An Interview with James C. Cherry, CEO, Park Sterling Bank
October 20, 2015
With more than three decades of experience in banking in North Carolina and Virginia, Park Sterling’s CEO James C. Cherry has a lot to say about the state of community banks and their future. He graciously took the time to address his successes, leadership philosophy, and some of the best advice he ever received. It is well worth your time to read. Park Sterling, a regional, community-focused financial services company with approximately $2.4 billion in assets, is the largest community bank in the Charlotte area and has more than 50 branches spread along the Atlantic seaboard stretching from Georgia to Virginia and looking to add eight more with their recent announcement of acquisition of First Capital. The bank serves professionals, individuals, and small and mid-sized businesses by offering a full array of financial services, including deposit, mortgage banking, cash management, consumer and business finance, and wealth management. Park Sterling prides itself on being large enough to help customers achieve their financial aspirations, yet small enough to care if they do. Park Sterling is focused on building a banking franchise that is noted for sound risk management, customized product solutions and exceptional customer service.
Q: By any measure, you are successful in your chosen career. I’m sure there are several reasons for your success, but why do you believe that you have so been successful as a banker?
A: As a “banker,” I believe the success I have enjoyed during my career has been driven most by the belief that my job was to provide customers with solutions that help them achieve their financial aspirations. While clearly sales skills have been critical to that endeavor, I’ve never thought of myself as a sales person. Instead, I’ve always thought of myself as a consultant working to uncover and understand prospect and customer needs, and then to deliver appropriate products and services that helped them meet those needs.
Q: You have worn many different hats at financial institutions of varying sizes in your career. What do you enjoy most about being a “community banker?” What does being a community banker symbolize or mean to you?
A: Community banking is all about working and being engaged in the market—in the community—with people. I’ve always enjoyed and felt most valuable when I was using my capabilities to help neighbors and friends achieve their goals—whether personal, business or community. Sometimes that was in my role as a banker, but it was just as often through my involvement in church, civic, social and community service activities.
Q: How do you believe those at the bank would characterize your leadership philosophy? How do you believe it has evolved over the years?
A: My definition of leadership is: vision, shared with passion.
First, I believe a leader must have a vision of where he or she is leading, because I don’t think many will say, “That person doesn’t have a clue where they are going, but I am going to follow them anyway.” Then, I believe a leader must share that vision because, again, I don’t think many will say, “I know that person has a vision and, even though they haven’t shared it with me, I am going to follow them anyway.” And, finally, I believe the passion with which a leader shares vision can be as important as the vision itself in creating followership, because passion demonstrates belief, conviction and commitment. I don’t think many will say, “That person has a vision and they shared it with me, but even though I’m not really sure how much they are committed to their vision, I’m going to follow them anyway.”
I also believe that effective leaders almost always demonstrate a positive can-do attitude. In fact, I can’t think of any long-term successful leaders who constantly conveyed a negative attitude. I can’t imagine following someone who always thought the sky was falling and was saying things like, “We probably won’t be successful; we probably can’t do it.”
Finally, as far as my own leadership style, I subscribe to a teamwork approach to problem solving and leadership. I seek first to surround myself with talented and capable people and then to do my best to empower their leadership by facilitating communications that promote good, thoughtful decisions. This ensures everyone is on the same page as a unified force moving ahead in the same direction.
Q: What is your life’s passion? Has your career in banking been a part of you following it, and if so, how?
A: I think like most people, at the end of the day, I want to believe my life’s made a difference. My career in banking has certainly allowed me to pursue that passion. Over my career, I know I’ve have made a difference to the lives of individuals, businesses and communities I’ve had the good fortune to serve. And currently, as a member of the Park Sterling team, I know I’m part of a team that’s making a difference today, not only to the individuals, businesses and communities we serve, but to the shareholders who have invested in our vision and to employees, whose career opportunities are strengthened and enhanced by the growth that is derived from the successful pursuit of our vision.
Q: In late 2010, Park Sterling announced its plan to raise money to grow both by buying other banks and opening de novo branches. Since 2010, PS has acquired (including your recent announcement as to First Capital Bank in Richmond) four banks. You have grown from approximately $600 million in assets to $3.06 billion (assuming the First Capital deal closes) in five years. What are the most important lessons you have learned from these mergers and this growth? What do you look for in merger partners?
A: What we look for first, and the most important lesson we’ve confirmed through several mergers, is that cultural fit and compatibility is the paramount consideration and determinant of future success. In each of our merger partnerships, we’ve devoted a significant amount of our due diligence efforts beforehand in determining cultural fit. Since there is no possibility of a separation or divorce if you get it wrong, I’d say determining compatibility before tying the knot is especially critical.
Q: Park Sterling prides itself in being a “community oriented financial institution.” Why is that important? How do Park Sterling’s customers see that philosophy lived by the bank?
A: Like people, communities are all different. We believe those differences are best recognized and addressed from a financial services standpoint by people who live and work in those communities. That’s why, at Park Sterling, we organize ourselves around communities and empower in market bankers and leaders to provide their customers and communities with “Answers You Can Bank On” service.
Q: What are you most proud of about Park Sterling Bank?
A: The people—customers, employees, investors and merger partners—that have enthusiastically embraced our vision of building a regional community bank big enough to help customers achieve their financial aspiration and small enough to care that they do.
Q: You have said before that mobile banking allows Park Sterling to play larger than its physical footprint. In furtherance of that philosophy, in 2014 Park Sterling rolled out a new mobile banking smartphone app. How has that been received by your customers? How important is mobile banking to Park Sterling and to community banks in general?
A: Park Sterling’s mobile banking application has been very well received by our customers. We have been told by our vendor that our customer adoption rate has been among the highest they have experienced. Mobile banking and other products and capabilities that allow customers to interact with their bank—when, where and how it’s convenient for them—are important characteristics of Park Sterling’s commitment to service. Ultimately, I believe capabilities like our mobile banking will be ubiquitous—essentially “table steaks” for serving customers—and that community banks who don’t embrace emerging technologies and other ways of meeting their customers where they want to be met will ultimately lose customers.
Q: Bud Baker, the former CEO of Wachovia, is PS’s chairman and you also had the opportunity to work for him at Wachovia for many years. What is the most important lesson he taught you about banking?
A: I think an important lesson I learned from Bud Baker that’s not just germane to banking, but to leadership in general, is the value of the handwritten note. Bud was a prolific note writer, and even when email became the norm for communications, he continued to write personal handwritten notes to motivate his employees. I still have the notes he wrote me, and I suspect others who received his missives cherish them the way I do. So today, when I really have an important message to convey to someone, I much prefer to write a handwritten note, than to send an email; and, I’d be willing to bet that note stands out and is appreciated much more than a quick email ever would be.
Q: Since the banking industry’s most recent nadir in 2008/2009, how do you think community banks have fared? Is there anything that stands out to you as especially positive or negative?
A: The obvious positives are, of course, that community banks have cleaned up their balance sheets, strengthened their capital positions, and improved their earnings since the so called “Great Recession.” Some of the remaining negative industry headwinds include continued net interest margin compression, increasing regulatory pressures and costs, heightened competition in a delivering environment, dimming growth prospects in some markets, and increasing competition from shadow banks. The single most obvious solution to address these negative forces is scale, which suggests that community bank consolidation will continue.
Q: How can a community bank stand out in today’s market? Does it have to pick and choose where to compete (or stand out), such as having a great mobile banking app, or does it need to do it all?
A: I actually believe that community banks are uniquely well positioned to benefit from the apparent growing dissatisfaction with the mass market service characteristics of larger banks, but to do so they either need to carve out a special service niche or gain the scale that would allow them to afford the broader array of products and services customers are demanding more and more.
Q: What do you think the average customer (retail or commercial) is looking for in a bank? Has banking become essentially a commodity where customers only want the best rates or are they looking for something more? Do personal relationships still matter when it is time to “close the deal?”
A: This is a great question, because I think too few community banks effectively distinguish themselves; or, said another way, they too often are perceived—perhaps unfairly—as being distinguished as having service without solutions. Many people complain, for example, about their perception of inflexible, impersonal service from the larger banks, but those banks are large because that’s where most people bank. Community banks on the other hand are generally highly regarded for their personable, flexible service, and yet statistically the vast majority of people don’t bank with community banks. Why is that? I believe it’s because, while the large banks distinguish themselves as providing solutions customers want, community banks distinguish themselves as providing great service; and, apparently, if given the choice between perceptions of “solutions” and “service” most people choose “solutions.” Few people will say, “I don’t care if you solve my problem. I just want great service.” So, I think the most successful community banks in the future will fall into two principal categories: niche community banks that become incredibly good in some aspect of the market, perhaps it is wealth management, perhaps in small business lending, or something else. The other group will be those who are able to deliver a broad array of products and services that match the capabilities of the larger banks and yet are delivered through personal service delivered by empowered in-market bankers. This latter group will have to become larger because scale will be needed to afford this broader array of products and services. The good news, however, is that highly competitive products and services are available to community banks through vendors.
Q: Can a community bank be successful in non-home markets with only a minor retail presence, thanks to mobile banking, etc., or does it still need to build a large retail presence?
A: Today, and even more so in the future as online and mobile banking technology offerings and market acceptance continues to improve and grow, community banks can play bigger than their physical branch footprints. This applies to both consumer and commercial business. In the past, banks opened loan production offices when they first entered new markets de nova. Park Sterling entered Greenville, South Carolina; Charleston, South Carolina; Raleigh, North Carolina; and, Richmond, Virginia, with de nova full-service branches because remote deposit capture allowed us to move deposits as well as loans.
Q: Bank consolidation is driven in part by a notion that there is an asset threshold that a bank needs to exceed to be competitive. Do you agree that there is such a threshold? If so, what do you think it is?
A: We believe the “sweet spot” for us is probably in the $4 to $7 billion asset size range today; but, that’s determined more by our strategy of operating in multiple markets and states with a broad array of products and services that non-interest revenue businesses—wealth management, mortgage banking, capital markets, etc.—that aren’t reflected in asset size. The most appropriate asset size will vary based on market and product diversity. Because of the growing importance of non-interest income to bank performance, eventually, I think the dialogue will turn more to appropriate revenue size rather than asset size.
Q: With it being reportedly necessary to raise much more than $40 million to get past the front door to get a de novo bank charter from the banking commission, how long will it be before we see another de novo bank? What do you think it will look like?
A: If $40 million is the capital threshold and given the narrow net interest margin today—and for the foreseeable future—I can’t imagine how the economics could justify a traditional de novo startup bank today, regardless of regulatory appetite or market desire.
Q: Cybersecurity seems to be almost an existential issue for financial institutions. How can banks protect themselves and their customers’ security? How has Park Sterling met the threat?
A: Cybersecurity is clearly the number one concern for bank managers and regulators today. There are numerous lines of defense against cybersecurity threats. Most people think principally of up-to-date firewalls, virus protections and authentication protocols for access to systems and networks, and these are certainly critical cybersecurity defenses, and we invest heavily in such protections at Park Sterling. But there is growing evidence that the majority of cyberbreaches are rooted in employee and/or customer negligence: from opening suspicious emails that allow the introduction of computer viruses; to using weak computer passwords; and, in worst cases, not safeguarding their credentials from being stolen and reused. To help protect our customers, Park Sterling dedicates significant resources to build employee and customer awareness and actions that will improve our cybersecurity.
Q: What else keeps you up at night when you think about the risks facing the industry?
A: After dealing with cybersecurity threats, net interest margin compression, economic headwinds, regulatory challenges and unregulated shadow banking competitors—to name just a few—I sleep very well at night, thank you!
Q: For obvious reasons, banks of all sizes are focusing resources in the large, urban, high-growth areas of the Carolinas and Virginia, while community banks outside these areas seem to stagnate. Arguably two side effects of this has been the shuttering of branches or loss of hometown banks (by consolidation) in these low growth or rural communities, which helps fuel the downward spiral of these communities. Do you agree with this statement? What can be done for or by the people living in those areas to access capital?
A: I do not agree with the supposition that the consolidation of banks in rural communities is fueling the downward spiral of such communities. Banks are the victims of stagnate and/or declining rural markets just like other businesses, not the cause. This is to say that banks, like other businesses, are following the rural to urban migration, not leading it. As far as access to capital, ultimately, I don’t believe capital discriminates between communities but rather between worthy uses of capital, so capital will flow to those communities—rural or urban—where appropriate returns can be demonstrated.