One-on-One With Citizens Bank CEO Phil Baldwin

Editor’s note: Guest contributor Scott McClymonds, founder of Fayetteville-based strategic consulting firm CEO Velocity, recently interviewed several regional and community banking executives across Arkansas about corporate strategy and their management styles. The following Q&A is with Phil Baldwin, CEO of Citizens Bank in Batesville.

Scott McClymonds: Phil, how did you become interested in banking and social entrepreneurship?”

Phil Baldwin: I’m a CPA, and my initial position when I left school was with Ernst & Young’s banking practice in Little Rock. We served banks all across the country.

I was hired away by a client, Frank Hickingbotham of TCBY Yogurt. I became the CFO of Mr. Hickingbotham’s banking organization and worked with him as he bought a series of banks to create a regional banking organization, prior to its sale to First Commercial Bank.

For about a year, I was Director of Corporate Finance at Dillard’s, and was involved in public and private financing activities. I worked closely with New York-based attorneys and on one occasion had been arguing with one of these attorneys over a disclosure in the Form 10K. I said to my wife ‘there must be more to life than that.’

Fortunately, I got a call from Southern Bancorp, a rural development bank in Arkadelphia. Using my banking skills and corporate training to help people in those communities intrigued me. I went in as CFO and then served for 10 years as CEO, (and) that experience opened my eyes to how hard it is for a lot of people without education and income, and how the deck is stacked against them.

After Southern, I went to Atlanta to become CEO of a non-profit credit counseling company. The company served about a million people per year over the internet and phone. We negotiated a contract with AARP to be one of their national call centers and provide financial counseling to their membership. I learned that there are many of people in the United States struggling, and no one (was) helping them. They don’t fit the traditional model of the type of person a bank or financial planner would be interested in.

Scott: Is it best to serve working class people as a non-profit or for profit organization?

Phil: If you’re a non-profit and rely on government or private grant money you can be in trouble when your funds dry up. It’s best if you can do it in a self-sustaining way from profits.

From my banking side, I am always trying to balance the organization’s mission with profitability, safety and soundness. I believe in helping people but not in such a way that it puts the organization at risk.

That’s what happened to the housing industry in 2008. You have to pay attention to the bottom line; however, there’s an opportunity to do something for the working class that’s not currently being done well.”

Scott: What interested you in the CEO position at Citizens Bank?

Phil: Citizens Bank in Batesville was built for working class, blue collar, low income “It’s a wonderful life” type people, and that intrigued me. It’s a mainline bank, but has its DNA is wired toward working America.

Scott: How do you plan to grow Citizens Bank?

Phil: Right now we’re about $550 million in assets with 10 locations, and we want to expand in Arkansas and beyond. As an example, we’ve recently opened up loan production offices in Fayetteville and Hot Springs. We’ll open de novo branches with really strong people, as well as look for acquisition opportunities.

There are big opportunities for small banks to come together where you’re big enough to be efficient but not too hard to manage. You need to be about $1 billion in assets to bear the regulatory burden efficiently, to have enough scale.

Most of my work has been around mergers and acquisitions. I have been involved in over 100 bank mergers, and am very comfortable integrating banks and their various cultures, systems, processes, and customer bases. We have the capital and our board has the desire to expand that way.

Scott: How can banks profitably serve low-to-moderate income people?

Phil: Banks are not charitable institutions. They have to make a profit to keep investors and stockholders happy.

Most of these folks are not broke, they’re just very challenged. There has to be some creativity applied to serve them. The key is to be able to use one-on-one direct counseling and technology to reduce costs.

When a bank looks at a branch in a low-to-moderate income area as a non-money maker they’re saying, “Our products and services don’t fit the people in this area.” Some of the most expensive money is a payday loan, but if someone needs cash, they don’t care about the interest rate.

People go to these (payday) lenders because they can’t get what they want from banks. If banks were providing the services payday lender customers need, those folks would be going to banks. The challenge is, how do we as banks make a difference for those people?

The fast movement of technology will allow us to provide services to people like we couldn’t before. We have to figure out the right technology that will work and allow people to trust us.

Scott: What do you see as your most crucial leadership duties?

Phil: Developing a vision along with the board of directors and being able to communicate it and create excitement around it. My role is to communicate it to the employees and show them how they can get there.

One challenge at a community bank is getting people to understand the growth process and get excited about it. The “good-to-great” approach of getting the right people in the right seats is critical. Making sure your technology is ready ahead of time is really important before you start expanding.

It comes down to people, systems, and capital. There’s really no real secret sauce. It can be hard working with people and helping them, but I enjoy that. It can be nerve-wracking though. I enjoy watching people do things they never dreamed they could do and do it well. When you give people the right tools and training, it is fun to watch them bloom.

Scott: What are the greatest opportunities and challenges you see for your bank and the industry in 2015?

Phil: Technology and demographics are driving changes in banks. Technology is so much more advanced than I ever thought possible, but to my kids it’s a common, ordinary part of life.

The American Bankers Association says 60% of bank customers haven’t been to the bank in 5 years, (and) millennials don’t even know branches.

Technology and demographics are rapidly changing what a bank needs to do. It has really opened up the payment systems. Wal-Mart can serve many of these people better and cheaper without being a bank.

Down the road in 50 years or so, will we even need banks?

Read more analysis from McClymonds at this link.