In part two of the special guest episode, Sean and Gina welcome back Brad Tidwell, president and CEO of VeraBank, a community bank in Texas. Brad discusses some of the challenges for community banking, including the continuing economic impact of COVID and how banking can communicate what’s happening and what’s coming. He also discusses how VeraBank supported small businesses in their community with PPP lending, as well as what it takes to compete with the big banks with resourcefulness and humility.
This is Part 2 of our conversation.
Intro: This is Believe in Banking, a podcast series for decision makers, influencers, and leaders, featuring experts taking on the financial industry’s most pressing issues with insight and empathy. The podcasts features information and conversations designed to enlighten and empower. Here are your Believe in Banking hosts, Sean Keathley and Gina Bleedorn.
Sean Keathley: Welcome. This is our podcast for Believe in Banking. I’m Sean Keathley, President and CEO of Adrenaline.
Gina Bleedorn: And I’m Gina Bleedorn, Chief Experience Officer at Adrenaline.
Sean Keathley: We’re very excited to have our part two conversation with Brad Tidwell from VeraBank. In this episode, we’re going to talk about the community banking response to COVID and specifically the VeraBank response to COVID and how they’ve been committed before and during this pandemic, to serve in their communities.
Gina Bleedorn: I think a good place to start might just be what’s on your mind, Brad? What is on the mind of leaders in community banking? What is keeping you up at night?
Brad Tidwell: Like any banker today, I’m worried about the economy. I’m worried about the impacts of the pandemic long-term on our economy. I think anybody that believes we’ve seen at least the biggest challenge from a credit problem in banking yet is kidding themselves. With all the government stimulus with the SBA PPP, with all the deferrals we did, we’ve kicked the can a little bit down the road. Now there’s nothing wrong with that, and I think we, as a country and as an industry have absolutely done the right things, but I still think there’s some challenges from a credit perspective to come. I don’t think they’re going to be as bad as we thought they were, back in the early days of April, May when this pandemic really kicked in. I don’t think any of us knew what was at the end of the tunnel. And there was no light at that point, but the light’s a little brighter right now.
Brad Tidwell: But the economy is going to be a challenge for a while. Yes, we’ve seen some improvement. Unemployment has certainly improved, but I think most people agree that unemployment is going to be a challenge for a while. Don’t ever confuse the stock market for the real economy. The stock market is always forward looking and it doesn’t mean it’s always right, either. I think while I’m not at all bearish on our economic future, I am very cautious about our near term economic future. And I think we’ve got 15 to 18 months of challenges still ahead of us. I think 2021 is going to be a tough year for our industry because of interest rates. I think it’s going to be a tough time because of the speed of change, which I think we can talk more about, this pandemic has sped up so many things. I think in the longterm, that’s going to be really good, but it’s going to be a challenge to adapt and then to adopt.
Brad Tidwell: And I think too, one of the challenges that was here with this pre-pandemic and is going to be here, post-pandemic in even a more meaningful way, is the challenge of the Neo banks, the traditional bikes, the non-bank banks. And so I think those are the biggest challenges. For a banker, not to say regulation probably is a surprise, but, that regulation is just something we have to deal with, and it applies to most of us equally and not always. But I think those three things, the economy, the speed of change and the different competition are the biggest challenges for me right now.
Sean Keathley: Brad, the next question may be a bit sobering for our listeners, but I hear you talking about the realistic view on things. I have said what you’ve said, our friend, Jamie Diamond, who you’ve met and I’ve not, has said the same thing. The stock market is not the market. In 2020, the stock market is a lot of big tech stocks mainly, and forward view. Things will get better eventually, which I think everyone believes. The consumer is largely the current market. When the consumer is healthy and spending and saving, things are well. And that is not the case in 2020. That is not the case in the fourth quarter.
Sean Keathley: As you think about the philosophy of a bank founded in the Great Depression, the philosophy a bank who changed CEOs in some of the hardest times in the state of Texas, economically, in the late eighties, are you not better prepared to deal with this pandemic and this methodical growth? I don’t want to name any institutions, but think just at 30,000 feet, there are a lot of community banks, the average community bank, it still, to me, at an alarming asset size. It is still surprising given the size of Chase and their technology budget or B of A, that the average community bank being just under $400 million. What are your thoughts on how that will impact things going forward? As you talk to other CEOs, what’s the sentiment? Has everybody been as cautious as VeraBank? Is everybody as well-prepared?
Brad Tidwell: That’s a great question. And I’ll take it in a couple of parts. One of the interesting things, I was on a conference call with the Regional Director for the Southern region of the OCC recently. I think it’s 13 states stretching from Texas to Florida. So it’s a big swath of the country and it’s a very economically diverse and vibrant swath of the country. But one of the comments that he made and I thought he was spot on about this, was folks in my role, there’s a lot of bank CEOs who have been through multiple crisis before. We, myself got in during the Texas banking crisis of the eighties and we went through 9/11. We went through the tech bust, we went through the Great Recession of the late 2000s. But the average banker, the average lending banker, has not been through many of these cycles.
Brad Tidwell: And so I think senior management like myself and my peers, we’ve got an even tougher job to make sure we help our folks understand what’s happening and what’s coming, and why we have to take the difficult steps we do during this period of time to manage through this. So I think that’s one thing. Secondly, does the size of your bank matter in the future? Yes, it does. Does it matter as to how you survive this current crisis or not? Maybe not. There are a lot of very, very well run from a credit perspective, smaller institutions, and there’s some poor run, from a credit perspective, smaller institutions. There’s some well-run, larger ones, 3 billion, 5 billion, 6 billion, 20 billion, banks out there. And then there’s some banks that maybe have taken risks, they shouldn’t have taken. So I don’t know that size will determine a bank’s ability to manage through the economic challenges of the pandemic.
Brad Tidwell: Now, if you don’t have enough capital, sure, but that’s not always size dependent. So I think size is much more important as it relates to how you’re going to compete in the future. I do think as we look around our industry today, there are banks that are taking multiple different approaches. I think to your point, the banks that are going to be most successful and they probably have to be a billion or above, and in a billion’s not real big, but a billion or above. They have to diversify their revenue stream. If they are purely a spread lender, if all they can do to make money is loan out deposits at an acceptable spread, it’s going to get tougher and tougher, and we’re seeing that right now with that interest margin. If you are not committed to treasury management, if you’re not committed to wealth management, if you’re not committed to non-interest income, then I think you are going to find yourself very challenged over the coming years.
Brad Tidwell: And there’s going to be plenty of challenges if you are committed to those things. But the banks that are pure spread lenders, they’re the ones that are going to find it most difficult to compete, regardless of size. Then if you take size into consideration, I think the number one challenge and I had this conversation with a banker that I respect a tremendous amount, an excellent banker, they’re surviving the pandemic just fine, but they’re not a large bank at all. They’re less than 3 or $400 million, well less. And he told me, he said, “Brad, it’s the technology.” He said, “How do we keep up with the technology spend?” And then it was a rhetorical question. The answer was, “We can’t keep up with the technology spend.” And so, how do they compete?
Brad Tidwell: Because I really believe, and you’ll hear bankers say all the time that are in these small communities, “Well that our customers, they don’t demand all these things. They don’t want all of the technology services that Chase or Capital One or the non-banks can provide.” I think that’s BS. I actually think that is a cop out on our part. Our customers want all the same things, but they also want that personal service. And so to believe you can get away with not having online account opening, not having DocuSign, E-sign, not having the ability to do lending online, not have imaging services and card services where you can go in and hot card your own debit card so that you don’t have fraud? To think you’re not going to have, to have those things because your customers are small town customers and don’t want them, I think that’s a tremendous mistake.
Gina Bleedorn: Brad, is there a threshold? I think you maybe just articulated it. It might not be certainly Chase’s level of tech spend that of course is not ever achievable by any community or even regional organization. But I think what you’re saying is there’s table stakes of technology that all regardless of market size, all customers want.
Sean Keathley: Let me tee that up for you, Brad. And these are just statistics. VeraBank is 2.9 billion in assets, give or take a couple $100,000 right now. And Chase will spend this year 3.2 billion in technology. So can you even begin to think how a bank your size could compete on technology? And I know the answer is no, but what you’re saying and Gina is asking, don’t let that be the excuse for everyone because those numbers aren’t changing?
Brad Tidwell: Right, and the answer is yes, we can compete. We have to compete differently and focus and prioritization is even more critical when you take into account technology. Let me go back to kind of the question Gina was asking about, is there a size threshold? And the very honest answer is, there are going to be successful banks at $250 million because they’re very focused and very well run and they’ll grow. And there’s going to be unsuccessful banks at 250 million. I do believe that in general, unless a bank has just no competition, which there’s very few of those out there anymore. The truth is size does matter. You’ve got to have some critical mass to be able to not just afford the technology, but to deploy the technology.
Brad Tidwell: You’ve got to have the people. That’s tough, whether your Chase or your VeraBank. And so the size of the institution needed to really compete effectively is going up by the day. Gina, I would be hard pressed to put an asset threshold on that today. But I do believe there is a reason you’re seeing more and more of these smaller institutions opt out and it’s because they can’t get the return on investment.
Brad Tidwell: And 4 or 5% ROI is not going to get it. They’re going to be looking out there and saying, “I can get 8 to 10% elsewhere possibly and not change my risk profile,” and over time, they’re going to do that. How we compete is, I think you have to be a fast follower. You hit the nail on the head, Sean. We can never keep up with the technology that JP Morgan Chase or Bank of America or Wells can roll out in a given year. But we can be a fast follower. And what we have to do is make sure that we have everything that our customer needs. What I tell our folks all the time is from a consumer perspective and a commercial perspective, we have to the products and services to compete with Chase, locally.
Brad Tidwell: Now, if a commercial customer wants international service or very sophisticated, investment management services and they have revenues above a few hundred million, they probably shouldn’t be banking with us. They should be banking with JP Morgan Chase. But the great, great, great majority of the businesses and individuals in this country, we have the products and the services for them. How we deliver and deploy them with our people is what will make the difference. We’re not going to be first to market, but we can be a fast follower. And the other thing we have to do is constantly, constantly stay on top of our vendors to make sure they are providing best in class services. And if they’re not, we can’t be afraid to change.
Gina Bleedorn: There’s certainly a lot of dialogue about vendors in community banking. How do you feel about the spectrum, the landscape of vendors today? Can you find what you need?
Brad Tidwell: Yes and no. Yes, you can find what you need in the big players. Today there’s really only three or four big core systems out there, three or four smaller, more upstart. They don’t always have everything you need. So you have to be willing to look elsewhere, which we’ve done, frankly, aggressively. So we can get the services, but it takes a tremendous amount of time and effort. I would advise others to think long and hard, do they have the knowledge to make these decisions about technology in a vacuum? And we made the decision, that we did not. I’ve got some very smart folks on the tech side and the retail side of the bank, yet we understood that we just couldn’t see the whole picture.
Brad Tidwell: As much as I don’t like paying consultants, there are some very good folks who can be of good counsel to community banks as it relates to technology spend, and as it relates to the quality of the product set of a lot of these different providers and some of them are smaller, but up and coming providers. We’ve taken advantage of that, and it’s paid off for us because quite honestly, we’re bankers, we’re not technologists. And we keep going back and comparing ourselves. There’s so many things we can do right that may be a large bank can’t do, but we can invest in all the data folks and the tech folks that they can invest to help them make these decisions. So we’ve got to be smart about it, know what we can do, know what we can’t do, but you got to go out there and get those products and services because your customers want them.
Gina Bleedorn: I just wanted to underscore Brad, what you said about your internal people, because what is documented in the last couple of years of news is community organizations partnering with more innovative, let’s call it FinTech providers and ultimately not being able to make the partnership successful because they don’t have enough on the internal side. Not that you are technologists, but you need enough of the right people to make that work, and you already said that you do.
Sean Keathley: With what Gina’s just saying, it makes me think of another question for Brad. And I think as fellow CEOs, we have to have some element of optimism to lead teams. And I’m always looking for silver linings, although as I get more experience, I want to be a realist. If we think about COVID as a catalyst or examples, I’ve seen some, where COVID has forced you to do things that you knew you needed to. Talk to us about your experience working through this, and some things you’ve done that perhaps will survive COVID, meaning we make it through this pandemic and it will not be an approach, a service or a way to reach your customer, that you’ll stop doing.
Brad Tidwell: Great question. It is very interesting to me, bankers in general, and I’ll put myself in this category, we talk about change all the time. We talk about the importance of being able to change, to adapt to change and the willingness to change. But a lot of us, we really don’t like that, I don’t like it that much. I’d love to be in a very stable industry that we still had growth opportunities. What this pandemic has done, it has forced change upon us like never before. I’m going to give you an example. Before March, we would have told you at VeraBank, and I’m pretty sure this would have been the case at most community banks in this country, maybe most large banks in this country, that there were about six or seven things that we simply could not do through the drive-thru. My God, you had to come into the branch to do these services or have these services performed.
Brad Tidwell: Well, guess what? The only one that we are not able to do through the drive-thru today, is to get someone into their safe deposit box. We have not figured out how to teleport them, from the drive-thru, into the safe deposit box save. Save and except that, every one of those services that we couldn’t do six months ago, we are now doing through the drive-thru and we’re going to continue to do them through the drive-thru. Six months ago, we were using DocuSign and E-sign and E-delivery of documents. We were growing in our application of those and I was really encouraging it. And I can’t tell you our adoption rate, pre-COVID. I can tell you post-COVID, it’s about 95+%, and that’s not going to change. Customers like it. They like the fact that they don’t have to come in to sign documents.
Brad Tidwell: We’re never going back. I wish I owned a big chunk of DocuSign right now because that service is only going to expand and become even more accessible for people. I think it has brought a realization on our industry. The days of the branch as a transaction tool for many customers are coming to an end. I think there are many different ways this pandemic has changed our operating environment. I think many of them are going to last and I think we need to make them last and be sustainable, quite frankly. The branch is not dead. You’ve said that for years, I’ve said that. The branch is going to survive, but the branch is a problem solving tool. It’s a consultation tool. It’s there when the customer needs to look you in the eye and say, “I need help. What should I do with this or that?” It’s no longer primarily a place for transactions.
Brad Tidwell: One other thing that we are doing that we did not do pre-COVID at all, was appointment setting in our branches. Our customers seem to really like it, believe it or not. They like the fact that they don’t have to wait, that they can pre schedule an appointment. And our bankers like it. Our retail bankers like it. Our commercial bankers like it. Now we’re not going to require appointments. We’re not going to go to appointment only in our offices, but we are definitely going to continue with our appointment setting system, we’re going to encourage it.
Brad Tidwell: We find that it makes the business flow on a daily basis in the branch, more manageable and more efficient. I do believe that now that customers are again getting used to it six months in. Nine months ago, if you said, “Oh, Mr. and Ms. Jones, you need to set up an appointment to come and talk to someone about that loan,” they would have been pretty offended because they’re used to just walking into the bank every day and doing that or any day and doing that. But now, they understand the benefit that they don’t have to sit out there and lobby for their selected or preferred banker. And so I do believe appointment setting is something that’s going to continue. It is going to be value added and it’s not going away.
Sean Keathley: Brad, I want to talk to you about this notion of truly helping the communities. We talked a bit about the credit crunch and the fact that there has been this stimulus, and in a lot of ways is delaying what’s inevitable. But if we back up a little bit and talk about VeraBank’s role in how you as an organization helped, because in knowing what I know, I do believe, if it were not for the community banking system, there would have been a much deeper impact to this pandemic. And as I’ve stated on this podcast, a meteor that hit our economy. Talk about your experience in terms of what VeraBank did and how you were uniquely capable of helping with this PPP SBA program.
Brad Tidwell: I will talk about it and I’ll tell you, I really do believe the VeraBank experience was repeated thousands of times over around the country by other community banks. So while I will talk about what VeraBank did, I really think if you were talking to any number of other community banks, the story would be exactly the same. Community banks really out kicked their coverage on SBA PPP. We carried the water in a big way and that’s not a boast, that’s just a fact, and I’m really proud of the way our industry stepped up. If you look back, yeah, there were some difficulties with the rollout of this, but for all the criticism that many people have of the federal government from time to time, and I’m certainly one of them, the SBA PPP program was really well done and very critically needed.
Brad Tidwell: There were a lot of jobs saved. A lot of heartache prevented by SBA PPP. And I commend Congress and the administration for getting this done, first of all. But then when it came to delivery, I’m so proud of what our bank did and what community banks did. If you look out, and the studies have been done now, the numbers are out there. The average community bank originated approximately 10 to 12% of their outstanding loan balances in SBA PPP loans. Now let me put that in perspective though, just take VeraBank. Before COVID, we had about 1.4 to 1.5 billion in loans outstanding on our books. We originated 148 million, right at 10% of our outstanding loans. And the average was 10 to 12% for all community banks. The average for the larger institutions, and I’m talking the top 10 to 20, those banks over a hundred billion dollars, was more like 2 to 3% of their loan portfolio.
Brad Tidwell: And I really think the difference was we did not have automated processes to do this with. It was people burning the midnight oil. We had people working 7 days a week, 16 hours a day, 18 hours a day, doing all of this manually. We did almost 1600 loans, or maybe even a little more than that. Our average loan size was $85,000. If you kind of do the math on that, that says the average payroll of that company that you did that $85,000 loan for, was probably somewhere around $35,000. And if you just do the math, that tells you, that is a small business, the average monthly payroll was that the 35,000. That’s a really small business. That may be five, six employee business. Those were the businesses that were just crushed in the early days of this pandemic. We did loans as small as $500.
Brad Tidwell: The larger institutions, again, not to be critical, but it’s just a fact they use the automated systems and the problems with those automated systems in times like this, where there’s so many unknowns, and this was a new process. If there’s a problem, if there’s a mistake or the information is not complete, the automated system doesn’t know to go and call up Mr. Smith over at the mechanic’s garage. That community banker at nine o’clock at night knew to call Mr. Smith and say, “Hey, I need this if you want me to get this PPP loan done for you.” And guess what, Mr. Smith got it, and we got that loan done for him.
Brad Tidwell: And I think that’s why we got so much good press out of the SBA PPP process. It was deserved, and I’m so proud of our industry. And let me tell you what, community banks around this country have seen real growth in business customers because of it. Local people who know the local customer make a difference. That’s the narrative for the future of the community banking industry. It is marrying the very best of technology with the very best of people that are committed to serving.
Gina Bleedorn: Brad, I think it embodies all that you are and all that is genuine banking, which is at the heart of VeraBank and the heart of its CEO and the heart of really everyone there. How do you remain humble, Brad?
Brad Tidwell: I’ve always liked to think that I understood, first of all, it wasn’t about me. And I think any good leader needs to understand, it’s not about them. You as a leader are very important, but it’s not always about you and you better accept that. But when we acquired the Bank of America branches almost six years ago now, I sent out this letter to the 25,000 customers we were acquiring and it was a very simple letter. And it said, “Welcome to VeraBank. We’re thrilled to have you as a customer. We have purchased these five branches from Bank of America, and soon you will be doing business with us and we promise you, we’re the right kind of bank,” and all of that good stuff. Very simple short letter.
Brad Tidwell: One day in the mail, I get this personal envelope with handwritten address to Brad Tidwell, President of the bank and all that and I open it up, and it’s my letter. I had sent out and signed, but on the backside, this lady had written a little note to me and it said, “Dear Tidwell, I am a Bank of America customer. I do not wish to be a VeraBank customer. I am not impressed with your business plan,” no idea how she knew anything about our business plan, but she was not impressed with it. “Do not take my account. Thanks, but not thanks, Asshat. Signed, Mrs. So-and-So.” So I keep that letter. I have it framed in my office. And so there’s a day where I’m starting to feel a little cocky or think that I’m smarter than the average bear. I just look up at that letter and I remind myself that I have a crappy business plan and that I’m an Asshat, So that keeps me humble, Gina. Can you say Asshat on this show?
Gina Bleedorn: We can, we’re allowed to say that here on our podcast, and that is a beautiful story. And honestly, a representation of the type of leader that you are not, not an Asshat. But the fact that you’re willing to put up a letter of someone calling you an Asshat represents your leadership and the whole spirit of that bank, your bank, no jerks allowed. So I think we have one last important question to ask you and Sean, you should ask it.
Sean Keathley: And after this amazing discussion, it may seem somewhat rhetorical, but as I introduced the podcast, I asked everyone to, welcome to the Believe in Banking Podcast. And let me just ask you the question, why believe in banking?
Brad Tidwell: I think banking, what we do is so important to the economy of our country. You step back for a minute and think about it. What do we deliver? We deliver financial growth. We deliver economic growth. We do it, I think particularly well, big banks and small banks alike. I also think though, that if you step back and ask, why I believe in banking as it relates to community banks, which is really our target audience here today, it’s because we really are the economic engines of many of the small and mid-size towns in this country. We’re the fuel for the economic engines, I should say. The small businesses and the mid-sized businesses, they’re the engines, they’re the job providers, but they need a source of capital. They need financial services. And in so many cases, it’s been proven through study after study, that the real source of that for small businesses, are your community banks.
Brad Tidwell: And you look at other countries around this world, other developed countries, other democracies, other countries with good economies that have only four, five, six, eight banks, they don’t have small community banks. They have a struggling small business economy. Heaven forbid we ever get there. I believe in banking because of the value proposition to the individuals in this country, to so many of our citizens. But I believe in banking also because of the opportunity it’s presented me and many others, to grow both personally and professionally. And I think we’re here to stay. Is our industry going to evolve and change? Yes, it is. But we’ve proven that we can handle that change and we can adapt. The good banks are going to continue to do that because of all the good things that our industry can do and will do in the future. Yeah, I’m absolutely a believer in banking, and I don’t think anything’s going to change that.
Sean Keathley: Brad, thank you for these discussions. We’ve been talking for weeks and weeks about this notion of believe in banking, but having real bankers on to talk about their real life experiences. And I think in this case, really being inspirational, despite the difficult times, good people, good intentional strategies, being focused on doing good is something that everyone will benefit from hearing. So truly thank you.
Gina Bleedorn: Brad, I’d say that it exceeded what we were even hoping for as every conversation with you seems to do, how you just exude wisdom in everything that you say, in a way that’s so understandable and human, and that wisdom comes from, I think, who you are, married with the experience that you have and your character and all you’ve done. And so, that is represented in the bank that you run, that we’re proud to know, and I know all of our listeners have become smarter for hearing all the greatness that you have to bestow in a very humble way, you Asshat.
Brad Tidwell: I really thank y’all for the very gracious comments. I’ve had a lot of fun.
Outro: You’ve been listening to Believe in Banking. A podcast series created to empower decision makers, influencers, and industry leaders in financial services. Be sure to also join us on our flagship site, believeinbanking.com.