DECEMBER 13, 2016
FMS Quick Poll: Biggest Challenge in 2017 
By Financial Managers Society

As the New Year approaches, many FMS members are likely grappling with one or more specific challenges facing their institution in 2017. And if their situations are anything like the more than 130 members who participated in our recent Quick Poll, chances are the single biggest challenge they have in mind is somehow tied to the quest for higher margins and additional income.   

Of the 132 respondents in the poll – 113 from banks and 19 from credit unions – a whopping 47% saw the task of increasing margins and generating income as number one on their to-do list for 2017. In a distant second place (and, in all likelihood, closely aligned with margin concerns anyway) was interest rate risk and uncertainty, checking in as the biggest challenge for 14% of poll respondents. Compliance and regulatory concerns, always a perennial favorite, logged a respectable 11%, while increased competition from both traditional and non-bank entities, cybersecurity issues and the cost and pace of technology advancements rounded out the major categories at 9%, 6% and 5%, respectively.    

FMS Quick Poll

Responses were fairly consistent between both banks and credit unions, as well as across all asset levels, with a few notable exceptions. For example, increased competition seemed to be a bigger concern among credit unions, with 16% of those respondents identifying it as the top challenge, compared to just 9% of banks. On the other hand, credit unions don’t appear to view technology demands or cybersecurity threats as a major concern, with none of the 19 respondents identifying either category as their top challenge for the year ahead. 

In terms of asset size, meanwhile, responses were once again fairly uniform, although perhaps not surprisingly compliance and regulatory demands represent a much more formidable challenge for the smallest institutions, with 24% of those in the sub-$250 million crowd tabbing regulatory burden as their number one concern for 2017 (compared to 11% for all respondents). Also, interest rate risk and uncertainty was seen as a bigger challenge among those institutions in the $250-$499 million and $500 million-$1 billion ranges at 18% and 20%, respectively, than to those on the lower (sub-$250 million) and higher (greater than $1 billion) ends of the scale, at only 9% each.      

Of course, not every survey participant saw his or her greatest challenge among the six outlined in the Quick Poll.  Among the 8% of respondents who chose to think outside the box and select “other,” some of the additional challenges they expect to face heading into 2017 include:

◾ Merger integration 
◾ Succession planning
◾ Expense containment
◾ Organic growth
◾ Branch structure rationalization
◾ Deposits and funding

In addition to identifying their greatest challenge, many participants took the time to explain why they opted for the choice they did, and this is where the responses in each category took on some added color. Among the more illuminating comments were the following: 

“Trying to place a bet in the budget on the way long rates will go as post-election noise quiets down is a guess at best. We were optimistic with the Fed move last year and budgeted for a modest increase in rates in '16. We know how that story played out. As a result, tight margins are still going to be a challenge heading into '17.”
CFO, $813 million bank

“I could have easily chosen the quest for higher margins and additional income or the increased competition from bank and non-bank entities, but the resources we now commit to compliance and regulatory demands continue to be our biggest challenge.”
CFO, $406 million bank

“The spread continues to be a challenge, especially with the potential for a rising-rate environment coupled with the cost and pace of technology advances and compliance and regulatory demands.”
CFO, $215 million credit union

“We’ve had tremendous loan growth and anticipate the same for 2017, but we have not had the same growth in core deposits. We will be looking for creative deposit-gathering initiatives and using wholesale funding sources more than we have in the past.” 
CFO and SVP, $605 million bank

“It is becoming difficult to compete just by growing organically. In order to grow, we will have to acquire a bank.”
EVP, COO and CFO, $278 million bank 

“Mitigating cybersecurity issues is a constant battle and you never know if you’ve covered all of your bases, so you need to just keep throwing resources at the problem and keep your fingers crossed that it is enough.”
SVP and CFO, $951 million bank

“I really wanted a box for ‘all of the above.’"
CFO, $1 billion bank

Thanks again to everyone who participated in our latest Quick Poll.