Lifelong Iowan’s service ethic informs role as state’s top regulator

James Johnson, president and CEO of Clarinda, Iowa-based PCSB Bank, was appointed Iowa’s 27th Superintendent of Banking at the start of 2024. Johnson succeeds Jeff Plagge, who had served in the role since 2019.

Johnson grew up on a farm near Clarinda, but while weighing his career paths, he didn’t necessarily want to become a farmer. He attended Northwest Missouri State University, earning a bachelor’s degree in agricultural business. The 47-year-old Johnson, who has always lived in southwest Iowa and has only worked at PCSB, found his vocation in community banking.

Johnson — who with his wife, Elena, has four children — said he believes in serving his community and industry. He’s been on the board of the Iowa Bankers Association and has chaired its ag committee. He is president of the Bedford, Iowa, school board, stays active with his church, and has served for years with local youth athletics, both as a coach and an official.

Johnson said he accepted the position as the state’s top regulator when offered to him by Gov. Kim Reynolds because “it goes to my philosophy on life.”

James Johnson image
James Johnson

Taking an opportunity to serve others is essential, Johnson said. “Bankers in general have a strong history of service to their communities,” he added. “I felt this was a continuation of that. In the end, Iowans matter to me. This is my chance to serve people on a different scale.” 

Recently, Johnson talked about the condition of Iowa banks and the challenges facing bankers; his comments have been edited for brevity and clarity.

Q: What systems have you put in place at the bank to accommodate your work at the Iowa Division of Banking?

James Johnson: There are always sacrifices with anything you do. When I was officiating, there were times when I had to miss my children’s games so that another parent’s child had a game. That’s just part of life sometimes.

One of the best pieces of advice I got early in my career was to always surround myself with great people. When I’m away from the bank, I have tremendous staff to handle the day-to-day activities. The same is true at the IDoB.

Q: Last September, the IDoB became part of the Department of Insurance and Financial Services. What do bankers need to know about this change?

J.J.: Gov. Reynolds completed this realignment, which really helped strengthen the regulatory team. We work with the insurance and the credit union divisions. While we have different laws and regulations, there are opportunities for us to cooperate and work on different issues. Examples are fraud prevention and financial literacy. We have a strong vested interest in making sure that Iowans are protected from fraud and understand their finances. 

Q: What will be your approach to leading the IDoB?

J.J.: I want to help the division provide proper oversight of community banks, but I still want to allow them to flourish in those communities they serve. It is a partnership. We have to make sure they can do their jobs while we do ours.

Q: Can you provide a snapshot of the health of Iowa banks? 

J.J.: Iowa’s 226 banks remain strong; 97 percent of state-chartered banks are rated a 1 or a 2 as of the end of the third quarter 2023. The Tier I leverage/capital ratio is 11.7 percent on average. Overall, our loan classifications, past dues and charge-offs all remain relatively low. Classified loans to total loans is 1.73, which is historically low.

Q: Is commercial real estate a looming problem?

J.J.: We’re always watching for issues within the commercial real estate sector, but at the current time, Iowa banks are performing well in that regard. Our delinquency rates are currently lower than they have been for a large part of the past 15 years.

Q: How are Iowa banks finding deposits these days?

J.J.: If you look at last year’s stats, Iowa deposits grew slightly in 2023. We were actually up $555 million across the state. We saw loan growth of 9 percent, which was $6.2 billion, so that’s a great number for us. Iowa banks continue to rely primarily on core funding; that’s our bailiwick. There’s been pressure across the industry for deposit rates. A lot of non-bank sources are looking for deposits as well. But if you look at Iowa, we currently have a cost of funds that’s 1.36 percent; nationally it’s at 1.24 percent, so it’s a little bit higher, but not extremely elevated. We follow the same trendline.

Q: What are the top challenges for Iowa’s banks?

J.J.: Net interest margin compression following the 525 basis point increase in rates. We’re seeing some tighter balance sheet liquidity. We’ve had deposit growth but loan growth was greater. This creates deposit competitive pressure that helps contribute to margin compression.

We’re seeing challenges with staffing turnover. That’s nationwide with most businesses. We’re seeing management and ownership succession issues. It’s more prominent in rural markets. Sometimes it’s hard to get that next group of leaders. But Iowa bankers do a great job and they find ways.

What might put an Iowa bank on your radar?

J.J.: Fintech partnerships are something we take a closer look at, in part because it’s new and they can all be a little bit different. In Iowa, the fintech partnerships so far have been focused on deposit base products. 

In the modernization of the Iowa Banking Act [completed in mid-2022], we added a provision that banks get prior approval to engage in a new or innovative electronic activity. It’s good to remind and encourage our bankers to call our office and talk to their analyst to discuss their plans. The office does not provide advice on fintech partnerships, but we’ll definitely help them walk through the process of making those evaluations.

Q: How have exams evolved in the post-pandemic era?

J.J.: We utilize technology but retain the face-to-face. There are positives from being in person, so we cannot lose that. Ultimately the goal is to get our jobs done, provide the proper oversight, and keep banks doing what they need to do. 

Q: What have you experienced in 25 years as a community banker that will inform you in this new, public-facing role?

J.J.: One of the things that’s always impressed me with our state regulators is their understanding of local communities. For me, it’s imperative that we retain that local knowledge and understanding. It’s not a one-size-fits-all approach dealing with community bankers. I want to make sure that everyone understands this.