Strategic Planning with Steve Young, Chief Strategy Officer at SouthState Bank

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

Caleb Stevens: Well, welcome everyone to the Community Bank podcast. Thanks for joining the conversation today. I’m Caleb Stevens, one of your hosts on this show, and I am joined again by Natalie Orcutt, Natalie, your second time back on the podcast. So, welcome and thanks for being a co-host.

Natalie Orcutt: Thanks for having me, Caleb.

Caleb Stevens: So, we sat down today with Steve Young, our Chief Strategy Officer here at SouthState. Steve’s been with the bank for a long time he was part of the old CenterState bank and got his start there in banking. Natalie, I thought this was a great discussion, all about strategic planning. What did you think?

Natalie Orcutt: Yes, so Steve did great. He covered the five things he thinks every community bank strategic plan needs to include. So that was awesome.

Caleb Stevens: Yes, good stuff. If you’re a community banker out there and you’re thinking through next year and what’s on the horizon for you and your bank, you won’t want to miss Steve talking about how we think about strategic planning here at SouthState and what that might mean for your bank. And he also gives a shout out just to community banks in general about why now is a great time to be in community banking despite what you may hear as far as, it’s hard to grow, it’s hard to get scale, those kinds of things. Steve believes it’s actually a great time to be in community banking, and so I hope you’ll enjoy this discussion right now.

Well, Steve thanks for helping on the podcast today. I think this is your first time on the show, so thanks for joining us.

Steve Young: Thank you, Caleb.

Caleb Stevens: For folks who don’t know you give us just a quick flyover of your career, what you do here at the bank, how you got into banking, and a little bit about your role.

Steve Young: Well, sure. I started my career in public accounting at Deloitte Touche and I actually came over to the bank I guess 20 years ago this month. So, I started my banking career at CenterState 20 years ago, I guess that was 2002. And it’s just been a remarkable story and a great group of people to be with both, kind of an entrepreneurial, humble, competent group of people, so I’ve enjoyed my time here.

Caleb Stevens: What was the asset size of the bank when you first got this interstate?

Steve Young: So, I think we were a little less than a hundred million in assets, today we’re, I guess 45 billion or so. So, yes, you talked about sort of a flyover, I’ve just done a lot of different things throughout my career here as the bank got larger, you sort of specialize a little bit more, but different roles I’ve had I was controller of the CFO I was a Chief Operating Officer for I guess around 10 years, and now I’m the Chief Strategy Officer. So.

Caleb Stevens: Kind of a catchall term. What is a chief strategy? What does that mean?

Steve Young: I’ll try to describe that in a few minutes, but I think back about the experiences I’ve had here, we’ve probably done, I think it’s 22, but it’s over 20 M&A deals since 2002. We’ve done FDIC transactions we’ve done whole bank deals, we’ve done management left out, so you have just a lot of different entrepreneurial things. Some of my role has been with investors, so I spend a fair amount of time with our institutional investors I also spend a fair amount of time with our regulatory people as well. So, it’s sort of a broad-based view of a lot of different, different constituents.

Caleb Stevens: So, SouthState and CenterState both have their roots in community banking, and I know that’s still part of our DNA today that we want to have as a company, we believe in local market leadership. This is a community bank podcast we serve at thousand or so community banks across the country. And so, we believe here in community banking, and even though we’re large now today community banking is our heritage and our roots and where we came from, and we still want that to be part of our DNA. Talk about why you think that matters, just in general, the importance of local market leadership and being close to the action and the communities that you serve.

Steve Young: Yes, that’s a great point. Our banks always believed in local decision making, just to kind of go back in our history go back to 2004 John Corbin and I, John our CEO, and I kind of hosted our first management retreat, we were much smaller at that point in time. And the focus of that management retreat back then with probably 10 people, was this idea of core values. And that’s where we spent a weekend offsite together and came up with what was our first set of core values. And the first core value was local market leadership that was the first tenant that we talked about. And the way it’s described is we say, “Our business model supports the unique character of the communities we serve and encourages decision making by the banker that is closest to the customer.” I think the way we think about local decision making is not headquarters centric. Our job, both of our executive team as well as our support center, our jobs are to provide the platforms for our owners, in our worlds, the presidents to deliver to the customer bases in their various communities. And the way they’ll do it is going to be different in some of the larger metro markets like Tampa or Charlotte or Atlanta, versus some of our fast-growing suburban markets in the metro markets. We will have more middle market, more commercial, more treasuries international, whereas in the suburban markets, we’ll have more small business products, more retail products, but our job is to provide the platforms and to serve the people who serve the customers and then it’s up to the communities to do what they do well. And as I think about our customer base and the Correspondent Bank, so many of those does that well.

Caleb Stevens: Yes. I heard Mr. Corbit say one time that he said, “I sort of think of our bank as a family of banks.” I think, is it 67 now banks total that make up SouthState?

Steve Young: That’s right. We’re, we’re a conglomeration of 67 community banks.

Caleb Stevens: Yes. It kind of reminds me too, of Chick-fil-A when they talk about their operator model and they say, we want to attract people that want to be in business for themselves, but not by themselves. And it kind of seems that’s a little bit different than how we’re set up, but it kind of reminds me a little bit of the community presidents, they’re the ones boots on the ground who know the doctors and the community and the folks that they’re making loans to and serving. Those are the folks we want on the ground making the decisions relative to their market, of course, within a framework, within a set of goals that the bank has as a whole, within a set of core values that we all can rally around. Things come to our culture that we want the whole bank to embrace, but at the same time, making sure that they’re owning their role that they play in the community.

Steve Young: Yes. And I think for us, the reason that 2004 meeting happened was because many of our people were from some of the larger banks. And what had happened in the course of the late nineties, early 2000s is many of those centralized geographies, and they took power out of the local markets. And what we didn’t want to become was what everybody left. So, the way we do it now is the president, so we have 41 presidents. They have their own balance sheets, their own income statements, their own marketing budgets, they sort of control the capital allocation within the markets that they earn within a framework of course, of the goals in which the corporation sets. But yes, it’s a very important tenant in our bank.

Caleb Stevens: Well, I think that’s a good segue into what I would love to discuss with you today, and that’s centered on strategic planning. We’re at that time now where bankers are moving into next year, there’s a lot of a question mark on the horizon in terms of the economic environment that may be on the horizon for next year. What in your mind are just some key elements of a good sound strategic plan, regardless of your asset size, maybe your 45 billion, maybe you’re 100 million? What are some key things in your mind that every strategic plan ought to take into account?

Steve Young: Yes, our strategic plan starts with goals to support our five objectives and we’ve had these objectives since we were smaller, but we kind of think about these five things. And when I talk about these five things, these are five things that every executive committee our agenda’s kind of built on. And so, then it’s very familiar and then we use that, this template sort of for our strategic plan, but they are culture, soundness, profitability, growth, and digital. And those are sort of, as we do planning; we do it in the midst of thinking about those five objectives or those five goals. So, at the end of the day, what you’re doing in your strategic planning is obviously planning for the future in our case, we do it for three years. But you’re also, planning to capital allocates and for us, there are two main things that we’re thinking about when we allocate capital. Number one, it’s the allocation of technology capital so what kind of projects would that be, different systems or would that be taking existing systems and making them better?

Those types of investments and then the second, of course, is the people investments. So, what are we going to do? So, if we put in a new technology platform, how are we going to scale that? And the technology only takes you so far you have to have people and sales and operations support people that can scale it. And so, we kind of look at all of those investments together and we have a saying around the bank where, around capital “you don’t gets spent where capital is treated well.:” And so, we look at the returns on capital we hold ourselves accountable after we make the decision to make those investments and we try to learn from the things that don’t always work because they don’t always. But we do think about it as a capital allocation activity and our processes, and I can talk about it in a minute, but it’s pretty robust in how we try to get everybody involved in the process.

Caleb Stevens: Yes, that’s a kind of a good next question is how do you create alignment and buy-in? When you’re making decisions that impact, in our case 5,000 people and change something like that. But even for a smaller bank that may have 50 team members on their team and in their bank, it’s still a lot of folks to create buy-in and cast a vision that’s compelling that everyone can get excited about and agree on. And competing priorities in terms of everybody’s department may feel like they deserve a little bit more here or there. How do you sort of work through differences, disagreements, and create alignment that everyone at the end of the day can be excited about? Even if maybe in their heart of hearts they may want to go a different direction, at least they can say, at the end of the day, I’m going to be on board with what we decide to do and where we decide to go.

Steve Young: Yes. Well, I think you have to be very intentional, and I think part of that intentionality when you’re a smaller organization, a lot of times you’re in the same building. I would just recommend you do it offsite I think it’s just helpful to get away from the day-to-day noise, put the cell phones away, the iPods away, and spend your energy around that. If you think about the way we, do it, and it’s certainly not the only way you can do it, but we sort of have a top down and a bottoms up process of how we deal with strategic planning and what do I mean by that? It’s sort of deductive as well as inductive. What we believe is the best ideas come from the people who are closest to the customer. So, that’s kind of our core belief but we also believe that there needs to be a framework in which those ideas come through, and certainly there are budgets and other things that we have to work through. So, the way we start the process is we sort of start with John, our CEO’s kind of strategic objectives around those five priorities. And so for instance, this year kind of a major theme before people, all of our groups put together a strategic plan was, just focus on the customer and the employee experience. So, those were kind of things that all of our lines of business leaders and support leaders were now thinking, okay, instead of doing a lot of things new, we need to focus in on that. So, as I put together my strategic plan over the next couple years, that’s just an example.

There were, there were others, but that was an example of how we think about it. So, we start with, John’s objectives, we have an offsite strategic meeting with our board and that typically happens in September. And, and sort of lay out sort of our three-year plan, when I say plan more of a financial plan as well as just strengths, weaknesses, things that we think we need to work on and get some feedback from them because they clearly give us guidance there. And so, we take that and then kick off our lines of business we bring about 50 people together which includes the people in the room are our support leadership, our line of business leaders, our executive team and our regional presidents. And so, what we do is we’re getting people from various perspectives to give us feedback on each of these businesses and what happens there it’s a learning exercise for everybody as well as the opportunity to ask questions. So, is the line of business presents what they’re thinking they want to be doing over the next three years? We can’t fund every opportunity, but we can start bubbling up the best ideas that hits with particularly our regional leadership. And so, we take that, we go to our management operating committee, and our management operating committee takes those ideas that they hear over a couple of days and kind of narrow it down into couple of themes. Then we go to our support center and say, support groups and they present based on these particular priorities. And then we spend November and December as an executive team working through kind of the funnel of those things and we get to January, and we present that to the board and get feedback and get that passed. So, it’s a pretty comprehensive plan a lot of people have heard it they may not, as you mentioned, may not agree that they didn’t get their priority funded lots. Sometimes it gets deferred into next year, but at the same time, they feel like they’ve been heard, they understand what some of the other priorities are, and they can understand why you would fund it. And so, hopefully that creates the buy-in from the both the top down and the bottoms up.

Caleb Stevens: And I would imagine spending quality time together too helps build some trust and some rapport. So, I have been seen, I have been heard, I know the folks I work with, even if they’re two states away and that probably builds some trust and some rapport and buy-in over time, I think too.

Steve Young: Yes. And that particularly happens, I’d say, on the line of business regions against support sometimes the support function, it can be very complicated. They have regulators, they have audits, and they have lots of things that probably a lot of the frontline folks don’t know about. And so, as they present their plans, you understand why some of the things they can’t get to because they have some quality components. And so, it just gives everybody a better understanding around the entire process as the bank and what they find out is this bank is a lot of great people, very comprehensive, lot of interesting things that we do. And I think it makes them prouder of the bank after they’re done.

Caleb Stevens: Well, if folks follow Chris Nichols on LinkedIn, I think they may have seen a couple of his posts talking about the experience of going through that two-day process. He jazzed it up and made it sound very intense, which I’m sure it was I think he ended it by saying, may the best ideas win, or something like that. So.

Steve Young: Yes, well, it’s capital flows where capital gets treated well and it’s sort of like Shark Tank to some degree. But there are a lot of good ideas and we want the best ideas because we can’t fund, nor can we do everything. But that’s where you want the ideas to come from the ground. You’ll get so much better ideas than if the people at corporate only talk about what they know and I think that’s where the process works it’s marrying the top down and the bottoms up to get the best answers.

Caleb Stevens: Yes. Well, I’d love to wrap up just talking about community banking in general today, over the past few years we’ve heard all kinds of statements made about how hard it is to be a community bank today, whether that’s you can’t keep up with technology, that’s never an arms race, you’re ever going to win, it’s hard to get scale. A couple years ago when rates were low, you can’t make any money, rates are at zero. We hear a lot about the disadvantages of community banking, how difficult it is, and certainly there’s some truth to some of those things. But I’d love to hear from you, what do you think are some of the true advantages a community bank may have in today’s environment, say over FinTechs or national banks? Just talk to the community bankers that listen to this show every week, you know, what are some things that they ought to be proud of and things that the wind is in some cases out their back?

Steve Young: Yes, I think the advantages that the community banks have is their granular core deposit basis. That has not been super valuable over the last, I’d say, maybe 15 years, if you think about rates since the great financial crisis, they’ve hovered between zero and 2%. It’s been compounded in the last two years where rates were zero all the way across the curve and in Europe, they were negative. So, that’s just a difficult environment for deposits because they just don’t have the value in that environment. But now that rates are four, maybe headed towards 5% and maybe there’s more of a structural issue there with rates, maybe instead of going to zero, maybe we stay between three and five. I think it could be just, we’re entering in a different time and maybe this is a pre-2007, 2008 scenario. I think Fed funds in 2007 was five and a quarter percent were headed right back toward there and so those checking accounts, those small business relation relationships are super valuable in times like that.

So, I think it’s going to help the profitability, we’re in a transition time right now where the asset side is not keeping up, but typically the way community banks balance sheets are sort of set up on the asset side is the loans and investments will roll off sort of radically over the next couple of years. And so, those will reprise into a higher rate environment. What’s so difficult to grow and to have is a core deposit base that takes decades to build. And so I think what you’re going to see if we’re in an environment like this where rates are just structurally higher and more pre-great financial crisis, I think the profitability, the ability for the community banks to invest back in themselves, technology and other things, is going to be so much greater than when rates were zero. It’s hard to invest when your revenue is depressed, it’s much easier tore to invest when your revenue is higher. So, I’m pretty bullish on community banks, we have, as you mentioned, 1100 community bank clients and we’re certainly bullish on the prospects.

Caleb Stevens: Yes. Well, certainly, we appreciate your time, Steve thanks for hopping on the podcast. And, and real quick for folks that maybe didn’t catch this, or I don’t even know if we covered this at be at the beginning of the show. Chief Strategy Officer, what in the world do you do every day? I know you’re over a mortgage and correspondent banking and you work with our securities book, but what is a week in the life of Steve Young here at the bank typically look like?

Steve Young: Well, it’s usually as dad and a husband and try to be a banker. Let me kind of, I’ll tell you kind of the company-wide roles that I do or participate in. And we have a great executive team that works together seamlessly so, a lot of these things we’re working together in a lot of ways, but ultimately you have to be responsible. So, a couple of company-wide areas that I’m responsible for is, I’m over HR and our culture area so some of the ideas that we’re doing, we have a board culture committee that we we’ve instituted, and as I mentioned, that’s one of our priorities that we spend a lot of time on and we think that employee engagement, customer engagement is very important. So, that’s one thing. You know, balance sheet management is another, so I chair our asset liability committees those obviously over the last year have been very active particularly, with rates moving around and deposit rate setting, loan rate setting. And then over the strategic planning process, which we have a great team that helps facilitate those meetings and we work through that the end of the year. And then if, if you look at less company wide, more just line of business you know, correspondent banking, capital markets, sort of our wealth management area and our residential mortgage area. So, kind of all those things is sort of a hodgepodge of things that under my responsibility.

Caleb Stevens: All the non-interest income we love to have when loan demand isn’t cooking as hot as we’d like. Right?

Steve Young: That’s right, and when rates are up these businesses don’t do quite as well, and when rates are, are down, these businesses really shine. So yes, it’s good hedge.

Caleb Stevens: Well Steve, thanks for joining us and I hope to have you back sometime soon.

Steve Young: Alright. Thank you, Caleb.