimate stress test. I mean, how do you handle the closure and the re-adjustments? So what were some of the strategies you saw then, and is that… I guess, is that, what we learned? And now, are they more educated, I guess? Since they went through this, do you feel like the business community is a little bit more educated? And you also mentioned they’re concerned about lending, so what does the demand for capital look like now? Because you got two things; rates went up and people are a little bit concerned. If I’m a business owner, I own a restaurant, am I gonna open up another location? I know people that are actually expanding right now, ’cause they’re like, “Hey, there’s a void now. So I’m gonna go out and do things.” That maybe because other people went out of business. What kind of things are you hearing from business owners?
0:10:08.1 Pat Ryan: Well, there’s a big question right now. There’s, in certain segments, and I think restaurants are one of them, where demand has not only rebound, post-COVID, but it’s higher than it’s ever been. A lot of the restaurateurs that survived are doing incredibly well right now. And of course, micro-economics teaches you… Macro-economic teaches you that the more successful the restaurants are, the more folks will get into the game till the eventual equilibrium point where folks won’t make as much money. So that’s what I think people are trying to think through is, is this spike in demand a temporary spike? Or is it a fundamental change? Well, you mentioned something about the COVID being the ultimate stress test on businesses. And I think that’s right from an operational standpoint. I think businesses had to find ways to get incredibly creative to continue to operate and survive during an unprecedented period of change and restriction. The financial stress test is a little bit different, because a lot of businesses ultimately through PPP, interest rates, remember, got lowered significantly, a lot of businesses were able to go on a moratorium, not have to pay the banks for a while.
0:11:23.9 Pat Ryan: And so, ultimately, the resiliency that we saw from the business community on the operational side was unbelievable, I think better than any of us could have hoped for. Though the practical reality is based on the government programs and stimulus. Certain segments were very hard hit, but others didn’t have the financial stress that maybe we thought they would. And I think for them, some of those folks, the scenario modelling we discussed is really more about, “How do I handle the financial risk versus the operational risk?” And I think those are the conversations folks should be having with their banks right now.
0:11:56.2 Kurt Baker: Awesome. We’re gonna take a quick break. You’re listening to Master Your Finances.
0:12:00.1 ANNOUNCER: This is Master Your Finances, with Kurt Baker, certified financial planner professional. Learn about tax efficiency, liability, owning, managing and saving your money, and more, from Kurt and his experienced panel of guests. Master Your Finances is underwritten in part by Certified Wealth Management and Investment and Rider University. Rider University offers flexible education for adult learners. For more information, it’s rider.edu/nextstep.
0:12:30.5 Kurt Baker: Welcome back, you’re listening to Master Your Finances. I’m here with that Pat Ryan of First Bank. And we’ve got some changes in the economy, we learned a lot from the pandemic, let’s go through like some of the specific things that happened then. I know you mentioned the PPP, and you also mentioned the moratorium, so if I guess we’ll start off with the PPP, ’cause I know that you guys were kind of out in front of this and really helped a lot of people locally. So how did that process go in? We never had this program ever before. I remember trying to go in and figure out what is this thing, and who qualifies, and how do you do this? So kind of walk us through how that all occurred when this program first rolled out and then what happened.
0:13:06.6 Pat Ryan: Yeah, sure, it’s interesting ’cause PPP became ultimately this fundamental case study, and I think the value of community banking, ’cause what you ultimately saw was it was the community banks. Perhaps because they were a bit small or a little more nimble, a little more flexible, ourselves included, we’re able to put together programs very, very quickly, and ultimately, most folks who qualified got the money. So it wasn’t about necessarily getting money to people, ’cause a lot of folks were able to ultimately get it, but that anxiety that existed in the early stages.
0:13:38.3 Pat Ryan: I think the community bank industry really did a good job of going back to basics. I remember we pulled our team together, we read all the regulations about the program, we called consultants to figure out how we’re gonna do this. And at the beginning, the only way to do it was the old fashioned way; paper forms, filling things out, going out and sitting down and figuring out what information we needed and getting it sent in. And the process at the beginning was very, very manual, and I think the community banks, because they haven’t always been relying on technology, maybe to a fault, were able to quickly get up to speed and put something together. And the nice part about those manual processes we created is it kept everybody informed. Everybody that applied for a PPP loan through First Bank had a dedicated relationship manager they could call and say, “Where are we in the application process, what information do you still need, where are we with the SBA?” ‘Cause we had direct portal set up with the SBA and we could get information back from them quickly, so that process was critical. And listen, a lot of businesses ultimately that applied turned out they didn’t need it, thankfully they didn’t need it, but that initial influx of cash to reduce the anxiety was so, so critical.
0:14:51.8 Pat Ryan: And you mentioned the moratorium, ’cause the other thing that happened around the same time was the regulators basically came out and said to the banks, “Hey, it’s okay, work with your customers. It’s okay if they don’t pay for 60 days, 90 days, 180 days.” And as community bankers, we’re always biased towards working with our customers if there’s an issue and if they need some help. The problem is the regulatory structure doesn’t usually allow for that. There, unfortunately, tends to be a lot of criticism from the regulatory side if they feel like you’re not doing what you should to get rid of these loans that aren’t performing. And to give us the flexibility to, without fear of retribution, work with our customers, give them those moratoriums was critical. And the process worked very well. We got the money out the door quickly through PPP, folks didn’t need to pay for three or six months, which gave them some breathing room and, you know, the vast majority of folks after that initial three or six months period was over came back to paying as agreed based on the return of things going okay in their business. So it was amazing, despite there’s gonna be a lot of people coming out saying, “Oh, there was fraud in PPP, and we could have done things differently in hindsight.”
0:16:08.0 Pat Ryan: Which is all fine and good, but if you really think back to the unprecedented nature of what we all went through, I think collectively, the business community, the regulatory community deserves high marks for making sure a really bad situation didn’t become a catastrophe.
0:16:23.6 Kurt Baker: Yeah, that’s interesting. Yeah, so if somebody… I know when people defer the loan, so they have… Like let’s say I’m not paying a loan for six months, what happened? Did my… Still owe the interest and all that? Is it re-capitalised or how does that works? ‘Cause it was like… I think you still have to ultimately pay it, right?
0:16:38.5 Pat Ryan: Yeah, ultimately the structure was a forbearance, not a forgiveness, so depending on what the customer wanted, right, after six months, they could either choose to pay a little more each month if they wanted to catch up gradually over time, or a lot of folks what they did was if you had a five-year loan, maybe you had three years left on the loan, whatever the amount of unpaid principal and interest just got tacked on to the end, and then at maturity, the amount out would include that, and then that could be refinanced or paid off depending on what the borrower wanted to do, so.
0:17:11.4 Kurt Baker: So, it gave you a lot of flexibility. So the other thing is, now you’re a bank, so you’re a critical service. So how did you actually operate? Because we went one day from everybody going to work, next day, nobody’s going to work. Now, you had to have the institution to run, so how did that process occur? And how did you guys handle that? Just from an operational standpoint, the shift?
0:17:29.5 Pat Ryan: Yeah, operationally, there’s two key components. There’s the back office and then there’s the branches. Obviously the branches all got closed, everything got closed right away. Our IT team did an amazing job of setting up the back office to work remotely through VPN and through other tools. So we really weren’t down for very long. Now, obviously, people weren’t working in the office the way they had been, but within a matter of days, folks were set up to work remotely, and depending on your position, you could do 90 plus percent of what you used to do in the office at home, which allowed us to be effective with PPP and many other things. Now, a lot of the branches had to close for a period of time. Thankfully, through online banking and telephone banking, other things, folks could still move money around and get access to cash through the ATMs. And then for a while, we went to banking by appointment. So we had the branch team together in a little bit of a cluster and folks could come into the branch if they had an appointment, and we wanted to make sure that we knew who was coming in and we were doing keeping the number of people in the branches down. But yeah, listen, we evolved and adapted the same way everybody else had to, which is figuring out what the customer needs and figure out a way to get it to ’em.
0:18:48.1 Pat Ryan: And thankfully the technology allowed the remote work ’cause that was the biggest piece.
0:18:51.8 Kurt Baker: So now that you’ve gone through this process where we were wide open, we’re closed, and now we’re open again, did we learn any… Did you learn anything from those adjustments that you made that might have… Might be sticking around, so to speak, that you’re still using? Are you using any of that now or are you back to just basically the way you operated before and as far as the way the employees gather and all that, any changes to kinda stuff?
0:19:10.6 Pat Ryan: Yeah, right now we’re still operating in a fairly flexible environment. Most departments are managing based on what the department needs, so we don’t have universal rules about who needs to be in when and where. We have set things up so everybody has dedicated in-office space. We haven’t gone to a hotelling environment per se, but that’s largely because we had the space to use for it, but most departments are set up where folks are in 2-3 days a week, not everybody in the same day. And the other thing is, in terms of things that stayed, I think a lot of folks that might have been hesitant to adopt certain technology solutions, whether it would be online banking, remote deposit capture, taking pictures of cheques with your phones, those are the most obvious examples, folks preferred to go into the branch, so they said, “Well, okay, I know that exists, but I don’t mind going. I like the personal interaction, blah, blah, blah.”
0:20:01.8 Pat Ryan: Well, a lot of those folks sorta had to learn how to use the technology, and I think as a result, some of them are coming back, but I don’t think they’re coming back with the same frequency that maybe they were before. So I would say it accelerated the trend that was already under way, which is the reduction in the amount of time people are spending in the branches. So the big term in our industry is omnichannel, making sure that folks can bank the way they want, where they want, how they want. And that still includes the branch, but if you think about the old model, the branch was 90% of what people thought about when they thought of banking, now it’s less than 50% in terms of how they utilise the resources.
0:20:42.0 Kurt Baker: So now that we kinda forced everybody to learn how to use this technology, I know, like as an example, I never used things like Zoom prior to the pandemic you like to. “You gotta get on Zoom.” Like, “What… What is that?” [laughter]
0:20:52.5 Pat Ryan: Yeah, right.
0:20:53.1 Kurt Baker: I knew other platforms, but I wasn’t familiar with… So now that we’ve been… So it’s almost like we trained the public kinda by force almost, not that we wanted to do that, but now that they know how to do it, they’re more comfortable working with these other channels. So have you seen any… How have your customers responded to that, now they’re like, “Hey, I know how to use this,” do they enjoy the process better, is it more efficient? Is it… Does that…
0:21:16.3 Pat Ryan: Yeah, listen, I think for some folks there is an efficiency for sure, somebody that came into the branch that didn’t need to now has some extra time perhaps, but it depends on the segment of the customer base. We have certain customers who maybe are retired, so for them to come into the branch and catch up with their banker, that was part of their routine and their ritual and I think for a lot of them getting back into the branch and reconnecting personally is important. And there’s also… There’s other business folks that maybe had somebody from the office who would run out and make deposits and do other things, and those people probably are doing that less than they used to. But yeah, it’s a continuation of utilising technology but also trying to strike the right balance and as you and I have talked about in the past, First Bank, community banks are relationship-driven organisations so we’re not trying to eliminate the personal interaction, but at the same time we gotta meet the customers where they wanna be met, so.
0:22:12.4 Kurt Baker: Yeah, that’s kinda the optimal thing. I know that’s what we learned in our industry, obviously it’s a person-to-person business, so people wanna meet each other, but it’s kinda nice and what we found is it’s like an add-in, right? So, I found we had more touches, more communication with the client because now not only do we have the option to meet in person, if there’s something quick they wanna do, they can just do it right then.
0:22:31.5 Pat Ryan: Sure.
0:22:32.0 Kurt Baker: And so they get that part of it done when maybe they would have said, “Ah, I wanna go into the bank, but I don’t really have time to do that, so let me just go ahead. Now I know how to deposit a cheque, so let me just get those cheques deposited.” ‘Cause that’s my wife, she loves to go to the bank, she loves to hang out there. My daughter and I are like, “Just take a picture of it. You don’t have to go to the bank.”
0:22:47.5 Pat Ryan: Right. Right.
0:22:48.7 Kurt Baker: But she likes that social interaction, and that’s just the way it is. So I completely understand both sides of that kind of observing it myself, and I guess you’re seeing that too.
0:22:56.8 Pat Ryan: Yeah, and we see that with our commercial customers, where we have some that are very eager to get back to meeting in person, and then we have others that are just as happy to do a Zoom or something else, so.
0:23:04.4 Kurt Baker: Right, yeah, that’s awesome. Okay, take another quick break. You’re listening to Master Your Finances.
0:23:09.7 ANNOUNCER: This is Master Your Finances with Kurt Baker, certified financial planner professional. Learn about tax efficiency, liability, owning, managing and saving your money and more from Kurt and his experienced panel of guests. Master Your Finances is underwritten in part by Certified Wealth Management & Investment and Rider University. Rider University offers flexible education for adult learners. For more information, it’s rider.edu/nextstep.
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0:23:40.2 Kurt Baker: Welcome back, you’re listening to Master Your Finances. I’m here with Pat Ryan of First Bank, and you guys did a great job. I know just people that have been involved with you, that awesome response during the pandemic and how you guys got the money out the door, so to speak. ‘Cause I know initially people kinda forget all that, but that was really a huge stress point, especially for small business owners wondering how they were gonna manage all that and you guys stepped right up and took care of it about as fast as anybody that I’m aware of, which is fantastic. So that brings us to another question, some people don’t really understand the concept between your major Wall Street type banking operations and then the community bank. Now you’ve actually been exposed to both, right? So when you first got out of college where did you go and how did that experience relate back to what you’re doing now?
0:24:23.3 Pat Ryan: Yeah, well, like a lot of kids, I went to a liberal arts school up in Upstate New York called Hamilton College, had a great education, but didn’t necessarily learn what I wanted to do for the rest of my life while I was there. And so, my father was a career banker, and I always had a bit of an interest in banking, so I applied for and was fortunate enough to get a job at Goldman Sachs coming out of college and learned a ton, had an incredible experience, but at the end of the day, decided to take a look at other things before making a final decision just because of some of the trade-offs that are there. The quality of the work is incredibly interesting, incredibly demanding, learn a ton. I certainly get compensated well, but there was an important piece for me that was missing, which was the community impact piece. And it’s not a knock against Goldman or the Wall Street banks, it’s just not their business model.
0:25:16.1 Pat Ryan: They’re designed to raise capital for the largest companies and governments all over the world but at the end of the day, for me, I was looking for something where I could feel like I could make a personal difference in the community where I lived. And having seen the example of community banking through my dad in his career, I noticed that that was perhaps the best combination of challenging environment, opportunity to do well personally, but at the same time, really know that the work I was doing was having an impact on the community, which is really interesting ’cause when you think back to PPP, we had our staff working around the clock to try to find ways to get these PPP loans at the door, and you’d think, “Jeez, that sounds terrible. Everyone’s working all the time.” But so many people that are in community banking are doing it ’cause they wanna help, ’cause they wanna make a difference. And here was this program where everybody really could see first-hand how our role as bankers could be so important to the communities we serve. So it was really very rewarding despite all the sleepless nights.
0:26:25.8 Kurt Baker: Yeah, did you have any response for any of the like, the people that you dealt with, the business owners, anybody that says, “Hey, wow, I’m really glad you guys did this for me.” Right?
0:26:35.5 Pat Ryan: Oh, sure. You could hear the anxiety, you could hear the fear in the voices of the folks you were talking about, that everything that they built over the course of their professional career and for their families was at risk. And just to not only be able to get them access to the funding, but just to be able to help them know, “Okay, here’s where we are in the process, here’s what’s happening,” and it just it became an incredible relief for companies to know, “Hey, I’ve got somebody working with me who can help.” And really, it was really tremendously rewarding, and I think our team, despite the long hours, really, it was a reminder of why we all got into community banking in the first place.
0:27:15.9 Kurt Baker: It’s more than just the money, right? It’s that relationship and that impact that you’re having on them, right?
0:27:19.4 Pat Ryan: Well, listen, everybody wants to do well professionally, personally and for their family, but at the end of the day, money is not the primary motivator for everybody, and finding an opportunity where you can make a big impact, that’s to me the value of community banking.
0:27:34.9 Kurt Baker: So how does it actually impact… I know community bank is different than Wall Street bank as far as how it impacts the local community, so how do you guys impact them versus like a larger institution?
0:27:45.7 Pat Ryan: Yeah, I think the simplest thing is just in the products and services that we offer. So a community bank, the simplest definition is not just that it’s smaller than the Wall Street banks, but we tend to focus on the more traditional banking products that most folks think of. We take deposits and then we use those funds to lend it back out in the community, and so those are two valuable services protecting the hard-earned cash from the local citizens and the businesses and then making sure that money gets reinvested in the community for the growth and the economic development of the area and we do it all very locally, right? So the Wall Street banks are dealing with the largest corporations doing business all over the world, that’s great that they do that, but it’s not always stuff you can see and touch and feel whereas you lend somebody money to start a new restaurant, you can go to that restaurant and eat there and see how they’re having an impact on the area where they serve or helping local non-profits buy a facility to expand their presence. There are so many ways that the lending projects we work on, we can see and feel and touch and have a real sense of pride in what we do.
0:28:55.0 Kurt Baker: That brings us to another one, so what… Give us an example, like I guess you just did of impact investing, right? And so community banks, so you impact investing. So what does that mean exactly?
0:29:08.2 Pat Ryan: Yeah, well, that term has a lot of different meanings depending on the context. But to me, I think about impact investing, obviously, we have capital, we have money to lend back into the community and the fact that we’re helping make sure it gets channelled to successful organisations that can repay the money. A lot of folks, they get angry, they think, “Well, why wouldn’t the bank lend me the money?” Well, the reminder to the community is, “It’s not our money, it’s your money that we’re lending.” So you wanna make sure we’re being thoughtful about where it goes, but then ultimately seeing how it does have that impact because think about the things we finance corporate acquisitions, which creates jobs, we finance equipment acquisitions, which usually means companies hiring new people to work the equipment, it’s working capital to allow the business to grow, it’s buying real estate so they can expand their office presence or their warehouse presence.
0:30:03.8 Pat Ryan: So a lot of what we do doesn’t just lead to the financial success of the business and the benefit of the employees that work there, but in a lot of times leads to growth and new jobs, and there’s knock on effects. You have a new business that enters an area, all of a sudden, there’s secondary and tertiary businesses that are tied to providing services to that company, and so the economic impact can really be significant.
0:30:29.6 Kurt Baker: So it’s a great multiplier. I know one thing that sometimes people are… You mentioned it, you touched on it just briefly, you said, “Well, sometimes the bank will say no.” But I view that as like you’re helping… You’re preventing them from making their own mistake because I think sometimes people realise that the finance entity, the bank really is there to help you, and when they tell you this doesn’t make sense financially for you, there are good reasons for that. So can you explain a little… Just touch on it, I don’t wanna get in your details, your underwriting, but why underwriting is important, how that actually assists business owner become better at what they’re doing?
0:31:03.1 Pat Ryan: Well, listen, 100%, right? Sometimes somebody will come and say, “Here’s my idea, here’s how much I wanna borrow.” And our review or the facts will be, A, maybe the idea is not the best idea for certain reasons, or B, the amount of money they wanna borrow, it might just be too much, and the risk associated with debt isn’t linear risk. So at the end of the day, if you wanna borrow 50% to finance a new project, that’s gonna be very low risk, you get to 60%, okay, still fairly low risk, but the amount of risk at 75%, 80% is significantly more, and I think it’s important for folks to remember that it’s not just, “Oh, if I had a dollar of debt, it’s just a little bit more risk.” The risk curve actually, the shape of that curve goes up significantly, so that’s something that’s helpful to remind folks.
0:31:51.4 Pat Ryan: And the other piece is some folks think, “I need money. The bank is money. Let me go to the bank. They’ll give me the money.” Okay, well, that’s true to a degree, but you really gotta remember the capital structure of business, which is to say that there’s lots of different ways that different capital sources fit in, and so there’s a need for equity, sometimes folks wanna borrow money because they don’t wanna bring in a partner, but because of the risk profile of the venture, they need equity financing, not debt financing, and so those are the conversations we have. A lot of times it’s, “Hey, we like the idea, but you can’t pay for this all with bank debt. You need some equity, you might need some bank debt, you might need some mezzanine capital, there’s different types of capital based on what you’re trying to accomplish.” So a lot of times it’s not a binary yes, no. It’s as presented, no, but here’s our thoughts around how we think this could work, and then ultimately it’s up to the business owner to decide how they wanna proceed.
0:32:50.3 Kurt Baker: And I think that’s the key that many people don’t know is that when you do sit down with a community bank or they actually walk you through essentially your business idea and say, “Hey, maybe this doesn’t work, but here are some things that we might be able to do that could work,” because you do wanna lend money to a successful entity and you want them to be successful, so everybody succeeds together, right?
0:33:05.4 Pat Ryan: Yeah, there’s a consultative approach, but it’s also, to me, the biggest difference between community banks and the international money centre banks and the Wall Street banks is we want to be consultative. Really big companies, they lose that ability to be nimble, flexible, creative, because they have to have standardised products, right? And the answer is, “Okay, here’s my checklist, if I can check yes to everything, I’ll make the loan, and if not, I won’t make the loan,” they’re not gonna go the next step to try to figure out how do we put this deal together, but that’s what the community banks do really well.
0:33:38.5 Kurt Baker: Right. And since you’re a community bank, so how do you feel… I know you guys have expanded quite a bit, so what differentiates like how you run First Bank has you think many other community banks does. What do you think your differentiator is there?
0:33:50.2 Pat Ryan: Yeah, it’s a great question, ’cause I think, quite honestly, most banks are pretty similar, there’s differences in business model, but fundamentally, we’re trying to compete on service, we’re trying to compete on being creative, nimble and flexible, and the practical reality is that the percentage of the banking business that lives with community banks is 15% or 20%. It’s down significantly from where it used to be. I think the big five banks, now 65% of all assets in the banking industry are held by the largest bank. So at the end of the day, we’re not competing that much with the community banks from time to time we do but the practical reality is collectively, the community banks are trying to regain some share from the bigger guys.
0:34:31.4 Kurt Baker: Right. Awesome. All right. We’re gonna take another quick break. You’re listening to Master Your Finances.
0:34:36.2 ANNOUNCER: This is Master Your Finances with Kurt Baker, certified financial planner professional. Learn about tax efficiency, liability, owning, managing and saving your money and more from Kurt and his experienced panel of guests. Master Your Finances is underwritten in part by Certified Wealth Management & Investment, and Rider University. Rider University offers flexible education for adult learners. For more formation, it’s rider.edu/nextstep.
0:35:06.6 Kurt Baker: Welcome back, you’re listening to Master Your Finances. I’m here with Pat Ryan of First Bank, and you just did a great job, you had the opportunity to work on Wall Street, which you did for a little while, you figured you wanna be more community-connected. Your dad was in banking, community banking, and so you kinda stepped in his footsteps, but you’ve done quite a bit. I know that you guys have grown the community bank and your culture is awesome, and you did a great job during the PVP, the pandemic, and getting that out, the moratoriums that people had to endure and helping out to different business owners, and you assist with people to really kind of make their businesses better from the lending side, which a lot of times people don’t understand that that’s really what actually happens when you have a good relationship with a community bank.
0:35:44.6 Kurt Baker: So all of this leadership you have, which has been amazing, I’ve been here while you’ve been doing all this stuff, you were actually honored this past year as entrepreneur of the year of 2022 for New Jersey. So what do you attribute that to and kinda give us some ideas about why you’re such a great leader.
0:36:02.7 Pat Ryan: Well, let me start by saying that the E&Y award Entrepreneur of the Year was a tremendous accomplishment, but folks like to give awards to people, but the practical reality is it’s an award for the business and it’s an award for the team, and so the simple answer is, “What did I do to earn the award?” I thankfully surrounded myself with really great people who collectively as a team, have been able to drive a lot of success for the bank over several years, so there’s no I in team, and ultimately, I appreciate that the organisations choose to recognise me personally, but the practical reality for that is it’s a team award, it’s based on the success of the business. So it was nice that we collectively got recognised there.
0:36:56.8 Pat Ryan: As far as overall leadership style, to me, I think the most important things are transparency, I think you need to let people know what you’re thinking. And you need to follow through on what you say you’re gonna do. And ultimately, it’s making sure you care about the team and finding that right balance between caring but having the ability to make tough decisions, which isn’t always easy, right? A lot of times, the hardest part of running any business is the people part of the business, and there are times where things need to change, things need to be done differently, and those can be some of the most difficult conversations, but you need to remain focused on the collective team because if you focus on one or two individuals and what might happen there, I’ve seen it happen in other organisations where an inability to make the hard decision in a specific situation leads to problems throughout the organisation, so it’s about striking the right balance.
0:37:57.0 Kurt Baker: Yeah, that’s incredible. So I think you’ve got two skill sets, and I’d like to get into it here a little bit is, one, you do a great job of hiring the right people, and two, you do a great job of realising when maybe there was an error or a person is not fitting into the team and understanding how that can bring down the rest of the team, so you wanna maybe give us a little insight about what your process is for finding these great people that you have, and what do you do and how do you vet them and how do you cultivate them into your culture.
0:38:24.3 Pat Ryan: Yeah, I think on the hiring side, there’s two things that are critical, one is hiring for cultural fit, and I don’t mean that to say there’s a special brand of Kool-Aid at First Bank, and if you don’t drink it, you can’t work there, it’s more about what do we think of our culture? We think we’re a culture that’s comprised of friendly, smart, hard-working people, and at the end of the day, if it doesn’t feel like there’s a fit in terms of that overall culture, then that can be an immediate red flag and a decision not to move forward. But the other thing we try to do is focus a lot on attitude over aptitude. So finding somebody who knows how to do the job but maybe doesn’t have the best attitude and doesn’t fit well with the culture. We’re more likely to go with somebody who either worked with us internally, maybe they haven’t done this new job before, but they’re an incredibly hard worker, they’re motivated, they’re a nice person, and we wanna give that person a chance. And so we hire a lot from within when there’s openings and when we can’t find a fit from within, the key criterion is, “Does this person have the kind of attitude that they’re just gonna find a way to get it done and be a great team player,” and I think that’s worked for us over the years.
0:39:45.0 Kurt Baker: Yeah, so it sounds like I hear this from other business owners, it’s not necessarily the resume itself, that’s key, a starting point, but it’s more about that personal connection, who the person is, ’cause you can teach them the skill sets, ’cause banking, everything’s different, everybody’s got their own way of doing things. So the other part of that is the tough decision part, I know this is a lot harder to do than it sounds. You go, “Oh yeah, well, just that person’s not working out, let’s… ” So do you have any kind of process you go through yourself where you say, “Okay, well, okay, well, here’s somebody that maybe we can help out and get them back on track a little bit,” and then at some point you say, “This just isn’t working out.” So how do you kinda go through that and what kind of points…
0:40:23.4 Pat Ryan: Yeah, I think the two things we do there. Some folks will say, “Hey, hire slow, fire fast.” The practical reality is, firing fast just doesn’t feel fair to folks, there are times where you see warning signs, and perhaps it would be more efficient in the long run to just pull the plug quickly, but I don’t think that’s fair to the individual. But what we do is we hold the managers accountable when we see the warning signs, we say, “All right, well, what are we gonna do as an organisation to try to give this person an opportunity to address the deficiencies? Is it training, is it more oversight? Is it clear goals and objectives?” And basically putting a plan together for the individual that’s struggling to say, “Hey, here’s where we need to go together,” and sometimes the message is delivered and the individual works hard and they get themselves and the organisation into a better place and sometimes it just doesn’t work, and the key to ultimately creating that separation is giving somebody the time and the tools to be successful and then ultimately if we’ve done that, I feel like we’ve done all we can, and sometimes it just doesn’t fit.
0:41:35.4 Pat Ryan: And the thing I try to remind our managers is if the fit isn’t good, it’s not good for either side. Obviously, there’s challenges associated with a job termination, but in the long run, the individual is gonna be better off in a different profession or at a different company where the fit is better, so.
0:41:53.0 Kurt Baker: When you walk through that whole process of handling your employees, so helping them out and setting up the structure correctly, assisting when there’s a tough time, and knowing when it’s not a fit and when it is a fir, it sounds a lot like the way you talk to your business owners.
0:42:05.8 Pat Ryan: Yeah. [chuckle]
0:42:08.4 Kurt Baker: It kinda related a little bit along the same line is you gotta set up a clear objective, a plan, make sure everything’s clear, follow it, work hard, the right energy to get things done, so this really, to me, your corporate internal culture sounds like it fits a lot with your business community that you’re actually working with, the people that you probably have as your own client. So that kind of flows through in a lot of ways, it sounds like.
0:42:31.3 Pat Ryan: Yeah. Listen, I’ve never thought about that Kurt, but I 100% agree with you. Ultimately, it’s about problem solving, right? If somebody walks in with a loan request that just doesn’t feel right, one choice could be to say no and move on. But we like to take the approach of, “Okay, well, what about it isn’t quite right and how do we address that? And how do we try to get to a better position?” And I think that’s the same that you do with your own team when there’s performance issues or personality challenges or whatever it might be, so.
0:43:01.3 Kurt Baker: Yeah, no, that’s awesome. So what is your formula for success?
0:43:03.9 Pat Ryan: [chuckle] Yeah, it’s interesting. I don’t think anyone really has one formula that is simplistic, but ultimately, I think on the business side, it’s about getting the right people in the room, giving them the ability to lead and manage effectively without micromanaging them, but then on the back side, having the ability to make tough decisions when things aren’t going the way they need to, I think that’s the formula for success in any business, it’s about being fair, but it’s also about being fair from all the different angles. We have primary constituencies, we’ve got our employees, we’ve got our customers, we’ve got our shareholders, and when things are working well, they’re working well for all three together, and there are times where things get out of balance one way or the other, and we need to remember that we’ve got multiple constituencies. So you might have an issue on the employee side where you might wanna do something, but if it’s not the right solution for your customers or your shareholders, then you might have to make different decisions.
0:44:11.3 Kurt Baker: That’s great. So now what’s next for First Bank?
0:44:15.7 Pat Ryan: Well, thankfully, we’ve had success, so to some degree, I think what’s next is continue with the play book. One of the things I didn’t mention in terms of formula for success, for me, it’s about having a very focused strategy, we’re not trying to be all things to all people, we take deposits, we make loans, now there’s certain segments within there that you could think about as their own businesses. But fundamentally, it’s about staying true to who we are, trying to be best in class in both of those primary lines of business, deposit gathering and in the lending, and then continue to do it throughout our broader footprint of New York to Philadelphia, which thankfully for us is an incredibly large sandbox to play in. So we don’t need to go to the Midwest or California or Florida, we got plenty of business right here in our backyard. Our job is to continue to get the word out, continue to look for business partnerships and acquisitions that we’ve done in the past, and I think we can continue to do what we’re doing today in our markets and be two or three times the size we are without having to fundamentally change how the business works.
0:45:22.2 Kurt Baker: Oh, that’s just awesome. It’s been great. I know you could do with some acquisition, but probably we’re running out of time now, but I think it’s so it sounds to me when you bring in a new bank, is there cultural adjustment as well, when you do an acquisition, do you wanna briefly talk about that.
0:45:37.7 Pat Ryan: Yeah, absolutely. With bank acquisitions or any business acquisitions, everybody has a culture, whether they intend it to be a certain way or not, the culture emerges, the culture is there, and it’s almost always different. The Bank A, Bank B, it doesn’t matter who’s buying whom, there’s differences there, and then the question becomes, for the folks that have an open mind to trying to see what the new culture is like, they tend to have success through the integration phase, and one of the things we push really hard on our side is to make sure our folks don’t take a… We have it all figured out we’re right mentality, these are businesses that have had success in their own right, what can we learn from them, and it’s not easy to do, but the goal is to take the best of both and bring them together.
0:46:23.5 Kurt Baker: Awesome Pat. Great, I really appreciate you coming on the show again today, you’re listening to Master Your Finances, have a wonderful day.
0:46:31.0 ANNOUNCER: That’s all for today’s episode of Master Your Finances. Missed Kurt Baker’s biggest money managing tip or even a full episode? Head on over to masteryourfinances.us or 1077thebronc.com/masteryourfinances. Look for Master Your Finances on Anchor, Spotify, or anywhere you get your podcasts. We’ll see you next time. Only on 107.7 The Bronc.
