What’s the best way to compete for deposits? Relationships are important. So are services. For banks, having operating balances with companies can create stability and security. The cumulative impact of Fed moves over the last 14 months has created meaningful opportunities in cash alternatives. Also, with the digitalization of banking, online offerings have become far more prevalent, making it easy to move money and take advantage of rates. Hence why depositors can get FDIC-insured CDs at 4% or more for the first time in 15 years. Do you think the turmoil in banking is over? What we are seeing is relative stability in the marketplace. While the events of March were idiosyncratic to specific institutions and their business models, we expect greater pressure on margins and higher funding costs going forward. We saw some NIM expansion last year, and that’s starting to flip. We’ll also need to keep our eye on commercial real estate and office exposure, as there are clearly challenges in that segment. Do you think federal regulators will raise capital requirements? Many experts are reviewing and opining on what may come out and the impacts. From our perspective, we would urge policymakers to be thoughtful about any policy response and look at what tools were available that could have been more helpful in preventing this. Blanket approaches of more capital or liquidity requirements will impact the industry's ability to lend and increase the cost of capital, among other implications. We all want the industry to be safe and sound. Banking is about trust and confidence. At the same time, our job is to facilitate commerce, help companies grow and provide capital to the markets. You're saying there's a balance. Indeed. A bank can only grow its loan book to the extent it’s growing its deposit book. If deposits shrink (to be expected with quantitative tightening), there's not going to be rapid loan growth. In fact, bank balance sheets may contract. That's going to slow the economy and help the Fed tame inflation. You told American Banker in April that Santander US was becoming a “full-spectrum auto lender that goes beyond subprime lending and includes prime and super-prime borrowers.” What's behind that shift in strategy? Historically, we did a lot of business with super prime, mainly on new cars, and we did lower-credit lending primarily on used cars. Santander Consumer, our auto business, used to be a separate, publicly traded legal entity. Last year, we took it in house and became a 100% owner. Now we're leveraging our bank deposits to help fund some of those loans. This allows us to be more competitive across a broader range of FICO scores, including in used-prime and other near-prime segments. You published results from a survey in March that found roughly three-quarters of middle-income Americans believe a car is key to job opportunities and job security, and that two-thirds would sacrifice other budgetary items to access and maintain a vehicle. What does this tell you? Employment status, and the unemployment rate, are key drivers of payment behavior. Over 70% of our customers for auto loans are middle-income. We want to understand how they're thinking in this unique environment, where there’s high inflation but strong employment. Our mission and vision are focused on helping consumers and businesses prosper, and how consumers are thinking about the future is important for us as we develop products and services for them. The survey also found that 69% of respondents are worried about a recession. Are you preparing for that possible outcome? We’re preparing for more difficult economic conditions in the future, whether that means an actual recession or not. Economists have been predicting a recession in three to six months for over a year, but the economy has been resilient. We’re optimistic, but we’re also being thoughtful about where and how we're deploying our capital while ensuring we’re comfortable from a liquidity standpoint. Sixty-three percent of Gen Z expects financial prosperity in five years, according to your survey results. What does that mean to you? It’s great to see that statistic, especially so soon after the pandemic, during which the Gen Z population was really negatively impacted. In the United States, our optimism, resilience, and adaptability are our greatest strengths. Do you worry Gen Z customers will go to fintechs, Apple or Big Tech — or whichever shiny nickel of the moment — instead of banks? I think about that every day. Technology is rapidly changing customer preferences and behaviors. Gen Z consumers who grew up with technology expect banking to be similar to shopping on Amazon or an experience on Instagram, and the banking industry will need to deliver on that. How do you target the younger market? We want to try and get them early. At the same time, with financial services, people's needs change, and their financial position gets more complex over time. We need to understand our value proposition, how we connect with that marketplace and how we add value. From a deposit standpoint or a credit card standpoint, getting in early is important. But in the auto business, when somebody needs a car, they're going look for a loan that may or may not come from where they typically do business. Same with a mortgage. Technology has made it possible for people to choose where to shop for the products that make the most sense for them. NEBRASKA INDEPENDENT BANKER 23
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