A busy week in Chicago… one highlighted by Bank Director’s annual Bank Audit Committee at the JW Marriott that kicked off on Wednesday morning and wrapped up about a few hours ago. For those that missed the event, today’s title comes from a conversation I had with the CEO of Fifth Third before he took the stage as our keynote speaker. Without going into too much detail, it refers to a line favored by our former publisher (and head of the FDIC) Bill Seidman. At conferences like this one, Bill was fond of saying when times are good, no one sees what is happening under water. But when things get tough and the tide goes out, well, you see who has been swimming without a bathing suit. In that spirit, what follows are three things I heard while hosting 350+ men and women, an audience representing 150 banks from 38 states.
(1) To kick off the conference, we invited the head of Hovde Financial to present on “Navigating Complex Financial, Strategic and Regulatory Challenges.” While we welcomed attendees from institutions as large as SunTrust, Fifth Third and KeyCorp, Steve Hovde’s presentation made clear that while larger banks like these continue to increase in size, many smaller community banks are fighting for survival in today’s regulatory and low-interest rate environment. Case-in-point, mobile banking technology is already in place at larger banks, fewer options are available to smaller banks to replace declining fee revenue (which could offset declines in net interest margins) and increased regulatory burdens favor large banks with economies of scale.
All of this suggests M&A should be hot and heavy. However, Steve pointed out that 2013 has not started out strong from a deal volume standpoint. In fact, only 59 deals were announced through April; annualized, this will result in significantly less deals than in 2012. Naturally, this leads many to think about building through more organic means. To this end, he suggests that bank boards and management teams focus on questions like:
- Is adequate organic growth even available today?
- Are branches in urban markets more important than rural markets?
- How much expense base would need to be added to fund the growth compared to the revenue generated by new loans?
- Are we better off deepening penetration of existing markets or expanding physical premises into neighboring markets or both?
- What steps can we take to enhance web and mobile platforms?
(2) In the spirit of asking questions like these, it strikes me that everyone has something to learn as we come through one of the deepest recessions in history. As businesses and regulatory agencies debate what could have been done differently, everyone is looking for an answer to avoid the next one, or at least, minimize its impact. Clearly, as directors and officers search for ways to manage future risks, they need to understand how to work together without impeding the organizations’ efficiency of operations while preparing for unexpected events.
Accordingly, we opened this morning with a session to explore this unique balance of corporate governance. The session included Bill Knibloe, a Partner at Crowe Horwath, Bill Hartmann, the Chief Risk Officer at KeyCorp and Ray Underwood, the Bank Risk Committee Chairman at Union Savings Bank. Together, they emphasized the need for both management and the board to understand current initiatives, future initiatives and various risks embedded in each to design plans for various oversight roles. For me, “plan to manage, not eliminate” stuck out in their comments. If you were with us in Chicago, I wonder what was yours?
(3) Think about this: it might be easier and safer today to rob banks with a computer than with a gun. While banks design their internal controls to help mitigate risk, our final session of the day looked at how an audit committee needs to properly address cyber risk as more and more attempt to attack an institution through the web. Here’s a link to a piece authored by our Managing Editor, Naomi Snyder, entitled Five questions to ask about cyber security; short, sweet and to the point. I hope to have more on this topic early next week as it kept the room full (I took the picture above just a few minutes before the close). Until next week…
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