Strategic Planning Tips From PCBB’s CEO: AI, Change & Growth

Sonia Portwood (00:00): Welcome back to Banking Out Loud. I'm Sonia Portwood, and we're happy you decided to join us. As the banking world keeps evolving, regulations shifting, technology advancing, and customer needs changing, strategic planning is coming into sharper focus for all of us. Today. We'll take a look at what goes into shaping a strong plan for the future and how community banks can set themselves up to stay ahead as 2026 gets closer. I'm excited to have Kurt Hecker with me. Kurt is the executive chairman and CEO at PCBB, and he spent nearly 40 years in banking and finance, helping institutions grow and adapt along the way. He led Intermountain Community Bank Corp from $40 billion to over $1 billion in assets. So he knows a thing or two about navigating big changes. Kurt's here to share his insights on how we can set ourselves up for success as we look to the future. So, Kurt, we're thrilled to have you on the podcast. We appreciate you joining us today. Curt Hecker (01:11): Thank you, Sonia, and, uh, appreciate it very much and look forward to the discussion. Sonia Portwood (01:16): Thank you. So I thought it would probably be a good idea because we do have a broad range of bankers on the call. Some have participated in strategic planning in the past, and some may have not, or maybe it's their first time to have the opportunity to participate. So I thought it would be a good idea if we were to level set our audience a bit. And if you wouldn't mind, start us out by walking us through what the process actually looks like and what it's aiming to achieve. Curt Hecker (01:47): Sure. Happy to do. So, we do strategic planning at PCBB every year. The strategic planning process, uh, I've always looked at on a three-year, uh, time horizon, but strategic plans need to be continually updated, especially in today's environment. The base premise and foundation of a strategic plan is to provide structure around what the bank is doing and to build a collaborative process that aligns the organization's direction with its mission and the market realities the risk associated with the bank and the opportunities that are out there. Some of the core steps in building a strategic plan is to define a mission, vision, and the core values of the company. The mission is typically done in a mission statement and it articulates the bank's fundamental purpose. The vision is designed to be a statement that lays out long-term aspirations and what the bank strives to become, and then the core values serves as the guiding principle for decision making and culture. (02:53): So that's usually at the forefront of any strategic plan. Strategic plans, also SWOT analysis or situation analysis, which is the strengths, the weaknesses, opportunities and threats that the company has. Strategic plans are also done in collaboration with management and with the boards to make sure that there is alignment. The next item would be setting strategic goals and objectives. And this is really important that you develop clear, measurable goals that address market needs and reflect the bank's mission and aspirations. Overall, it should focus on the growth of the company, risk management, operational efficiencies and customer experience. From there, strategies are developed and action plans are put together at both the high level and then at department levels throughout the company. Uh, you want to have concrete initiatives that are issued by department and business lines and have the ability to delegate the task and establish the timelines and accountability that's necessary to make sure that the plan is executed upon. (04:00): From there, you'd need to align the resources of the banker, which is more or less the budgeting process. You really need to assess the financial resources you have, the technology you have, and the talent necessary for being able to meet those objectives. From there, you put together the budget and allocate resources, which are principally the people of the organization, capital and the technology. And then, uh, those issues must all be prioritized in order of importance. Next is setting performance metrics and monitoring systems and defining the performance indicators or KPIs, key performance indicators to track that progress. And then the bank would typically establish periodic reviews throughout the year to monitor those outcomes and adjust the plans as needed. And then, uh, we've got, uh, the board and their role is to review, approve, and communicate the plan. Overall, the board review should ensure that alignment with risk, appetite, capital, and liquidity requirements are all maintained. And then finally, the implementation of that plan and continuous review. Then today's environment with the massive amount of new technology and AI and new tools and also new and different markets, there's a different paradigm. So the planning for bankers today is more of a challenge than what we've seen in the past. So that's just the basis of a strategic plan and the components of it. There's a lot of details to it, Sonia Portwood (05:28): And that's a lot. I mean, if, if banks truly manage their strategic process and incorporate all of those pieces that you've mentioned, it's sort of the north star of the organization and everything of of course, including taking care of your customers should center around that strategic plan for the future. Would you agree with that? Curt Hecker (05:50): Absolutely. Without a strategic plan, a company is unable to maintain the focus and you've got a lot of areas to manage throughout the bank. So having that is a north star to keep everybody aligned and communication should be constant from the senior leadership of the bank down to the employees, making sure everybody has a very strong understanding. Sonia Portwood (06:11): Yeah. Okay. So we know what we need to do as far as the components of putting together a good strategic plan. Let's talk a little bit about the trends that you're seeing right now. What should be on the agenda when you get the team together in a room? What are the major things that you're seeing that are catching your eyes that should definitely be a part of that conversation? Curt Hecker (06:33): There are many trends that are out there, but number one for me is overall digital, uh, transformation and technology modernization throughout the banking industry. Community banks are increasingly adopting embedded finance programs and integrating banking services into third party platforms. And this is something that PC BLP is doing as well. Uh, and this is really viewed as essential for capturing new markets and revenue streams overall. Another trend is real-time capabilities, instant payments, faster credit decisioning and seamless digital services are top priorities due to rising customer expectations and speed for convenience. AI and automation goes without saying is a very, uh, high priority in the hot trend. Uh, and, uh, investments in artificial intelligence for fraud prevention and customer service and operational efficiencies are kind of all at the forefront of that trend. And, uh, banks are embracing this automation to streamline compliance and be able to reduce costs overall, and that's very necessary in order to stay competitive. (07:38): And we anticipate needing to continue to reduce costs, to reduce pricing on many of the products in the baking industry. And, uh, a fourth trend that I'd point to is modernization of tech stacks In banks, the banking industry is very mature and many of the banks have longtime legacy systems. Sometimes those systems can be a help or a hindrance. More than half of the community banking leaders consider their core technology is fully modernized, but many are now recognizing that further investment is needed to be able to secure scalable innovation. The other trends from a competitive and market pressure standpoint is we've got fragmented competition here. Now CFIs are now competing against, uh, FinTech organizations, uh, digital first banks and niche financial, uh, providers. So the success of the CFI is very much increasingly depends upon the digital engagement, wallet share and the relationship depth rather than just the traditional market share. (08:44): Another is niche lending opportunities. Larger banks are scaling back in the commercial real estate and, uh, multi-family lending. Community banks are stepping in to fill these gaps, especially in, in local markets from the perspective of evolving compliance and the, and the regulatory landscape. In in general, there's several trends here as well. One is the community reinvestment act is being overhauled. There's sweeping changes to CRA regulations and pending with new requirements slated to go into effect in 2026. Another is, uh, rising compliance costs. Regulatory demands, especially for smaller banks, continue to outpace the resources of those smaller companies with compliance costs representing an outside share of that expense. So being able to simplify compliance process and the regulatory reform are major industry priorities. And with the current administration, uh, deregulating many areas and really focusing on trying to change the examination process to a risk management process, we're hoping to be able to reduce those costs. (09:49): And then on the last front here, trend is data privacy and cybersecurity, uh, is a, a huge trend. And as we're expanding on the digital services, data protection and real time fraud prevention on top of this list, uh, and investments in AI for that threat protection and customer cybersecurity education are really high. And next is product and services. And they are evolving and diversifying into wealth management, treasury services, high yield savings to be able to compete with larger institutions and attract new segments. Personalization, advisory and human touch are still a, a strong trend for community banks and is where community banks have a laid up streamlined. Digital experiences are balanced by a renewed emphasis on relationship banking to differentiate from automated competitors. There's also workplace and operational dynamics, and that's talent and culture. And I think the trend here is definitely attracting younger, more digitally savvy talent. (10:53): Another is the cost pressures of just overall rising costs, particularly technology and personnel. Scalable partnerships and process automatization are crucial, uh, for sustainability. And the next one is financial performance and economic uncertainties. Margin expansion is a trend. Many community banks anticipate rising net interest margins for 25 and 26 that will offset credit cost. Um, and super high on my list is creative deposit gathering strategies and liquidity stress testing are maybe some of the most important to pay attention to. Lastly, I'll say that given the shifts in the market that we're seeing leadership transitions and long-term succession planning are ongoing concerns. So these are the trends I see that are absolutely imperative, which is embracing the digital and real time banking while preserving the unique relationship driven service that smaller banks have been able to provide. Investing in scalable, secure technology and compliance frameworks are critical and everyone has to anticipate a lot of regulatory changes, especially CRA and proactively update operational policies, leveraging partnerships with fintechs and third parties to expand offerings and innovation capacity focusing on financial health, liquidity and risk management, and a volatile interest rate and credit environment is critical. Sonia Portwood (12:16): That's an awful lot. It was great information and we can put together a list of all that you mentioned so that we can share that with our listeners. But please tell me how in the world do you maintain your focus while keeping all of these in mind? How do you manage that? Curt Hecker (12:35): Well, if you're managing through the strategic plan process, it breaks into, uh, different projects and, uh, and having, uh, excellent project management is absolutely key. Otherwise, you will lose the focus, uh, on what you're trying to accomplish because there is a lot. Sonia Portwood (12:52): Yeah. I know that we could probably have a podcast on every one of the topics that you brought up. So if you've been associated with a number of, of community banks and you've worked on a number of boards, what are some of the pitfalls that we could share with our listeners that they should be aware of or look out for to avoid? Curt Hecker (13:15): You know, I think you just mentioned, you know, one of 'em is, and that's, you know, losing focus on the direction that you want to go in. The other is being able to, uh, match as we're driving forward with new initiatives and new innovation that is coming in, whether it's through the products or through the, uh, delivery systems are, are paramount to keep, uh, to keep in mind and stay focused with. Sonia Portwood (13:39): Would I be correct in saying that each one of the strategic initiatives are basically a project plan? Curt Hecker (13:47): Yes. Yeah. You, uh, uh, you need to provide the project assistance typically to all of the C leadership team because they're managing individual projects. And then from those projects, there are often additional projects that will come out of that at lower levels within the company. So that's why I say that the project management is so important and when you make a shift one way or the other, it needs to be made throughout the entire organization so people are aware and, and again, that allows you to maintain, uh, that overall focus that is necessary. Sonia Portwood (14:23): So from, from where I sit in participating in strategic planning for a number of years, uh, one of the things that I think is communication and making sure that your entire team are well informed, they know the North Star, but also to track progress so that everyone knows where we are in the process at at all times. Is there anything you wanna add to that as far as keeping people informed and and tracking the progress? Curt Hecker (14:51): I would just add that in today's environment and the way that we're operating at PCBB in terms of our people that are working all over the United States, I think that makes it even more challenging in some ways and in some ways much better in terms of the communication process because the communication needs to be very intentional and having the participation from everybody on the leadership team is, is critically important. So I hold that at a really high regard. If we don't do that, it's really easy to get off the tracks. That constant communication is important and allows us to stay very focused and allows us to report up and to report down and to keep the company engaged and involved with what we're doing. Sonia Portwood (15:34): Right. If I could shift gears just a little bit here, because I know that we've been spending a lot of time on the process around partnering with FinTech firms. I also know that there have been banks that have been very successful at this and other banks that have not been so successful, which share with our audience what approach you feel is important they take in order to be successful with any partnerships they engage with on the FinTech space. Curt Hecker (16:05): I think that as you're looking to advance forward, I think being able to continually innovate is really, really important. At the same time, there's risk associated with innovation. So I think there's a real balance between risk and innovation. In order to do that really well, does require processes. We have built at PCBB an innovation committee, which allows us to build out on new products and to be able to discuss those back and forth. So we have a process And, and when you talk about banks that can get into trouble is because you don't have a a a plan process. We've seen many financial institutions that have had some regulatory problems or technological problems or cybersecurity problems because of not going through the proper process. Sonia Portwood (16:55): Are there any resources available out there that our listeners could access if they wanted additional information on the topics that we've been talking about today? Curt Hecker (17:04): There's many, many consultants out there that can help and that's probably the most typical thing that banks do. Uh, but really we have this new tool called artificial intelligence, which we've got so much information at our fingertips that we can now, uh, uh, obtain and get good information in a very short time period. So turning to that resource is probably my number one. And then from there, corporate resources, people resources, legal resources, hr, et cetera, et cetera. Obviously the ICBA, the A BA and all of our banking associations are great sources to be able to get information from as well. Sonia Portwood (17:42): Okay, thank you. Let's talk a little bit about technology and banking. It really feels like it's constantly in overdrive, especially with all the buzz around AI and automation. Um, what's your take? How should community financial institutions tackle tech planning? Uh, so they don't end up just trying to catch up all the time. Is there a way? Curt Hecker (18:05): There is, and it's not easy to do, but the first role of our business is you wanna have a strategic foundation and you really should start with the business goals of a strategic plan and then align the technology underneath the business goals. Make sure that that technology is going to be able to support and enhance the products and services for our customers overall and make sure it's gonna be sustainable and be able to scale. And that's one of the beauties of, of the technology and of AI is companies are now able to scale at much faster pace than what they were in the past. So AI investments should be linked directly to the overall strategy of the company. And banks need to really prioritize bank initiatives over routine maintenance. 'cause so much of the tech spin today goes towards routine maintenance. And really what needs to be looked at is how we're gonna transform the bank, which requires organizational changes. I think that most companies need to build an AI roadmap, which is building a long-term plan for AI and being able to identify very clear and scalable use cases that move beyond just pilots. And some of the examples there would be customer personalization, process automation, fraud detection and compliance, which are very keys with that. AI does very, very well. Sonia Portwood (19:26): And marketing Curt Hecker (19:27): And marketing and yeah, there many, many, many other areas. Sonia Portwood (19:31): Yeah, Curt Hecker (19:31): I'm just naming a few here. Sonia Portwood (19:32): Yeah. And Curt Hecker (19:34): I'm a real fan of the KISS principle of keep it simple. I think that's important because a lot of this can get outta hand and ultimately if you wanna be able to adopt horizontal platforms and APIs that support data integration and future AI expansion. Yeah. You also need to have a focus on data quality and management, uh, and treat data as a strategic asset and establish a, a very robust framework for data ownership, privacy and availability. The reality is that in order for to get scale and to be able to grow and to do it in a very smart fashion, uh, you're going to need all of that data and the organization of that data so that you can be proactive with the data and drive increased revenue for the company and drive ROI overall other areas that it helps is in the governance and risk management to drive regulatory driven tech enhancements and to bring the overall efficiency rate of the company down. Sonia Portwood (20:34): Kurt, you, you mentioned something to me just the other day and I think it's worth mentioning to our audience. You were talking about how, uh, organizing or consolidating our data will be much easier or faster now that we have AI versus if we had done it two years ago, and I'm, I'm probably botching the way you said that. Do you remember that comment? Curt Hecker (20:54): Um, I do. The technology was just out there a few years ago, but not very many people really knew how to utilize it. And now today we can use AI for coding, for instance, for documentation of our systems. So what would take us the old way, the manual way could take two years Now utilizing ai, we can do this in 90 days and that's I the point that I was trying to make is that we can make decisions much quicker and then we can execute on those decisions because of the technological abilities of artificial intelligence. Sonia Portwood (21:28): Yeah. Also, I think it, it's a good time to remind our listeners that we did a podcast with Kendra Ramez, she's the CEO of KR digital agency, and it was on harnessing the potential of generative AI and banking. So you may go back and listen to that episode and she'll go in much greater detail into ai. If you're looking at community financial institutions, what are you seeing as far as where maybe they're not spending enough time and maybe they should invest more time for the future of their organization to benefit the future of their organization? Curt Hecker (22:06): I think the focus from a strategic standpoint is to be very focused on innovation that's gonna elevate customer experience while strengthening operational resilience and at the same time reducing the overall cost. I think that's the most important thing to be focusing on. And I think the, the reason this matters is that banks face a double challenge. It's a continued decline in customer experience and tightening Profitability driven by various digital competition and regulations are evolving and persistent margin pressures continue to occur. Uh, the global markets with customer service quality is following for the third straight year, and Profitability is still below some of the 20, 23 levels. So there's, I think, some real challenges out there. And those challenges are gonna be overcome by new product and new product delivery systems, personal service and providing a digitized experience. And, uh, what's imperative is we gotta innovate the customer experience and we've got to be able to be adaptable and be ready for change management. At the same time, build enterprise risk management systems into your overall process so that you can stay safe making these major changes. The key takeaway is focusing on innovation that directly and measurably improves customer service while maintaining risk management will be the defining factors that will determine what banks are gonna thrive and which ones are gonna fall behind this year. Sonia Portwood (23:38): Right. And you know, here at PCBB we believe in the community financial institutions. They are our lifeblood, uh, of our company. I just thought I'd ask your opinion on what you thought the future looks like. Curt Hecker (23:53): I think the, the future is very bright as long as fintechs and others can continue to innovate and partner, because banks are becoming more and more a technology company, but most banks are not a true software company. And in order to continue to to move forward, it's gonna require these partnerships and understanding the risk reward scenario of each of those partnerships and the negotiation of that is critical. Sonia Portwood (24:19): Yeah, yeah. Okay. Thank you. So is there anything that would be helpful as our audience begins at strategic planning for the year? Or any words of wisdom? Last thoughts? Curt Hecker (24:34): Yeah, I, I guess I can close on that. We need to utilize technology and AI to find ways to drive the efficiency of the organization. I think that is necessary across our entire industry. Many banks are there, uh, and they're, they have, uh, uh, efficiency ratios that are less than 50% and they're in a good, good position. Some banks are operating above the 50% range and for everybody operating in that range, that's what we have to solve for and that's what technology allows us to do if it's deployed appropriately. Sonia Portwood (25:07): Yeah. Yeah. Well, Kurt, I wanna thank you so much for agreeing to be on the podcast today. I think that it was a wealth of information. I think that, that the bankers go back and check their plan and their process that they're going through. I'm pretty confident they're gonna find something we talked about today that may help them. And uh, Kurt, I hope you'll come back. Curt Hecker (25:28): Oh, absolutely. Thank you very much. And fun to do this. It's a fun time and, and, uh, and baking, and I'll just call myself more mature bakers, uh, out there, . It's a whole lot of fun. Can see that the changes that are taking place. I truly think that our industry will, will look much different, but it's going to continue to be better. And I look forward to the challenges that are out there and I hope everybody sees it the same way and, uh, and embraces the changes that we're all going through. Sonia Portwood (25:58): Attitude is everything. Curt Hecker (26:00): That's right. Sonia Portwood (26:01): Thank you, Kurt. We appreciate you being on the podcast today. And I did wanted to mention that we will put a link to a document in the episode description that will list all the items that Kurt mentioned here today on the podcast. And until we meet again, we thank you very much for tuning in and we wish you all success. Thank you. Curt Hecker (26:21): Thank you.