15 Minutes With … Josh Guttau

Josh Guttau believes that the long-term competitiveness of community banks will heavily depend on their having great analytical skills and technology.

Josh Guttau believes that the long-term competitiveness of community banks will heavily depend on their having great analytical skills and technology.

Josh Guttau in Iowa on making decisions with data

Josh Guttau
CEO and Chief Financial Officer
of the $290 Million-Asset
TS Banking Group in Treynor, Iowa

IB: What is the market that TS Banking Group services?

Guttau: Treynor is located in the southwestern corner of Iowa about 25 miles east of Omaha, Neb. The area is a bedroom community for folks who work in Omaha and Council Bluffs. We have four locations, two in Council Bluffs and one in both Treynor and Macedonia. Agriculture dominates the economy here, particularly the production of corn and soybeans. However, the medical, insurance and technology industries are growing here as well.

IB: What makes TS Banking Grouping Group different from its competition?

Guttau: Our commitment to community reinvestment is what really separates us from other banks in the area. Our dedication to community is the reason why we’ve been successful for more than 90 years. Ten percent of our pre-tax income is given back to the Treynor, Macedonia and Council Bluffs communities through charities, giving programs and community development initiatives. We also expect every employee to be involved in the community, and allow hourly employees to count up to 50 hours per year (1 hour per week) of volunteerism time toward their paid workweek.

Our wealth management and trust division is another item that differentiates us from our competitors. We can provide the standard services demanded by the typical community bank customer, but we also serve those who have moved beyond standard services into areas like estate planning and more complex financial services.

IB: What single word best describes the current community banking industry?

Guttau: I would say barbell.

IB: That’s an interesting choice. Why barbell?

Guttau: I mean barbell more from a shape standpoint. In the current environment there is a cluster of banks, on one end of the barbell, that understand what it takes to be successful today and in the future. And on the other end of the barbell is another set of community banks that are stuck in neutral, believing they can continue doing what they’ve always done and remain successful.

We’re in the type of environment right now where a wait-and-see approach doesn’t work. If you’re not making changes and redesigning how you do business, then you’re likely not going to remain in business.

IB: How do you get your employees to share and believe so strongly in the mission of TS Banking Group?

Guttau: Communication is critical. From day one, employees are encouraged to share their thoughts and feelings. We include them in strategic planning process and allow them to take part in shaping our strategies to achieve our vision.

Hiring also plays an important role. TS Banking Group is a family business and for that reason we like to hire employees who have either worked for a family business or have owned a family business. We also like to look for candidates who have worked for a community bank before and understand the important role community banks play in local communities.

Our commitment to community reinvestment is likely the biggest reason for a strong employee culture and loyalty. Our employees, along with their families and friends live in the communities we serve. By working at the bank and helping it achieve great results, they realize they play a direct role in the well-being of their communities.

IB: TS Banking Group has a dedicated analytics group. Tell me about this.

Guttau: This group started with “me” as the bank’s first CFO. I am very analytical and feel that banking’s future is heavily dependent on having great analytics and technology. It also grew out of the need for building a team of credit analysts, and moving away from the traditional bank loan officer who does that along with meeting with the clients. Our analytics group really became beefed up with our overwhelming focus on risk management, especially those related to the ALCO process.

At our bank, ALCO is not a regulatory requirement or process, but a profit center. We actively manage our balance sheet, so it requires a more robust system or group of employees to do this safely.

IB: How does TS Banking Group use the data it collects?

Guttau: The data and intellectual capital has primarily been focused on credit underwriting, along with capital markets (bonds, wholesale funding, derivatives, etc.). We have built lots of models and systems to do this, primarily Bloomberg and Excel-based platforms. One example is no matter the asset, loan or bond, if it contains credit risk we are able to run the deal through a risk rating system to get us a fairly close apples-to-apples comparison on risk versus price/rate. This covers loans, revenue or general obligation bonds, corporate bonds, private mortgage-backed securities, etc.

IB: Why is it important to have a dedicated analytics group?

Guttau: I believe analytics is a hub in the bank, where a lot of things can be centralized and made more efficient, or provide us better information to make decisions. I have told people that I am betting our bank’s future on analytics and technology, and the main reason for that is that I view that, as a CEO and CFO for our banking group, I am a risk manager. I have to figure out how to take the right risk at the right time for the right reward, while limiting our downside if the risk goes against us.

Another reason is that I am uncomfortable outsourcing data analytics (such as interest rate risk models and capital stress tests) to third parties, as I have often seen they don’t have enough insight into the bank to be able to identify the “gray” in the analytical results. Also, we have found that most models are not robust enough to measure true or total risk, and if bankers don’t understand the inputs and nuances of the models, then they are limited in knowing where they really are.

In addition, we have found many vendors’ models are too conservative, showing the bank taking more risk than what is actually the case, thus limiting opportunities for prudent profitability. Also, digging into the results and assumptions you learn some real takeaways that have greatly impacted our strategy.

IB: Tell me about yourself. What do you like to do for fun?

Guttau: I enjoy spending time relaxing with my family when I’m away from the bank. I am also an avid Iowa State Cyclones fan, so I try to watch them when I can.

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