Mike Fernandez, CEO of Texas National Bank on How They are Serving Other Bankers

Intro: Helping community bankers grow themselves, their team, and their profits. This is the Community Bank Podcast.

Caleb Stevens: Well, Hey everybody. And welcome back to the Community Bank Podcast. I’m Caleb Stevens, your host for today and today’s discussion is with Mike Fernandez. He is the CEO of Texas National Bank out in Sweetwater, Texas. And he has started a division within his bank called Bankers Lender, and they only do loans for bankers like yourself. And so I hope you’ll enjoy this discussion with the community bank, who’s doing a lot of great work and the FinTech arena serving his community and also serving bankers like yourself. So thanks for joining us and hope you enjoy
Well, Mike thanks for hopping on the podcast today. It’s great to be speaking with you. How are things out in Sweetwater, Texas?

Mike Fernandez: Yes, Caleb, thank you so much for having me it is an honor. As I was telling you, before we got started been listening to your podcast for a while, and just honored to have been invited, to visit with you and share a little bit about our bank and our story. But yes, Sweetwater we’ve had a reprieve from the heat here lately I think during the summer we had 30-plus days of a hundred-plus degree temperature and very little rain. So we’ve had had some little cooler 95, we’ll take 95 and some moisture. So it’s been good, but we’re out here about two hours west of Dallas a little bit of a rural area that isn’t growing quite like some of the larger markets but we’ve got a great customer base here. We’ve got a long tenure here in Sweetwater, we’ve been here for 27 years; the bank opened in 1995. Got a great staff, long tenured staff and just enjoy serving our community.

Caleb Stevens: Well, you’re a popular voice on LinkedIn in the banking world I followed you for a while now from a distance and enjoy, the content that you put out there for leaders and for bankers. Give us a quick snapshot of your banking career. Was it sort of the goal coming out of college to go into banking and, and lead a community bank? How did you sort of get into what you’re doing with Texas national?

Mike Fernandez: Yes, I owe the introduction to my wife, I studied electrical engineering in college and before I graduated, I knew that it wasn’t what I was going to make a life doing. But I got out and I did it for a little while and for a few years kind of fumbled around trying to figure out what it is I wanted to do. My wife suggested trying out banking, I enjoy numbers I enjoy visiting with people, developing relationships helping people reach goals, solve problems those kind of things. And so, I met a guy banker in San Antonio at a luncheon one day and he worked at a bank there in town and I had to inquire with him if there were any opportunities at the bank. And he said, no, but keep in touch and when something comes up, love to help you get your foot in the door. And so something did come up. I got my foot in the door and was able to convince the market president and the credit analyst manager in Dallas that a guy with an engineering degree who was working part-time for the economic development corporation in San Antonio while pursuing his MBA was a good risk to take. So those guys at Plains capital in San Antonio gave me my first shot at banking. So, I was there for a little under two years working as a credit analyst, supporting the lenders there in San Antonio and my wife was finishing up her medical residency and fellowship.
And when she completed all that, it was kind of an opportunity for us to go lay roots somewhere and we knew we wanted to be close to family. She got an opportunity in Abilene to join a physician there and her family being in the banking business and her dad, my father-in-law running the bank here in Sweetwater. I like to joke reluctantly gave me a job. And it was interesting the first, I don’t know, a few months, maybe a year, I often struggled and wondered what I was supposed to be doing. But I took that time to learn about the bank, to learn about the bank’s customers take on special projects, those kind of things. And then we had some lender turnover that kind of thrust me into some lending roles and then we had an acquisition opportunity in 2014 that occupied my time. So, since I joined the bank in 2010 I’ve, I’ve had a myriad of experiences in a small bank like this, where 170 million bank with just two locations. So you really get to put your hands in everything and so I’ve a lot of special projects, the acquisition, we built a new building for the bank there in Tuscola where we bought the bank we’ve converted internet banking.
I spent time when I started at the bank, just kind of bouncing around to different areas of the bank at our size. We don’t have a formal training program it’s just kind of trial by fire and on the job training. But it’s, it’s been great, my father-in-law has given me a great deal of latitude and autonomy and learning banking and teaching me banking and giving me the opportunities to grow and try new things. And he’s been incredibly willing and understanding of the new ideas and projects that we bring to him. So, it’s been a of fantastic and fast ride and I was promoted to CEO at the beginning of this year. And it feels like I’ve been doing it for five years already as much as we’ve done and are doing and the fun that we’re having.

Caleb Stevens: I know the past three years for bankers, there’s been a whirlwind with interest rates going to all time lows, PPP now rates are on the move we have inflation that we’re trying to tame. You have a big passion for FinTech I know, and I’d love to kind of hear your perspective on FinTech as a leader of 170 million community bank, smaller town, and two locations. We work with a lot of banks across the country, and I think that’s something they’re always turning on is, they’re thinking about the future, as technology becomes more and more pertinent to community banking, I think for a lot of community banks, it’s kind of a scary bridge that they’re having across, and they’re saying, well, man, do we try to hang on and stay independent and keep forging ahead through all these changes in technology? Do we maybe say let’s partner up with the bigger bank. What’s your perspective on FinTech and community banking and what excites you most about FinTech and banking and how do you think the best community banks are forming partnerships that truly help them stay ahead of the game?
Yes, good questions. And a lot of scary things that you just threw out there PPP inflation and rising rates, I was thinking about it the other day and I was promoted to president of the bank in may of 2020, two months after COVID hit and right at the cusp of PPP. And then promoted to CEO the beginning of this year right as we’re entering this high inflationary time and we’ve got a lot of turnover here at the bank folks that have been with the bank for a long time and they’re beginning to retire. And so, in the back of my mind, I often wonder is Bill just getting tired of dealing with some of these things. And he’s like, now’s a good time to hand these over to me.

Caleb Stevens: Let’s hand this off to Mike. If anything he can take care of it.

Mike Fernandez: But to your question about FinTech I think I owe some of my interests there to my upbringing and to my dad, my dad was in IT. I was always helping him build computers and hack his TiVo and just all kinds of technology related projects. He was always bringing home new software or the newest Blackberry or whatever it was. And so I think I caught some of that bug from him, which is probably what led me into engineering and while I didn’t love engineering, I love problem solving. And that’s what FinTech is, it is solving the problems of the banking industry and the inefficiencies and there are so many inefficiencies in banks and our bank in particular. I be the first to tell you that there are a lot of things that we do the hard way. And so that’s why looking at FinTechs, finding what it is that is your greatest need to improve that process or to provide to the customer, identifying those things and finding a FinTech vendor to help you solve those problems are critical. And I think it’s imperative for banks our size and there’s a lot of larger banks than us that are navigating the FinTech waters and maybe getting frustrated with their inefficiencies. But I think if you can find a management team and a board and even a shareholder base that is committed to finding solutions to whatever challenges may be occurring at the bank, I think you can hit a home run, obviously that’s easier said than done.
But in our market and in our bank, we have historically been less than 30% loan deposit ratio and right now I think we’re at 19% and it got exacerbated with PPP and the influx of liquidity. So for us, FinTech we looked to FinTech as a way to broaden our reach without broadening our geographical footprint. And so, I try to share our story with as many bankers as possible to hopefully give them some inspiration that if we can do it at $170 million with two locations and 30 employees and rural west Texas there’s some, some hope for you as well. I think that there’s a variety of FinTechs you’ve got your things within the bank to improve processes in the bank. You’ve got those consumer or customer facing opportunities to adopt and then there’s a variety of ways to approach it and you’ll find different bankers who, who are attracted to different things. I was at a forum here not too long ago and one of the bankers there from Illinois is very focused on FinTech relationships to improve the processes within the bank. And you have other bankers who are looking for ways to provide those services to their customers. So I think it’s, taking a good, hard look at yourself at the bank identifying what priorities are highest for you and committing yourself to pursuing solving those problems.

Caleb Stevens: What are some of the problems that Texas National that you’re most proud of solving, what are maybe a couple case studies, for the smaller community banks out there who are listening saying, I don’t even know where to begin. There’s so many different inefficiencies that we have there’s so many things we could pursue, I don’t want to go out and spend a ton of money bringing in all these different vendors and for you, any advice on a starting point? What are some, maybe just some basic things that you all have done that may be helpful for the other bankers listening.

Mike Fernandez: I mean I’ll get real basic with you, some of the things we’ve done in the last few years are moving to digital imaging of our loan files. From the time I got here in 2010 until, well, I don’t know, 2015 or 2016, maybe we had this massive electro mechanical, rotating filing cabinet. We called it, the lectriever, I think, is what it was called. And it took up 10 foot of wall space and went up to the ceiling and was constantly breaking down and the one guy that was left on the face of the earth that could work on it kept telling us that one day he was going to run out of parts to fix it. And so the last time it broke, I don’t remember if he couldn’t find any parts or if we just had enough and so we committed to moving, to document imaging. Well, it had its challenges and getting started and probably still we don’t file some people file things differently than others. It’s been a incredible help for underwriting from your desk for checking for files from your desk and not having to get up 15 times and walk across the bank to go find the file that you need. And did somebody put it back or what have you, and then with the change in audits and examinations the last few times we’ve had an exam, we’ve uploaded our loan files to send to the OCC for them to begin reviewing loans offsite. So, maybe that’s a carrot for the banker who’s on the fence about document imaging, get document imaging and the examiners won’t spend quite as many days in your bank.
During PPP the second round we finally adopted electronic signatures on notes so first round we were having people come in and sign. We were doing some loans for helping another bank in a different market this bank wasn’t doing PPP loans, so they were sending their customers to us. And so that first round we would send the docs, they would sign in person at the bank and they’d scan them back. And we just thought let’s just pony up and subscribe to, to DocuSign get it figured out and the second round was, was so much easier and so much quicker. And specifically where it came in handy was in the forgiveness process that was incredibly handy. And so now we’ve integrated that into our, our day-to-day operations. It’s a big part of what we do with our direct bank that we launched earlier this year and it’s just handy. As a matter of fact, I have a loan with a banker in Abilene, and I got to 20 days past due, because I couldn’t find a time to get over there to sign it. And all the while in the back of my head, I was just thinking, do I ask him why he doesn’t have DocuSign? Or do I ask him if he does have DocuSign? Or what have you, but that would’ve been an incredibly easy renewal for me to complete and for him to complete had he just sent it to me DocuSign.
And so, that improves efficiencies it saves time you’re not chasing people down or calling them and asking them a hundred times to come by and sign a renewal or do whatever. So, those are a couple of low hanging fruit, I think the document imaging and, and DocuSign. Mobile deposits is another one we just started that and again, I’m talking basic stuff, some of these things, some banks have been doing for a decade or longer but they’re still banks, our size and bigger and smaller who don’t do mobile deposit. And you put the right processes and procedures in place, and it’s a huge convenience for the customer, it’s a convenience for the bank and we haven’t knock on wood experienced any losses with going to, to mobile deposit.

Caleb Stevens: Well, I think that’s a good segue, where do you sort of see community banking headed over the next several years 10 years? I mean, we’ve seen a lot of consolidation we talk about that a lot on this show, we throughout the stat pretty frequently that there were, 18,000 or so banks back in the eighties, and here we are just under 5,000 and it seems like more and more community banks are being acquired. And there’s a little bit of Novo activity, but not nearly enough to backfill those that are being sold. Do you think community banking will always have a place in communities? And if so, what do you think that looks like? And any advice to the management teams out there that want to keep growing and want to keep staying independent and serving their communities for a long time?

Mike Fernandez: Yes. All good questions and things that we think about and have been drivers for some of the decisions that we’ve made recently. Sadly I do think that the consolidation trend will continue and as you pointed out the Denovo activity is not happening at a quick enough clip to outpace or even net out the consolidation. I do think that community banking has a place my fear is that it won’t be realized until it’s gone. The communities who lose their community banks it’s going to be a rude awakening one day when a big bank, too big to fail, or whatever 30 billion or $15 billion bank comes in and buys their bank and treats it more as a deposit gathering source than a true, true community bank. I think that the communities that experience that will suffer and the small businesses there will have to resort to doing business with bigger banks. And if PPP is an indicator of how the big banks treat small businesses in smaller communities, I think the small business community ought to be concerned about the rapid pace of community bank consolidation. So, when you look at the small banks that are remaining I think the message to those management teams would be to start taking action. Now, my thought is that the competitive pressures and the regulatory burden, the inflation and all these things that are outside of our control while they are big drivers of consolidation I think the bigger risk to small community banks is the lack of succession and the aging shareholder base and the aging board and then of course the, the aging management.
It’s hard to attract young people to small communities to come work at a bank. So what can we do to make community banking attractive? What can we do to transition or find a liquidity opportunity for the older shareholder who is ready to cash in their shares and nobody in the family has any interest in owning the shares. What do we do about the average age of the board being 60 or 65 or whatever, and not wanting to take on new projects or oversee new projects? I think that’s as big of a risk to small community banks going forward as the competitive pressures and regulatory pressures are. I’ve been proud here in Texas we have two state banking associations, and both have been very involved in supporting universities across the state who have banking programs. And I feel like we’re in the very early days of some of these programs getting started and some of the education getting going. But my hope is that they’re able to produce the bankers and the young folks who have an interest in banking enough that they can be spread around the state and spread around the country to go help small community banks and to provide an opportunity for, for those communities and those shareholders and those directors to be proud of their bank and their involvement in the community.

Caleb Stevens: Yes, those are all great questions and all good thoughts for leaders to consider and ponder as we look to the future. Well, tell us Mike, about your bank’s latest venture, project idea, Bankers Lender I’ve been following that from a distance from a while, and seem like a very interesting concept and a cool way to directly, serve your fellow colleagues in the banking industry. So tell us about Bankers Lender?

Mike Fernandez: Yes. Thank you, Caleb, I feel like as I was talking about document imaging and mobile deposit, Bankers Lender is what thrust us into FinTech and learning about FinTech all the different things that are out there, APIs and RPA, and all the acronyms and the things that you can do to improve efficiencies throughout the bank have only really started to make sense to us and the last year or so. As I was describing some other banks, we are not too dissimilar we were not that dissimilar from a lot of banks with an aging management team. We’re a family owned bank we have a very small shareholder base and a board that wants to continue operating this bank. But as I said before, 30% loan to deposits is a hard way to make a living, especially when you have rising cyber security costs, rising regulatory and compliance costs, rising insurance for your staff, all the expenses are going up and they’re going up faster than our net interest margin and faster than our earnings. And we can’t make loans appear in our markets, we’re a conservative bank, so that’s partly why we’re lower loan deposit ratio than most. But there’s also just a lack of lending opportunities in our markets and just in the last couple of years, we’ve developed some relationships with other bankers and other markets who were unable to borrow from their bank and a little bit of a referral business started to pick up.
And there was one day when we were having loan committee and we had five deals to look at, and all five of the deals were to bankers and we gave our presentations. There was very little concern about the credits, a lot of these things are, they’re either buying bank stock or they’re investing in one to four family real estate on the side, or maybe they just need to consolidate some debt. Nothing earth shattering, nothing too complex and as bankers as you might expect, they take care of their business and so credit scores are, are averaging in the high seventies or high seven hundreds. And they’ve got a nice income from their bank and whatever it is they’re doing, maybe throwing off some income as well. So they were, they were slam dunk deals and we left that meeting and we thought that was easy. And we liked that clearly our board and loan committee like that, what can we do to bring more deals like that to the table? And so we started thinking about why these bankers were using this and primarily for them, it was because they couldn’t borrow from their bank. But there are also bankers who don’t want to borrow from their bank for privacy reasons. So, the solution to that might be well go to the bank across the street. Well, if you’re in a highly competitive market, you’ve got pride, you’ve got privacy, and you’ve got competition that is probably dissuading you from going to the bank across the street. And we thought bankers need bankers too.
As one of our taglines or phrases or whatever and it’s more than just the executive level bankers who need bankers, the mid-level bankers need someone to turn to and the tellers and the new accounts people need someone to turn to. You guys, as a correspondent division, I’m sure provides some banking to bankers in your markets but I would venture to think that most of those customers are at the higher levels of the bank. And so, we wanted to put something out there to serve all bankers from the teller counter to the corner office, another one of our phrases that we use and we wanted to make it easy. We wanted to make it competitively priced and we wanted to put something out there that would be attractive to them. And so, we didn’t know how to go about doing it initially, but through some conversations with the independent bankers association of Texas and some introductions to Dave and Tanner Mayo who have a banking data analytics business here in Texas called FedFis they were able to introduce us to a core provider out of Hutchinson, Kansas data center, Inc. They also go by DCI and we explained, what we were trying to do, what we wanted it to look like. It was going to be all digital, no paper, no checks. You apply for the loan on our website we receive it we’re still doing some manual processes for the loan underwriting and documentation on our end. But once we approve it, it comes out DocuSign, you send it right back and we get it booked on the system.
If everybody’s on top of it and, and things are, are moving as they should, from the receipt of your application to the time that you’re booked and funded is under two hours. And when we explained what we wanted to do DCI said, we can help you do that and they’ve been an incredible partner in doing so. And when we think about growing our franchise through acquisitions, whole bank acquisitions, or branch acquisitions, or Denovo market entries, those are the three traditional ways of expanding your franchise. And they’re all incredibly expensive and for a bank like us it’s not really practical. The bank that we bought in 2014 was a 20 million bank we could do that. But a 70 million bank, I don’t know, we’re going to have to borrow some money to do it, and what’s the payback going to be, and how much of a premium are we going to pay and how long until we break even and to go Denovo into a market, you’ve got to go into a market where there’s opportunities and where there’s opportunities, there’s competition, and there’s cutthroat bankers and, there’s deals that you’ve never seen before that’ll be coming to you. And we just stopped and said, we can’t do that, that’s not what we want to do. So, how can we, again, broaden our reach without broadening our footprint or laying out too much capital on the line, so we’re trying this direct bank, we’re marketing our products and services to bankers currently across the state of Texas with plans to expand from there. But it’s been a warm reception we’ve been steadily adding business to the books. I think in the month of August, we actually booked more loans through banker’s lender than we did our two branch locations. Now, more number of loans, not more dollar volume but we’re getting an opportunity to look at deals that we would’ve never had without this digital extension.

Caleb Stevens: Yes. It’s a cool example of a way that you saw a need and saw a problem, and you put a name to it, you put a brand to it, you clarified your message, who is this for? And to see that striking a cord with a lot of bankers out there I think it’s a great example. And it’s a I think it’s a good case study for the folks listening to identify problems that they’re seeing in their markets and their communities are serving and finding incredible ways to meet needs.

Mike Fernandez: Yes. You said at Caleb, and I think, some people may wonder what the cost of doing this is, and the complications. We are running two cores, so we’re running Texas national bank on one core, we’re running bankers lender on another core. So, there are some complications, monthly consolidating that information the balance sheet and P&L it’s not too much of a problem right now, given the size of bankers lender, it’s a fraction of the size of Texas national bank. The call report gets to be a little bit tricky, a little more manual processing going on there, but it’s given us an opportunity to, as you said, put a different flag out there and to have something to market and I would recommend it to anybody. If we signed a three year contract, if we fall flat on our face and this deal doesn’t make us, the money that we thought it would at the end of three years, we take it down. We moved the business over to the Texas national bank core. We lick our wounds and we get up and we try to find another way to improve our bank. The capital outlay is so small compared to other expansion opportunities it’s laughable and if you fail in doing one of the other traditional expansions it can have serious repercussions for the bank, this won’t.

Caleb Stevens: Yes. Well, if the bankers listening, want to learn more about it, maybe they’re thinking, well, man, I’m about to purchase an investment property or have something that I’m looking for loan wise. How can they get in touch with bankers lender? How can they get in touch with you, learn more about what all you’re offering?

Mike Fernandez: Yes, absolutely. Thank you, Caleb. We’re got our own website separate from Texas national bank, it’s bankers lender bank. We’re also active and visible on LinkedIn again, Bankers Lender do a search there you can find me on LinkedIn, Mike Fernandez and I’m happy to connect, as much interest as this has spawned for bankers wanting to do business. It’s also spawned a lot of questions and conversations among other bankers who are curious to hear how we’re doing this. And I’m happy to take time and share thoughts and ideas with anybody who’s interested.

Caleb Stevens: We appreciate your time, Mike, this has been an encouraging discussion. It’s always just encouraging to hear, you know, folks like you, who are leaving community banks out there that, are trying to stay on the forefront and continue to meet needs and serve their communities. So, thanks again for joining us.

Mike Fernandez: Thanks for having me, Caleb. It was a lot of fun and I look forward to your future episodes.