Episode 6: Jeff Marisco

Jeff Marsico  00:00

Credit unions have an advantage in doing a bank merger for two reasons. One, they are liberating taxable income and turning it into non taxable income. So if they're buying a financial institution that earns, say $5 million a year, and they pay $1 million in taxes, what they're now doing is they're turning that 5 million into post tax income because there is no 1 million in taxes. So that really gets to the gore  of the community bankers.

Jack Hubbard  00:23

I've had the privilege of being in and around banking for more than 50 years. Lots of changes during that time. We've gone from Ledger's to laptops, typewriters to technology. One thing, however, remains the same. Banking is a people business. And I'll be talking with those people that make banking great here on Jack Rants With Modern bankers. 

Welcome to Jack Rants With Modern Bankers brought to you by RelPro, and Vertical IQ. Each week I feature top voices in financial services from bankers and consultants, to best selling authors and many more. The goal of this program is simple, to provide insights, success practices and to bring new ideas to the table that you can use to maximize your results. 

My guest today is Jeff Marsico. Jeff is president of The Kafafian Group, one of the top consulting firms and financial services. The Kafafian Group focuses on performance measurement, strategic management, process improvement, financial advisory and much more. I met Jeff at the ABA School of marketing and management where he was an instructor and he just absolutely blew me away. I've also seen his partner Bob Kafafian at Stonier School of Banking and this is an outstanding firm. So Jeff earned a BA from the University of Hawaii West, and an MBA from Lebanon Valley College, a native veteran, author of “Squared Away” is an absolute must read for all bankers. 

It's been a privilege to be on his podcast as well. I was a guest several months ago, and the podcast is called “This month in Banking.” Jeff is indeed the real deal. It's Jeff Marsico, on Jack Rants With Modern Bankers, here we go. 

So I always like to start with, and you've got a lot of great stuff going on, Jeff. So I always like to start with, “telling me something good.” Tell me something good.

Jeff Marsico  02:32

Well, I think the proposed FDIC special assessment to refill their insurance fund is going to be geared towards the very largest banks that have the highest proportion of uninsured deposits. So community banks dodge that extra expense in their P&L. So I think there's something good Jack.

Jack Hubbard  02:54

Well, speaking of community banks, I saw you at Bank marketing school many years ago. That's where we met. And before you got up to speak, I kind of thought in my own mind, “Well, why is this guy talking? It's really not marketing.” but it is marketing. You've had a terrific –And after I heard this, like, “Oh my god, this guy's amazing.” So you started your company in 2001. And you've worked with about 400 financial institutions. Talk about The Kafafian Group and what you guys do?

Jeff Marsico 03:29

Yeah. So the reason why you saw me at ABA bank Marketing School, one of our lines of business is our performance measurement practice, where we measure on an outsourced basis, the profitability of lines of business and products, and we feed customer profitability systems on an outsourced basis. So we have an idea of how much spread that a bank makes on a commercial real estate loan. So we have that level of insight. And that's why I was actually down teaching at ABA bank Marketing School. 

We also do strategic planning. So we get a chance to actually leverage some of the information we learned from performance measurement, and lean into the strategic planning process to help banks refine their strategies, and build an enduring future. We do process reviews where we go into a bank and look at how they get things done and make recommendations on how they can do them better with fewer resources, maximize the use of technology, etc. 

We do some Management Advisory, like some board advisory work where we might say, “Well, you know, why don't we introduce strategy into board sessions, so they're not so rote and technical and, you know, have a 400 page board package.”  but other various things on the Management Advisory side and then we do financial advisory. We do M&A work for Community Financial Institutions. We're not like the big bulge bracket firms in that regard, that we're walking around, pitching 20 deals, hoping that one takes shape. We're pretty responsive to our clients in terms of financial advisory. So that's what we've been doing for the past 22 years, Jack.

Jack Hubbard  05:08

Yeah, time goes by really fast, doesn't it? Jeff? It's kind of interesting. 

Jeff Marsico  05:14

Yes it does. And it’s interesting to see me at a Bank for Marketing School though, right? I don't think about that side of my brain that much.

Jack Hubbard  05:19

It is, but it’s so important. And now that I teach a section leader at Graduate School of Banking, Sales and Marketing School, and we have a guy, Mike Weir, who's phenomenal. And we start the school with the business of banking, because marketing professionals need to understand how banks make money and what a margin is, and all the rest of it. But you talked about a couple of things. I want to dive into your book in a second, but you talked about a couple of things that you do, and I'd love to pick out a couple of them. 

Number one is performance management and performance measurement. It staggers me still, that banks are still measuring on a sales call basis bank to business numbers of calls made, numbers of loans made, or deposits made. And so you've got calls made, sales made, everything in between is a coachable moment. And I'm curious, in your performance measurement, are you seeing any banks that are measuring anything in sales differently, or better than just numbers of calls made and number of sales made?

Jeff Marsico 06:23

Yeah, so I'm not the expert on sales, like, you would be Jack in that regard. But there's a bank that measures the performance of their branch managers by the amount of revenue growth in their branch. So the spread that they generate from their deposits, and you get a greater spread from a business checking account than you do from a certificate of deposit, etc, etc. And if you understand how that spread becomes, you start to understand your priorities and who you should be calling. But I think, if you measure the branch on continuous profit improvement, rather than the sales practice, of how many calls did you make, and maybe for people that are struggling, and they need much more coaching, that that level of granularity is something to work on. But you are denying if you have a 40 branch network, you're denying the opportunity for a branch manager to innovate and how they generate sales, based on the market that they are in, and based on the personality that they have, and the nature of the customer base that they have. 

Because I think if we're a branch that might be in a highly industrialized area, it's going to be a lot different than a branch in a residential area. So you're denying them the chance to experiment, see what works. You're also denying branch managers from having a learning loop on what some of branch managers are doing that's working, versus what others are doing, that's not working, because they're all doing the same thing, if you're doing number of calls and the same thing, but if you hold them accountable for that continuous profit improvement in their branch, you allow that level of experimentation, that feedback loop, that continuous organizational learning, to see what works and what doesn't work. And that's where I think that profitability can play a really positive role in moving banks forward and improving their profitability.

Jack Hubbard  08:25

And that's where your company can really help because a lot of banks don't really understand what their profitability isn't how to get to it. The second thing you mentioned is our mergers and acquisitions. And I'm curious what you're seeing in community banking in terms of now and going forward with mergers. One of the things that is fascinating to me are credit unions and banks that are merging together. What’s the merger landscape like out there, Jeff?

Jeff Marsico  08:53

Oh, boy, you just threw a fire right on it there. And sure, some of our trade association friends would be interested in learning. So credit unions have an advantage in doing a bank merger for two reasons. One, they are liberating taxable income and turning it into non taxable income. So if they're buying a financial institution that earns, say $5 million a year, and they pay $1 million in taxes, what they're now doing is they're turning that 5 million into post tax income because there is no 1 million in taxes. So that really gets to the gore of the community bankers. And the second one is they don't have to take a haircut on what they pay over book value to their capital position. Whereas a bank actually has to reduce their equity position, their tier one leverage ratio by that intangible asset. Credit unions do not. So they have two advantages. They could pay more in cash because they're getting more in earnings because of the lack of tax.

RelPro 10:00

Are you a commercial or business banker looking to build relationships with small and midsize companies? RelPro is a business development and relationship management solution being used by bankers to find new prospects, learn more about them, and keep tabs on them as well as your existing customers want to learn more? Go to relpro.com to schedule a demo today.

Jeff Marsico  10:16

Status. So that really is a problem and there's a lack of parity there. So if you're a bank that wants to sell your bank, and you're compelled to entertain the highest price, most state business corporations don't require you to take the highest price and the boards of directors to take the highest price. But if there's a big Delta, it's hard to justify why you took a lower price, just because it's a community bank that offered the lower price versus the credit union. So the credit union has generally a greater amount of pricing power, because of the tax status and the lack of deduction of the intangible asset from the capital position, I don't think it's going to be a tremendous phenomenon. 

If it starts to elevate in terms of significance, I think we peaked at maybe 16 credit unions in banks in one year, which might have been less than 10% of all of the mergers that happened. But if it starts to creep upward in terms of numbers of –I think the trade associations will take a very aggressive position on that. We've already seen a couple state trade associations lobby to not get deals approved. I think in Colorado and another state, it was difficult for a credit union to do a bank. So that's the Credit Union Bank Landscape. But in terms of M&A, it's a really difficult time to get deals done because of Arcane Accounting Laws, you have the target, their whole balance sheet has to be marked to market. 

And you can imagine a bank that has 50% of residential mortgage loans, with an average yield of 3.9%. In a market where now residential mortgage loans are going off at six and a half to 7%, those loans that are on the books will be marked down pretty significantly and it's it's a big pill to swallow for the buying financial institution, plus the valuation so many banks in the country are trading at below book value, that it's just really difficult to do a tremendous amount of deals, usually, the industry shrinks about 4% per year, I think it's going to be a lot less this year, just because of the technical issues involved and the mark to market accounting, that is required. Even when credit unions by banks or credit unions merge and acquire each other, they still have to mark their balance sheets to market and for the acquirer, sometimes it's too big of a pill to swallow.

Jack Hubbard  12:51

Interesting. Well, you've been a prolific speaker, you're a prolific writer. And that kind of culminated in 2021, when you wrote Squared Away, and by the way, every banker should have this on their desk, they should be reading it. It's truly outstanding. I just want to pick out a couple of things that you talk about in one of the chapters in chapter three. You talked about the Board of Directors, I have a couple of questions there. The title is “What makes an effective community bank board?”  So I'll ask you, what makes an effective community bank board?

Jeff Marsico  13:27

I feel like I should take the lawyer's answer and say it depends. If you think about community bank boards, they're made up of mostly business people around the communities where the bank is. It used to be almost a stereotype that we'd have the mortician, we'd have the insurance agent, we'd have the local lawyer. That's probably changed a little bit right now. But I think what a community bank first has to recognize is the role of a board of directors. And in banking the FDIC directors pocket handbook tells us what the role of the directors is. It's the safety and soundness of the financial institution. And they do that by setting and adopting policy and then holding management accountable for operating within policy. 

The second thing is that they are the keepers of the strategy, so they don't necessarily have to have to be the ones that are fully engaged in developing the strategy. But as the management team brings the strategy to the board for approval and adoption, the board should be holding the management team accountable for the execution of the strategy. And then I think for a community financial institution, the third part is just to be ambassadors in the community. It's a little bit different than a city, a city bank board, by the way, Citibank needed a bailout in 2008. And they had Robert Rubin who was the former Secretary of Treasury on their board. Signature Bank failed in New York City and they had Barney Frank on their board. So those boards of directors are different from the Community Financial Institution, where the board members have to be ambassadors for the financial institution in the community, which kind of greases the wheels for that marketing and sales effort. 

So if you're trying to get a high profile business, in the next town over, it's I think it's totally appropriate for through maybe the CEO or a board secretary, ask pull the board members, does anybody know, people in this business that could help me take get a meeting at this at this business, it's a totally legitimate way to utilize the board of directors. So I think those are the things that the board should do. It is difficult because they're generally small business people. And they're used to having their fingers on every little aspect of their own business. So they have difficulty sometimes elevating. They sometimes dip into the management, especially as a bank grows, as a bank grows, you know, the management team gets more sophisticated, they get more built out, they really don't need the board to be talking about their billboard strategy on i95.

Jack Hubbard  16:24

I don't know if you share this opinion. There are a lot of community bankers now that are retiring veteran bankers who really understand the business. Our industry is so complex that I believe it would be of a huge benefit for community banks to have one banker or one somebody that understands this industry on their board. And I don't know if you're seeing that as a trend or what you believe in there.

Jeff Marsico  16:53

I do. And I think that's a testament to the management team that's there. So one of the challenges sometimes is that a community bank has what I would consider to be a grand “PooBah Leader,” they would just prefer not to be challenged. Those boards don't want somebody with that level of experience on it. But for example, Bob Kafafian, from our firm is now on Miami based financial institutions, a board of directors, if the management team is comfortable in their own skin and use the board as sort of internal consultants that they can bounce ideas off of, etc. It can be a tremendous resource or financial institution. Plus it elevates the discussion at board meetings, because, you know, it's difficult for the person who runs a construction firm, to get into all the levers that you could push to improve your efficiency ratio, or even if an efficiency ratio shouldn't be improved. So it's good to have those people on the board as sort of consultants for the management team. And also to elevate the tenor of the board, what they talk about should be things that actually matter, to the safety and soundness of the bank, and strategy execution.

Jack Hubbard  18:16

And I want to get to strategy and execution because you have such a window into what's going on. I want to talk about that but before we leave the board, I want to ask you one other question. I know a bank who has on their agenda, the very first thing on the agenda is referrals from the board and that has happened over time for this particular bank but board members are providing referrals. Now, that's a little unusual. When I talk to bankers, they kind of go “Wow, that's kind of cool because our board doesn't do that.” But there are banks who have another kind of board who are responsible for referring business and that's advisory boards. What are you seeing out there, Jeff, with advisory boards, what's working? What's not?

Jeff Marsico  19:05

Yeah, so I think that one bank that used advisory boards as the relatively less experienced, I can't say younger, right? Or we don't have [inaudible] people on this call right? A relatively younger board of directors that was their bench or their older board of directors, they state first and foremost, they use it as a development tool for the…

Vertical IQ  19:31

Made by bankers for bankers. Vertical IQ is your trusted source for reliable, convenient and focused industry intelligence, helping your team save time, boost sales and gain a competitive edge, Learn more at vertical iq.com

Jeff Marsico  19:47

bench you know, give those advisory board members a little bit more prominence. And also give them the opportunity to learn about banking and what is working and what is not and for basically doubling down on community ambassadorship. In terms of bringing referrals to the bank, I do think that there will be board members that are just not resident in the communities that will be strong board members, I had just mentioned my boss, he doesn't live in Miami, but he's on the board of a Miami based bank. So he's not going to be very useful in terms of bringing referrals, but he's a very useful board member. 

So maybe having a horse race on who does the most referrals, tends to end up being a negative –Tends to be a stick more than a carrot because then you're calling out people who don't bring referrals. So I do think you got to use it in a carrot wide thing that say, “Look, this board member has introduced us to seven new clients this year, which was a tremendous boost to our commercial lending production. And we would like this person, him or her, to represent us at the state convention this year.” And you know, sort of do a reward like that, but do it in a positive way. Because like I said, a lot of boards, boards are like a personality… It's a cult in its own self. And they boards need different elements of their cult. And if it requires an ALCO expert, who used to be the retired CFO of a bank, that's three states over, then that person should not be expected to bring referrals to the bank but the people that do I think, should have that positive recognition, but just not in a way that makes everybody else look like fools who don't do it.

Jack Hubbard  21:43

Yeah, yeah, for sure. Well, let's get into where we are. The last couple of months have been a bit challenging, and you are certainly on the forefront of knowledge around that. Where are things in the banking industry now?

Jeff Marsico 21:58

Well, I think things are exciting in the banking industry. And then we have to harness the excitement and channel it beyond platitudes. In my opinion, I think a smaller community bank has a much better chance of harnessing the data at their fingertips than a very large financial institution, just because they're smaller, that they can take on data governance projects, that data cleanup projects, and be able to execute it in a reasonable time because the very large financial institutions have disparate systems that came together via various mergers have difficulty doing data governance across a huge franchise. I frequently say that I'm with a top 10 bank in the United States, and they've never called me, not once. They've never called me. And I'm not saying that unlike the perfect candidate, but I think that a smaller financial institution has a much better chance at winning the data wars than the very large ones, even though the very large ones have a full floor of programmers on their 16th floor headquarters.

Jack Hubbard  23:16

Yeah, no, I think that's right. And when the SBB and Signature Bank, stuff came around. It was kind of nice to know that my bank reached out and talked about Bower ratings and talked about safety and security. And I know they did that for their top clients as well. And that, those community banks now have the capability to move quickly and to be flexible. Community banks don't necessarily have all the products and all the people and all the rest of it, but they do have the capability to move quickly. Well, you talked about the FDIC insurance a little bit before we started recording. Where are we with FDIC insurance? What's happening there?

Jeff Marsico  24:06

Yes. So there's two things happening. One is the special assessment to refill the insurance fund, the Deposit Insurance Fund or DIF from the SVB signature failures and I'm not sure if they're experiencing any loss experience with first republic bank or not. And Silvergate in La Jolla is liquidating in its own right, so I'm not sure if there will be any pressure on the fun there. But just signature and SV B requires a special assessment in order to refill it. And the current proposal put forth by the FDIC which is out there for comment right now, is that they will have a 12.5 basis point annual assessment for two years for all banks with greater than $5 billion of uninsured deposits. So, you know, I ran an analysis on behalf of the Massachusetts bankers, and that was three or four banks in their entire orbit. So it's a low percentage of banks focused on very large banks so for Community Financial Institutions, that was a win. So refilling the Deposit Insurance Fund is issue number one. 

Secondarily, the FDIC is putting out feelers for deposit insurance reform, because they don't want to be in the situation where the Secretary of the Treasury has to invoke the systemic risk exception from the Fiduciary act of 1991. That's actually from a 1991 law of the systemic risk exception. Whenever something material happens in the banking space, as SVB and Signature Bank runs, they were material. So in order to try to quell these bank runs based on bad news, speedier bank runs were made speedier by technology, and they were amplified by social media. In order to deal with this new world, maybe we should think about deposit insurance reform. One is to keep things pretty much as is to up to $250,000 per unique owner. 

So that means that if you and I had an account, Jack, and we had $500,000 in it, and that's all we had at the bank, we wouldn't be fully insured because it'd be 250 for you, it'd be 250, for me. But then if you had an account with your wife with another 100 in it, well, you're out. But your wife would be able to enjoy the insurance, but only 50,000 of that. So there's some ownership nuances to it, that you could actually have over 250,000 of insurance. But keep an insurance as it is sort of proposal number one, proposal number two is unlimited insurance, which means that no matter what you have in an FDIC insured institution, that's what will be insured. 

And number three was targeted insurance. For example, if a company who had 20 employees had to build their payroll account, right, and the payroll account needed a million dollars, that transfer payment account would be fully covered, even though 250 is the standard coverage. So it takes that kind of risk off of businesses when they have to build a payroll account targeted insurance, I don't know how to calculate the impact to the industry for proposal number three. proposal number two, you might safely assume that your deposit is set your deposit insurance assessment would go up by the percent of your uninsured deposits. But that's not how assessments work in terms of what banks pay, they actually pay their average assets minus their average tangible equity times a floating basis points based on their camels ratings in their exams. 

So that's probably a boring way to describe exactly how it's done. But I would assume that everybody's deposit insurance will go up. But I think worse than the extra cost to financial institutions will be now we've created a moral hazard problem being that the risk of what a bank takes is now being fully insured by the Deposit Insurance Fund. Meaning that the people who take the risks and decide on the risks are not the people that will ultimately pay on the risks if the risks come to roost. So that creates a moral hazard problem, which means that examiner's will start telling banks more about what they can and cannot do. And, that'll be I think it'll be a problem and we'll start to move more towards banking as utilities, more than banking, as innovators, as funders of nascent businesses in our communities. And then size will be the only thing that matters.

Jack Hubbard  29:30

Yeah. And that's a shame. You know, I remember when I started banking, in 1973, the FDI should see insurance was $20,000. And, you know, life was a lot simpler than now. You know, certainly technology has helped and then the banking industry, obviously, like every industry has changed, in some ways for the good and some ways for the not so good. And one of the not so good things that happened in the last several months, is what I'll call “Deposit leakage” deposits have left. In fact, I read an article recently, that in the first quarter, I believe deposits dropped in banking by about 16%. Overall, however, you just came out with a recent Forbes article, and you did an analysis and community banks are actually holding the role in terms of deposits, Jeff.

Jeff Marsico  30:22

They are. And that was not what was going on in the media, the media ran to this FED H8 Report. And it was a sampling of banks saying what's happening with your deposits. And they just peanut butter, that assumption over the entire banking thing. And I was wondering how those articles were asserting that small banks were losing deposits in the billions. And it was the H8 Report, because the call report had not come out yet. Call reports don't have to be filed till 30 days after the end of the period. So we wouldn't have seen the Call Reports till the end of April for the first quarter. So I waited till the end of April to say anything about it. And what I found out is every size bank cohort up to 25 billion in total assets, which is a pretty large financial institution Jack, gained deposits from the first quarter of 2022, to the first quarter of 2023. And then the loss in deposits came from banks that were above that. And I think that banks were struggling, let's put the fear of the uninsured deposits aside, which is what happened in SVP and signature. 

Banks were struggling because they weren't keeping up with market rates on deposits. So you know, if you matter to your customers, if you have strong relationships with your customers, if your brand actually resonates with your customers, they shouldn't dump you for 25 or 50 basis points on a deposit rate but if you're paying them 300 to 400 basis points less than the market rate for an alternative. Well, now you're screwing them, Jack. So that is the pressure that community financial institutions were feeling, they thought that they were holding the lid on their cost of funding. And then all of a sudden, in the first quarter went up like a hockey stick because they were struggling to keep money that they were paying materially under market rates. It wasn't about the safety and soundness of the bank, or the SVB or signature failures.

Jack Hubbard  32:36

Yeah, you know, and so what does loyalty matter anymore? We get, and I'm sure you get almost on a daily basis, from banks around the country, banks I've never heard of, even though I've been in this industry for a long time. You know, “Hey, we can… we'll pay you 5.03 or through December, we'll pay you five point, whatever it is.” Our community bank that we do business with, is very reluctant to raise the rates. And you wrote an article, and I don't remember if it was on LinkedIn, or if it was on your blog, or what have you. And you had a story about that. And I guess, I want to pick out what you just said a little bit. What's the problem here? Why aren't banks starting to realize that? “Yeah, it might cost them a few bucks in the short term, but in the long run, they're gonna keep their depositors. And that's really important to them.”

Jeff Marsico 33:32

Yes. So if you think about the way things have gone this cycle, and this tightening cycle, and I think also the financial crisis of 2008, I think it went the exact same way, when we dropped rates. Well, this is actually prior to 2008, when rates were extremely low, and then went up to five and a quarter percent on the Fed funds rate in 2007. It was the exact same thing, the bank's betas, which is how much their cost of funds go up compared to 100 basis points of the Fed funds rate going up, were extraordinarily low at the beginning of a Fed tightening cycle. And then when depositors woke up, it became extraordinarily high and went up like a hockey stick. It did that in the fed fund tightening cycle prior to the financial crisis. And it did and it's doing it right now as we speak. And the reason why is and I am going to have Amber Farley on her podcast, I'm going to challenge Amber about what his brand gets you because I don't like this marketing speak if it doesn't work on a spreadsheet to me, Amber, I don't understand why why would any money in branding, right. So we're going to talk a little bit about that in our next podcast. But if you're holding deposit prices down, and the difference between what a depositor can get into alternatively, the delta becomes bigger and bigger. 

Now, when a depositor wakes up, they're saying, Wow, my bank is really paying me lower than the market rate that I could get on a money market account on a Treasury or at Discover Bank right with credit cards on the other side of their balance sheet. So why is my bank paying me so low? “Well, my bank is paying me so low because they're relying on me not noticing.” And that is not a way to build trust with your depositors. So the bank would get two to three, maybe four quarters of superior cost of funds, because they're keeping our sleepy customers ignorant. Then they're relying on that and then when that customer wakes up, they have to hockey stick their cost of funds up. So yeah, they had two, three, maybe even four quarters of superior cost of funds but what they've done is they've tarnished their image to their own customers, because they relied on them not paying attention, and really, what brands do you want to interact with that you have to pay hyper attention to where they're going to take advantage of?  

Jack Hubbard  36:12

Very true! And so we are challenged as an industry. And the next challenge may be and you're the expert, I’m not in this area. Is commercial real estate. I read an article recently that talked about the fact that 700 banks are over the FDIC process for the capital limits on commercial real estate. I don't know how you're seeing this, Jeff, but I think this is the next canary in the coalmine.

Jeff Marsico  36:44

It is. I think it's going to be very targeted. So I'm not a Credit Specialist. But if you think about where the struggle is, the struggle is in retail space, right. So the malls when they call them zombie malls now, which I'm watching Fear the Walking Dead on on Hulu now. So we have zombie malls. And there's a lender behind that mall, most likely, right? strip malls that now used to have very reliable anchor tenants in it. And if they lost one tenant, they would still be cash flow positive and still look good on credit. But if it's a five unit strip mall and they lose three of them, then it doesn't look so good. So I think those will be challenging. And then of course, office space but primarily in large cities, Jack.

The pendulum is swinging, there are large corporations that are really going toe to toe with their own employees about coming into the office, including Amazon, JP Morgan, they're going toe to toe with their employees but they are struggling to get people to come into the office and there's a whole ecosystem around having full offices, you know, the Starbucks that are in down the local CVS or the local retailers. I think that commercial real estate will be heavily focused on office space and retail space. And I think the community bank tends to manage those things well or not even be in those credits. I mean, the mall is a very sizable credit for Community Bank. So even though they may be over commercial real estate or you know, it's the tool and eye shop of a local business person, their warehouse. And that is at less risk, in my opinion, than the retail strip mall.

Jack Hubbard  38:42

For sure. Owner Occupied is always good. If I'm a business owner, I'm going to work five part time jobs if I have to, to keep this thing going and to pay my bills for sure. Well, let's talk about well as we wrap this up. Got just a couple more questions for you. 2024 is a ways away. But you've got a pretty good crystal ball there, Jeff, and you talk to a lot of banks, what are you seeing for the rest of the year and into 2024? In terms of trends in our industry?

Jeff Marsico  39:17

Yes. So actually, our firm is actually developing our… we constantly evolve our financial industry overview for our strategic planning practice. One of the things we're talking about is that it's going to be a rough year for 2023. And that banks really should be considering their position. When we do the financial projections for strategic plans. We push management teams to be aspirational in them, and they are struggling to be aspirational. So I really do feel that it's going to be a tough 2023. Probably about half of the economists think we're going to go into a recession. Half will be in a slow slog on growth in 2023 net interest margins are compressing even though most banks were asset sensitive, so they should have actually benefited from rising rates, but their cost of funds is skyrocketing more than they anticipated. 

So I think it's going to be a challenge in 2023. And I think that the banks that will be well positioned for 2024, we'll make the strategic investments that will matter to their constituencies in 2023, to position them for their next leg of growth, I like to call that in my book, I called it pulling into the pits, every business needs to pull into the pits, right? There's no car on a NASCAR track that would think pulling in to get gas and changing your tires is a good thing, because you might lose your position on the track, right. But they all have to do it. Otherwise, they'll blow a tire, they'll run out of gas. And one of the main reasons why banks sell Jack, they run out of gas, they never pull into the pits. And if we're going to be in a challenging economic and interest rate environment, to make any sort of material profits for the benefit of our shareholders in 2023, I don't think it matters. If your ROA is 10 basis points less, because you made these three strategic investments, to position yourself for growth. I think the banks that are going to win in 2024 will do that. 

Jack Hubbard  41:19

And this is the kind of information that you can get every month from Jeff's podcast, the TKG podcast. You started it in 2016. And you've done quite well with it. Jeff, talk about the podcast a little bit how people can get it and what are some of the subjects that you're going to tackle going forward?

Jeff Marsico  41:42

Yeah, this month in banking. Our host is Sharon Lorman. She's great. And I tell you we started by actually getting in or liquored up, we would actually have a throwback, a throwback shot of whiskey or something like that before, and she was the kind of person that actually drinks white wine with ice. But, we started it in 2016. We didn't know what we're doing. I'm not even saying that we're great at what we're doing now but we like we don't schedule out Jack. Like people have these production calendars and schedule out guests 12 months in advance, because we like to see how things are happening to determine. So that kind of makes Sharon a little bit nervous. Because we're sometimes three weeks ahead of the podcast, we're saying, Well, this is really happening. We should have this. We just enlisted Amber like last week for this month's thing because it's like, “Hey, you know what this branding thing… we got to get on top of this, to see what's what.” And it's been a great run, we get a lot of recognition from people we would not have otherwise met sales in banking for you know, a B2B business like ours is generally done by handshakes, and relationships. But that's evolving, Jack, you know, you're doing your specialization in helping financial institutions with LinkedIn. And there are many, many more touches before you get to the handshake or the phone call or video call. And this month in banking is one way that we do it. We try to keep our content interesting to what might be of interest to that community banker, because that's where our target audience is.

Jack Hubbard  43:24

And you talked about the pit crew and going into the pits, the pit crew is your company, Jeff. Banks really need people like you to think about strategies and marketing and pricing and all those kinds of things. So if they wanted to get a hold of you and work with The Kafafian Group, how would they do that?

Jeff Marsico  43:47

Yeah, so our website kafafiangroup.com Good Armenian name is Bob Kafafian so  kafafiangroup.com. Our whole team is listed there. You could also anywhere you get your podcasts to listen to this month in banking podcasts, you know on app on iTunes or wherever podcast app you use, you could find it. My blog is jeff4banks.com, the number 4 and I reblogged that on LinkedIn. So please feel free to LinkedIn connect to me although I am working on all of those things that people do wrong on LinkedIn that you gave on our last podcasts. 

Jack Hubbard  44:26

And I'm noticing that Jeff on your profile you're doing better keep it up.

Jeff Marsico  44:31

I’m trying, Jack. But as Yoda said there is no try. There's only “do or don’t do.”

Jack Hubbard  44:34

Yeah, no, that's really true. And you know, it's interesting, the book was written in 2021. And while you know, the pandemic hit and things have changed a lot. There's so much good stuff in Squared Away. And it's available on Amazon and certainly if you reach out to Jeff, he'll probably, you know, shoot you a copy. He's probably got a few copies hanging around. Jeff, thank you so much for your Insights and sharing your knowledge with us. We really appreciate it good to see you.

Jeff Marsico  45:03

Jack, I appreciate it. Love knowing you man.

Jack Hubbard  45:06

Thanks for listening to this episode of Jack Rants With Modern Bankers with my special guest Jeff Marsico. This, and every program is brought to you by our friends at Vertical IQ, and RelPro. Join us next time for more special guests bringing you marketing, sales and leadership insights and ideas that will provide your bank or credit union with that competitive edge you need to see. The LinkedIn live show is also a podcast. Subscribe to get the latest Jack Rants With Modern Bankers and leave a review. We're on Apple podcasts, Spotify, Google Play and several others. Visit our website, the modernbanker.com for more information, don't forget, sign up for that free public library, themodernbanker.com/publiclibrary. And as I always say, at the end of each program, “Make today and every day a great client day!”