Bridging the Divide in Community Banking With Data & Empathy
Asset-Liability Committee (ALCO) meetings at community banks frequently highlight a distinct operational divide. The chief lending officer (CLO) pushes to deploy capital and capture market share. The chief financial officer (CFO) focuses on risk mitigation and balance sheet protection.
Both leaders share the same institutional objectives, but their strategic instincts conflict. Recognizing this dynamic provides a clear path forward for community banks looking to balance growth with sound risk management.
The CLO Mindset: Growth First
Chief lending officers focus on relationships. They know the local market, they understand the borrowers, and they spot opportunities in every conversation. Their default answer to a loan request is yes. They then work backward to structure the deal.
This orientation drives results but requires direct management across three specific areas:
- Problem-solving Approach: When a borrower’s financials fall short, CLOs look for what else supports the deal – collateral, a personal guarantee, a long track record. They’re flexible, sometimes to a fault, and tend to view process as an obstacle rather than a guardrail.
- Communication Style: CLOs are storytellers. They lead with the borrower’s narrative, the market context, and the upside. That persuasive style is a genuine asset in business development – and occasionally a liability when it papers over credit risk.
- Where Misalignment Enters: CLO performance is measured in loan growth and portfolio volume. That creates a real tension: the pressure to book deals can outweigh discipline around pricing or structure. “Deal fever” is common, and it’s worth naming directly.
CFOs: Financial Discipline & Risk Management
CFOs are the stewards of a bank’s financial health. Their lens is risk, return, and regulatory scrutiny. Every new loan is both a potential asset and a potential liability.
Problem-Solving Approach
CFOs are methodical by nature. They want the numbers, stress tests, and a clear view of the impact on capital ratios and liquidity. Balancing the maturity and rate mismatch is a core priority, as is pricing discipline. For a CFO, every loan must be priced to reflect its true risk and cost of funds.
Communication Style
CFOs communicate through spreadsheets and scenario analysis. They are comfortable with complexity and tend to assume others are as well. Their presentations are data-rich, though they can lack the narrative context needed to make numbers accessible to broader audiences.
Blind Spots to Watch
A CFO’s professional identity is closely tied to the bank’s financial performance and regulatory standing. This can lead to entrenched positions on pricing or credit policy, sometimes at the expense of growth or customer experience. Recognizing this tendency is critical to productive dialogue.
Navigating the ALCO Meeting
The ALCO meeting frequently exposes competing organizational priorities. The CLO drives aggressive loan growth. The CFO enforces pricing discipline and risk management. Both leaders hold valid perspectives that require strategic alignment to protect the institution.
- Loan Growth Versus Pricing Discipline: CLOs push to expand the loan book by offering competitive rates and flexible terms. CFOs protect the net interest margin (NIM), the core difference between loan revenue and deposit costs. Aggressive loan pricing directly compresses the NIM and degrades profitability.
- Customer Experience Versus Policy: CLOs prioritize the borrower experience through speed, flexibility, and personalized service. CFOs demand consistency, compliance, and strict adherence to established policies. This operational friction often leads to prolonged debates over policy exceptions and funding timelines.
- Deal Opportunity Versus Deal Risk: CLOs view every potential deal as a fundamental growth opportunity. CFOs analyze every deal as a potential financial risk. Resilient banks systematically balance these opposing viewpoints.
Collaboration in Practice: Bridge the gap through a deliberate role reversal exercise. Require the CLO to pitch a transaction entirely from the CFO’s financial perspective and direct the CFO to argue for the transaction using the CLO’s growth perspective. This practice forces mutual understanding and drives stronger operational decisions.
Navigating Internal Misalignment In Banking
In banking, ego often fuels high performance. Left unchecked, though, it stalls progress. CLOs feel their judgment is being second-guessed. CFOs feel their caution is being ignored. The result? Missed opportunities, or worse, mispriced risk.
At Wolf, we find that internal misalignment ranks among the top barriers to growth. This goes beyond a personality clash. It is a serious internal strategic risk.
Collaboration in Practice: Schedule regular alignment check-ins outside of formal meetings. A candid conversation often clears the air faster than a 30-page slide deck.
The Power of Product Profitability: Speaking a Common Language
Product profitability measurement brings both sides together. When everyone can access detailed, reliable data on how each loan product performs, not just by volume but by true profitability, conversations get more productive.
What Is Product Profitability?
Product profitability looks beyond interest income to account for every cost: funding, credit losses, origination, servicing, and overhead. Tools like Funds Transfer Pricing (FTP) and cost accounting help banks allocate costs and revenues with greater accuracy.
Chris Nichols of SouthState Correspondent Bank puts it plainly: “Many underperforming banks are not aware of the drivers of ROA and lack the tools to measure what drives profitability for each product, branch, and manage – without such tools, we have seen some bankers struggle chasing variables that do not lead to enhanced performance as measured by ROA. In the latest reporting period, it appears that community banks with lower efficiency ratios, higher liquidity ratios, and higher noninterest income outperform the industry average.” [SouthState Correspondent Division, “Drivers of ROA for Community Banks,” 2024]
How It Helps
Say the CLO and CFO can both see that small business loans generate a 0.70% ROA after all costs, while commercial real estate loans generate 1.66%. The right focus for growth efforts gets clearer, and agreement comes easier. Pricing discipline shifts from “winning” to “winning profitably.”
Now add details about the profitability of high-spread core deposit balances used to fund those C&I loans, set against the thinner-margin wholesale funds used to back every new $2 million CRE loan. With a clear view of what value a relationship brings, deal-making, hurdle rate pricing, and ALCO metrics become obvious to both sides of the table. The desired outcomes and the road to shared success come into focus.
Collaboration in Practice: Add product profitability reports to every standing agenda. Review the data as a team, recognize what is working, and use the findings to drive consistent improvement.
Cost Accounting: Where Decisions Get Made
Detailed cost accounting studies change how banks make decisions. When a bank truly understands the cost of each product and process, hidden inefficiencies surface – and so do opportunities.
Why It Matters
Cost accounting gives CLOs and CFOs a shared, fact-based foundation. It removes subjectivity from budget debates and redirects attention to what drives sustainable profitability.
A Practical Starting Point
Invest in cost accounting training across both teams. The more each side understands the numbers, the less room there is for misalignment. Implementation remains the steepest hurdle banks face when building a profitability model.
When the Cycle Costs You: A Pattern Wolf & Company Knows Well
The same story plays out across institutions.
Finance buys software to measure profitability, then allocates costs. Lending and branches push back on those allocations. Soon, no one trusts the data the expensive software produces, and the reports go unused.
Meanwhile, lenders keep chasing large deals with no deposit relationships. Branches keep approving pricing exceptions for the loudest customers. The bank funds its portfolio with brokered deposits and high-cost borrowings. Costs rise. Margins shrink.
Then the bank calls Wolf & Company.
Sometimes we get there in time. Sometimes we do not.
Clean Data Accelerates Strategic Alignment
Clean, reliable data provides a neutral baseline focused entirely on the facts. When stakeholders trust this information, conversations about trade-offs and priorities become direct and productive.
- Fact-based discussions: Trusted data removes bias and anchors conversations in reality.
- Clear strategic objectives: Alignment on the facts streamlines the planning and execution phases.
How It Helps
Clean data drives profitability analysis, accurate pricing, and sharper customer insights. It also builds confidence between CLOs and CFOs, as well as with regulators and board members.
Collaboration in Practice: Appoint or outsource a data steward to oversee data quality across departments. Make data integrity a shared cultural mandate, not just an IT concern.
Bridging the Gap & Practical Steps
Moving from conflict to collaboration starts with a few deliberate changes in how CLOs and CFOs work together.
- Establish shared goals early: Align on strategic objectives – loan and deposit growth, profitability, customer experience – during the planning process, not after tensions arise. Agree upfront on how success gets measured.
- Invest in analytics before your regulator requires it: Product profitability tools, cost accounting data, and peer benchmarks should inform decisions, not just defend them after the fact.
- Build in regular communication: Formal meetings matter, but so do informal conversations between lending and finance teams. Both sides carry valid perspectives.
- Recognize wins on both sides: Loan growth and disciplined risk management are not competing priorities. They are both essential.
Aligning Leadership for Stronger Banks
CLOs and CFOs approach the business from distinct perspectives. This natural misalignment is a strategic dynamic to direct rather than a problem to fix.
When both leaders rely on the same data and focus on mutual goals, their differing viewpoints become an operational asset. Community banks that align these roles achieve clear results:
- Turn professional disagreement into productive strategy
- Focus resources on shared organizational outcomes
- Build a stronger, more resilient organization
Looking to strengthen alignment across your leadership team? Wolf & Company works with community banks to improve strategic decision-making, optimize performance, and support long-term growth. Reach out to learn how we can help.
