By A.J. Kaufman, Managing Editor
As a locally owned and operated bank, the Bank of Tennessee’s history in the region goes back many decades. Even as they’ve modestly expanded, the company notes that 98% of the ownership remains located in the Tri-Cities and all business decisions are made here.
In September, the Business Journal enjoyed a conversation with Bank of Tennessee President Will Barrett. The Kingsport native’s career with Bank of Tennessee spans 25 years, where he served in various roles, including credit, lending, IT, operations, and most recently CEO. Barrett became president in 2021.
Business Journal: I’ve heard that the biggest current risks for banking are cybersecurity and fraud. Is this true, and can these threats be ameliorated long term simply through technological investment?
Will Barrett: Even with the rise of digital banking and person-to-person payments, decades old check fraud is still the most rampant fraud we’ve seen affecting our customers today. First thing, I wouldn’t leave checks in the outgoing mailbox that could be easily taken by someone else. Banks today have more solutions to eliminate or minimize the chance of check and other types of digital fraud depending on your risk profile. Just talk with your local banker.
BJ: What is the current demand for loans? As interest rates go down, do you see recent rate cuts invariably helping with mortgage loan applications, or will the local market and its supply/scarcity have more effect?
WB: Loan demand in our region has been consistent but lower than other higher growth areas of the state. Demand was affected by the steepest set of rate hikes in the last 40 years starting in 2022. Several local commercial borrowers that I recently talked to are waiting for future rate cuts to take effect or for the election to be over before jumping onto their next opportunity.
The long-term average for the federal funds rate since 1990 is 4.5% and the current target is 5.5%, which tells me we have some room for rate cuts. Fixed mortgage rates are typically tied to the 10-year treasury yield and that market has priced in some rate cuts as we’ve seen treasury yields fall by 100bps+ since last October. My current expectations for 30-year mortgage rates are in the 5-6% range over the next 12-18 months. So many people here still have low fixed rate mortgages that were made prior to 2022 that they don’t want to give up. This is limiting the supply of homes available in the market. Lower mortgage rates will help increase demand, but the lack of housing supply will likely keep home prices closer to where they are now.
BJ: In general, what do you see banking looking like in 2035 or 2040?
WB: From an industry perspective, there will be fewer banks as the industry is consolidating between 2-4% per year. There were 14,000 banks in the 1990s and we’re around 4,000 currently. Consolidation is being driven by the need to keep investing into technology and offset regulatory costs. Small businesses rely on their community bankers for support and financial solutions. A community bank offers the service in addition to the technology, so there’s someone there who knows your business and the best solutions for your situation.
From a consumer perspective, I went overseas to England this past summer and it gave me some hints for how things might evolve here. Most people were using cashless digital payments and there were fewer physical bank branches because of less reliance on a physical currency. One bank I went into had been turned into a pub, so there is an idea!
BJ: What is the role of AI in the future of banking? Is Bank of Tennessee using AI? If so, tell our readers any pros and cons you’ve found.
WB: While there is a lot of excitement around AI’s potential, it’s still in its infancy. We’ve been using AI in our fraud detection and are looking to utilize it in automating routine tasks. Over the next few years, I think you’ll see it deployed to supercharge folks in the jobs they do today. Banking is heavily regulated, and we have to have an audit trail in everything we do. Some of the large language models being used for AI don’t currently allow for a clear audit trail on how it arrived at the output. You’ll still see human decisions at the helm of Bank of Tennessee for the foreseeable future.
BJ: Going back decades to William Greene, Bank of Tennessee has been a dependable hand in our community that’s contributed mightily. How can this continue, and what else is on the horizon?
WB: Bank of Tennessee is the definition of a community bank, not only in the ways we give back and contribute to our communities, but how we give timely attention and service. Bill Greene believed this when he started Bank of Tennessee in 1974 and still believes it today. I think what you will see change is how people interact with the Bank, which is both high tech and high touch. Instead of coming into a branch, people want to increasingly engage with us through our best-in-class digital channels or interactive teller machines. It ultimately comes down to our people though. and when you need us, we’ll come to you.