Bank Director Education – About That Ratio

September 8, 2018September 8, 2018

I’ve spent the last 8 years engaged in board-level conversations. This is what I’ve found.

Quickly:

Members of a board have a duty of loyalty and also of care; at strong boards, these core responsibilities provide a foundation for five additional behaviors.

WASHINGTON, DC — This past week, I had the distinct pleasure of visiting San Antonio, Texas. As I flew home on Thursday, I found myself reflecting on how purpose-driven companies (like the one I visited) focus on what their customers truly care about. By extension, I spent time reflecting on how a board might best support and encourage this mindset.

As I wrote for a piece that posted on BankDirector.com yesterday morning, one of my favorite proverbs when talking about the value of high-performing teams is to go fast, go alone; to go far, go together. Now, as my team prepares to head out to Chicago to welcome some 200 people to the Four Seasons Chicago for our annual Bank Board Training Forum, this mindset once again came front and center.

Given the financial industry’s rapid pace of change, one would be forgiven to think the best course of action would be to go fast at certain challenges. However, at the board level, navigating an industry marked by both consolidation and emerging threats demands coordinated, strategic planning.

Since I re-joined our company in September of 2010, I’ve noticed five key elements characterize many boards at high-performing banks. Some are specific to the individual director; others, to the team as a whole.

#1: The Board Sees Tomorrow’s Challenges as Today’s Opportunities

Despite offering similar products and services, a small number of banks consistently outperform others in the industry. One reason: their boards realize we’re in a period of significant change, where the basic premise of “what is a bank” is under considerable scrutiny. Rather than cower, they’ve set a clear vision for what they want to be and hold their team accountable to concepts such as efficiency, discipline and the smart allocation of capital.

#2: Each Board Member Embraces a Learner’s Mindset

Great leaders aren’t afraid to get up from their desks and explore the unknown. Brian Moynihan, the chairman and CEO of Bank of America, recently told our Executive Editor that “reading is a bit of a shorthand for a broader type of curiosity. The reason I attend conferences is to listen to other people, to pick up what they’re talking and thinking about… it’s about being willing to listen to people, think about what they say. It’s about being curious and trying to learn… The minute you quit being educated formally your brain power starts to shrink unless you educate yourself informally.”

(*Spoiler alert: you can read more from Bank Director’s exclusive conversation with Moynihan in the upcoming 4th quarter issue of Bank Director magazine.)

#3: The Board Prizes Efficiency

In simplest terms, an efficiently run bank earns more money. This allows it to write better loans, to suffer less during downturns in a credit cycle, to position it to buy less-prudent peers at a discount all while gaining economies of scale.

#4: Each Board Member Stays Disciplined

While discipline applies to many issues, those with a laser focus on building franchise value truly understand what their bank is worth now — and might be in the future. Each independent director prizes a culture of prudence, one that applies to everything from underwriting loans to third-party relationships.

#5: The Board Adheres to a People-Products-Performance Approach

Smart boards don’t pay lip service to this mindset. Collectively, they understand their institution needs to (a) have the right people, (b) strategically set expectations around core concepts of how the bank makes money, approaches credit, structures loans, attracts deposits and prices its products in order to (c) perform on an appropriate and repeatable level.

Looking ahead, I feel a sixth pillar could emerge for leading institutions; namely, diversity of talent. Now, I’m not talking diversity for the sake of diversity. I’m looking at getting the best people with different backgrounds, experiences and talents into the bank’s leadership ranks. Unfortunately, while many talk the talk on diversity, far fewer walk the walk. For instance, a recent New York Times piece that revealed female executives generally still lack the same opportunities to move up the ranks and there are still simply fewer women in the upper management pipeline at most companies.

At Bank Director, we believe ambitious bank boards see the call for greater diversity as a true opportunity to create a competitive advantage. This aligns with Bank Director’s 2018 Compensation Survey, where 87 percent of bank CEOs, executives and directors surveyed believe a diverse board has a positive impact on the performance of the bank. Yet, just 5 percent of CEOs above $1 billion in assets are female, 77 percent don’t have a single diverse member on their board and only 20 percent have a woman on the board.

So as we prepare to explore the strong board, strong bank concept in Chicago, I’m reminded of another adage, this one from Henry Ford. If all you ever do is all you’ve ever done, then all you’ll ever get is all you’ve ever got…

If you’re curious about what we’re talking about in Chicago, I encourage you to follow the conversation on social media, where we’re using #BDTrain18 to tag shared ideas on LinkedIn and Twitter.

July 31, 2018August 2, 2018

An Early Look at the 2019 Acquire or Be Acquired Conference

Quickly:

Bank Director’s 2019 Acquire or Be Acquired Conference takes place next January 27 – 29 at the JW Marriott Phoenix Desert Ridge in Phoenix, AZ. To register, click here.

WASHINGTON, DC — As the last few hours of July tick by, our team continues to build towards next winter(!) and the premier bank M&A event for CEOs, senior management and board members: Bank Director’s annual Acquire or Be Acquired Conference. This special event brings together key bank leaders from across the country to explore merger & acquisition strategies, consolidation trends and financial growth opportunities.

Earlier this year, we welcomed 1,200+ to the Arizona desert — and anticipate a similar audience when we return a week before next year’s Super Bowl. We’ve recently added a lot of new information on January’s program to BankDirector.com; if you’re interested to see what we’re planning, I invite you to take a look.

In addition to Acquire or Be Acquired, I am really excited to host two conferences before we return to the desert. On September 10-11 at the Four Seasons Hotel Chicago, we host our very popular Bank Board Training Forum. This two-day program provides bank directors with the education and training needed to address the issues and challenges facing them in today’s ever competitive, highly regulated and rapidly evolving banking and financial services industry.

From November 5 – 7, at the Four Seasons Resort & Club Dallas at Las Colinas (a short hop from DFW airport), we convene Bank Director’s annual Bank Compensation & Talent Conference to focus on the recruitment, development and compensation of a bank’s most essential talent. While in Dallas, leading advisers share their perspectives on building and supporting the best teams by providing first-hand information on the strategies and plans being used by successful banks today.

If you’re interested in any of these three exceptional programs, you can learn more here.

January 28, 2018

10 Questions I Plan To Ask During Acquire Or Be Acquired

Quickly:

Despite improving economic conditions, the business of banking remains difficult.

By Al Dominick, CEO of DirectorCorps — parent co. to Bank Director & FinXTech.

PHOENIX, AZ — For all the talk of bank consolidation, there are still 5,700+ banks in the United States. But let’s not kid ourselves. For many community banks today, earnings pressures + regulatory and compliance costs + the continued impact of technology = a recurring challenge.

While the number of banks in business will inevitably shrink over the next 10 years — perhaps being cut in half — I remain bullish on the overall future of this industry. If December’s tax reform spurs capital spending and job creation by small- and medium-sized businesses, many of the banks joining us here in Arizona stand to benefit. But will the recent tax cut induce companies to invest more than they already planned to? This is but one of a number of questions I look forward to asking on stage through the first day of Bank Director’s Acquire or Be Acquired Conference.

Below, ten more questions I anticipate asking:

Are FinTechs the industry’s new de novos?
What does it mean that the banking world is deposit rich yet asset poor?
Why are certain credit unions thinking about about buying banks?
In terms of technology spending levels, where are dollars being earmarked and/or spent?
With respect to small business lending, do credit unions or FinTechs pose a more immediate challenge to community banks?
What is an appropriate efficiency ratio for a bank today?
Will big M&A buyers get back in the game this year?
What are some of the critical items in due diligence that are under appreciated?
What does an activist investor look for in a bank?
Is voice recognition the next huge source of growth for banks?

We have an exciting — and full day — coming up at the Arizona Biltmore. To keep track of the conversations via Twitter, I invite you to follow @AlDominick @BankDirector and @Fin_X_Tech. In addition, to see all that is shared with (and by) our attendees, we’re using the conference hashtag #AOBA18.

September 25, 2017October 1, 2017

Strong Board. Strong Bank

Quickly:

A bank’s CEO, Chairman and board of directors face a number of challenges in today’s ever competitive, highly regulated and rapidly evolving financial services industry.

By Al Dominick, CEO of DirectorCorps — parent co. to Bank Director & FinXTech

ATLANTA — Complex regulations, technological innovations and a highly competitive environment that leaves little room for error have placed unprecedented demands on the time and talents of bank boards. Still, no one I’m with today seems interested in pity or sympathy. To wit, I’m in Atlanta, at the Ritz-Carlton Buckhead, as we host Bank Director’s annual Bank Board Training Forum. With us are 200+ men and women committed to strengthening their bank’s performance by enhancing the skills and abilities of their boards.

I’m buoyed by their collective optimism, especially having surfaced myriad governance issues, compliance challenges, audit responsibilities, risk concerns and areas of potential liability. What follows are five takeaways from presentations made today that are growth, risk or team-oriented.

When it comes to growing one’s bank, an acquisition of another institution certainly helps a buyer achieve operating scale efficiencies, which in turn increases its valuation.
In addition to traditional M&A as a driver of growth, we are seeing more partnerships with (and outright acquisitions of) non-banks in order to enhance non-interest income and the expansion of net interest margins.
Personally, I appreciated Jim McAlpin (a partner at the law firm of Bryan Cave) for elaborating on the phrase “Strong Governance Culture.” As he explained, the regulatory community takes this to mean a well developed system of internal oversight and a board culture focused on risk management.
When it comes to risk, financial institutions face a quite a few. Indeed, Eve Rogers, a Partner at Crowe Horwath, touched on cybersecurity, economic factors, regulatory changes, shrinking margins and fee restrictions. As she made clear, proactively identifying, mitigating, and, in some cases, capitalizing on these risks provides a distinct advantage to the banks here with us.
In terms of compensation, a good checklist for all banks includes (a) the bank’s compensation philosophy, (b) specific details for how to incorporate a performance plan against a strategic plan and (c) details around how one’s compensation peer group was formed — and when was it last updated.

Tomorrow morning, I share some new ideas for approaching technology in terms of growth and efficiency given the digital distribution of financial goods and services. As I noted from the stage, we’re seeing some banks, rather than hire from the ground up, take a plug-and-play approach for partnering (or acquiring) FinTech companies. While I certainly intend to talk about the culture and team aspects of technology tomorrow, my focus goes to how and where machine learning, RegTech, payments, white labeling opportunities and core providers allow financial institutions to present a cutting-edge looks and feels to its customers under the bank’s brand. (*If you’re interested, click here.)

January 4, 2017January 4, 2017

Eagerly Anticipating Bank Director’s Acquire or Be Acquired Conference

In the face of this month’s political transitions, bank executives and their boards face some major issues without clear answers. For instance, many continue to speculate on the Fed’s interest rate hikes while others pontificate on potential regulatory changes (hello CFPB). While convenient to cite November’s election results, keep in mind that we, as an industry, were already in a period of significant transformation. Still, it’s a titanic-sized understatement to say Republican presidential nominee Donald Trump’s surprise victory shook up the world.

While change remains a constant in life, I am personally and professionally excited to return to the Arizona desert later this month for a great tradition: Bank Director’s annual Acquire or Be Acquired Conference. With a record turnout joining us at “AOBA,” I’ve begun to assess various business models of institutions I know will be represented. For instance, those categorized by:

Organic Growth vs. Acquisitive Growth;
Branch Light Model vs. Traditional Models; and
CRE Focused Lenders vs. C&I Focused Lenders.

I am finding there are multiple dimensions to such business structures — and I anticipate conversations later this month will help me to better understand how the market values such companies.

As AOBA helps participants to explore their financial growth options, I am keen to hear perspectives on the “right size” of a bank today — especially if certain asset-based constraints (think $10B, $50B) are removed. Given a number of recent conversations, I expect increased IPOs and M&A activity in the banking space and look forward to hearing the opinions of others.

Finally, with the advance of digital services, I’m curious how technology trends might impact bank M&A, and more broadly, banking as a whole given the impact on branch networks. Indeed, as branches become less important, they become less valuable… which impacts deal valuations and pricing going forward.

Between now and the start of the conference, I intend to share a whole lot more about Bank Director’s 23rd annual Acquire or Be Acquired Conference on this site, on LinkedIn and via Twitter. If you’re curious to keep track, I invite you to subscribe to this blog, and follow me on twitter where I’m @aldominick and using #AOBA17.

February 1, 2016

What’s Happening at Acquire or Be Acquired

Throughout the first day of Bank Director’s 22nd annual Acquire or Be Acquired Conference, I found quite a few presentations focused on the emergence of mid-sized regional banks that are growing through the consolidation of smaller banks. Clearly, mergers & acquisitions provide an avenue for some banks to drive improved operating leverage, earnings, efficiency and scale. At the same time, the pressures prompting larger banks to innovate — sluggish loan demand, depressed revenue, higher compliance costs — are the same ones forcing smaller banks to pursue a sale.

By Al Dominick, President & CEO, Bank Director

For those unfamiliar with “AOBA,” this annual event explores issues like the one mentioned above. Since the conference kicked off at 8 AM on a Sunday, this morning’s post shares three short video recaps from my time at the Arizona Biltmore followed by links to recent posts specific to this conference.

In addition to these videos, below are links to four of my posts specific to the event:

If these types of conversations interest you, take a look at what we’re sharing on BankDirector.com. Additionally, I invite you to follow me on Twitter via @AlDominick, the host company, @BankDirector, and search & follow #AOBA16 to see what is being shared with (and by) the 930 men & women in attendance.

January 27, 2016January 27, 2016

Five Reasons Why Banks Might Consider Selling in 2016

You might think every bank CEO I meet wants to talk about buying another institution; truth-be-told, some recognize that tying up with another makes a lot of sense. So this post looks at why now may be the right time for a bank’s CEO and board to consider a sale. It plays off the idea that in many markets, organic growth options are limited and times are tough for banks, especially those under $1Bn in asset size.

By Al Dominick, President & CEO, Bank Director

Over the past three years, a number of bank executives and board members have struggled with whether to buy or sell their bank — or pursue growth independently. Over the same time, Bank Director has welcomed more than 1,300 bankers — from more than 500 financial institutions — to our annual M&A conference to explore their short- and long-term options.

This year, those numbers go up in a BIG way. Indeed, we have 600 bankers from 300+ banks joining us at the Arizona Biltmore for “AOBA” this upcoming Sunday through Tuesday. To me, this signals that more potential buyers & sellers are getting off the sidelines and into the bank merger and acquisition game. So in advance of Bank Director’s 22nd annual conference, here are five challenges that a bank’s CEO and board might want to consider.

Peer-to-peer lenders, credit unions and some — not all — FinTech startups either are (or will be) fierce competitors to community banks. In addition, non-bank giants in technology, retail, media, entertainment and telecom are making noise about entering banking.

When margins decline, bankers try to compensate by improving operational efficiencies. While slow growth + strong cost controls may allow for short term survival, such an equation doesn’t bode well for the long-term viability of many institutions where investors expect more significant gains.

The pressures prompting larger banks to innovate — sluggish loan demand, depressed revenue, higher compliance costs — are the same ones that will continue to force smaller banks to pursue a sale.

Let’s face it: the typical bond between a bank and a customer is is not personal nor very strong and the absence of real customer loyalty undermines the traditional business model most banks operate from (*and yes, I know that banks with dedicated customer bases enjoy significant advantages over any potential competitors. But let’s be honest about how dedicated such customers really are).

Finally, at many community banks, older management teams and a dearth of local talent mean there may be no one to hand over the reins to in the coming years.

Now, it has been said that business is not about longevity, it is about relevance. So as Bank Director’s team continues to gear up for this year’s Acquire or Be Acquired conference, these five questions merit serious conversation and consideration both leading up to, and at, our 22nd annual event. For those not able to join us — but interested in following conversations such as these — I invite you to follow me on Twitter via @AlDominick, the host company, @BankDirector, and search & follow #AOBA16 to see what is being shared by (and with) our attendees.

January 26, 2016

7 Bank M&A Trends for 2016

With this morning’s news that Huntington and FirstMerit are set to merge, it is clear that more and more buyers & sellers are getting off the sidelines and into the bank merger and acquisition (M&A) game. So in advance of Bank Director’s 22nd annual Acquire or Be Acquired Conference, seven M&A trends to consider.

By Al Dominick, President & CEO, Bank Director

As I shared in yesterday’s post, we are putting the finishing touches on this year’s Acquire or Be Acquired conference. With nearly 600 bank officers & directors from 300+ banks joining us at the Arizona Biltmore for “AOBA” this Sunday through Tuesday, what follows are seven trends in bank M&A that I expect this hugely influential audience to hear and work to address.

Deal volume is holding steady; however, median deal price is on the rise. One caveat: pricing has a strong correlation to both the size & location of a seller + the size of the potential buyer.

Growing banks must seize upon opportunities based on future needs, not just present needs

At the same time, more investors are taking a “what have you done for me lately” approach and emphasizing nearer-term results. Further, activist investors are becoming more prominent and driving some of this action.

Capturing efficiencies continues to be one of the most compelling forces driving industry consolidation.

When people tell you that size doesn’t matter, realize that banks with less than $500 million in assets have had the lowest return on equity for 11 out of the past 12 quarters (per SNL). Expect even more sellers to emerge from this part of the industry.

As the regulatory environment becomes increasingly difficult to maneuver, it is safe to anticipate an increase in merger activity — mostly for banks with less than $50 billion of assets.

As evidenced by Huntington Bancshares announcing today that it would buy FirstMerit Corporation in a deal worth $3.4 billion in stock and cash, mergers are a viable option for growth among the larger regionals. While we don’t have the same kinds of national consolidators buying up banks like they once did, deals like this one, KeyCorp announcing it would buy First Niagara Financial Group and New York Community Bancorp that it would buy Astoria Financial at least opens the possibilities of larger players getting back in the merger game.

Whether you are coming to the conference or just interested in following the conversations, I invite you to follow me on Twitter via @AlDominick and/or @BankDirector — and search & follow #AOBA16 to see what is being shared with and by our attendees.

January 25, 2016January 25, 2016

4 Things to Know In Advance of Bank Director’s 2016 Acquire or Be Acquired Conference

Why banks are bought or sold involves much more than just the numbers making sense. Indeed, to successfully negotiate a merger transaction, buyers & sellers must bridge the gap between a number of financial, legal, accounting and social challenges. So in advance of this year’s biggest merger and acquisitions (M&A) conference, a few things I feel attendees of “AOBA” should know.

By Al Dominick, President & CEO, Bank Director

Starting this Sunday at the Arizona Biltmore, Bank Director’s team once again opens the doors to our annual Acquire or Be Acquired Conference — affectionately called “AOBA” (ay-oh-bah). About this time last year, I wrote about a record turnout, one we will exceed in a few days when 925 men and women arrive at this architectural gem.

By design, the numbers I share in the image above only reflect key data from the financial institutions attending. In fact, we are prepared to welcome another 60+ professional services firms and product companies to the Biltmore. While I am particularly impressed by the caliber of support provided to the industry by our sponsoring companies, today’s post focuses on a handful of issues impacting the officers and directors joining us from strong and well performing community banks.

While big banks typically garner mainstream headlines — Wells Fargo, Citi, JPMorganChase and Bank of America account for a whopping $8.1 Trillion of the $17.3 Trillion assets held by banks in the U.S. — the buying and selling of banks takes place outside their domain. The overwhelming majority of deals today involve community banks, many of whom have their CEOs attending AOBA. So for this hugely influential audience, here are my key points to know and consider before the conference kicks off.

M&A remains attractive inasmuch as successful transactions improve operating leverage, earnings, efficiency and scale.

Today’s regulatory environment can hold up a deal — so it has become popular to note that banks can make acquisitions depending on how “clean” both the buyer and seller are + how big the resulting bank becomes.

As seen in their superior financial metrics (e.g. ROAA and ROAE), larger banks are growing and consistently outperforming smaller banks.

Small and mid-sized banks’ importance to the overall economy and select business sectors remains in place; however, their earnings potential is less diverse then big banks, making them more vulnerable to new competitors and shifts in pricing of financial products.

Certainly, the buying and selling of banks has been the industry’s “great game” for the last couple of decades. As the conference agenda reflects, we dive deeper into topics like these and look at pre-deal considerations, post-integration challenges and everything in between. So for those not able to join us — but interested in following the conversations — I invite you to follow me on Twitter via @AlDominick, the host company, @BankDirector, and search & follow #AOBA16 to see what is being shared with (and by) our attendees.

March 31, 2015

How the Math Works for Non-Financial Service Companies

As you probably deduced from the picture above, I’m in Chicago for Bank Director’s annual Chairman & CEO Peer Exchange. While the conversations between peers took place behind closed doors, we teed things up with various presentations. An early one — focused on FinTech — inspired today’s post and this specific question: as a bank executive, what do you get when you add these three variables:

Stricter capital requirements (which reduces a bank’s ability to lend) + Increased scrutiny around “high-risk” lending (decreasing the amount of bank financing available) + Increases in consumer product pricing (say goodbye to price-sensitive customers)

The unfortunate answer?

Opportunity; albeit, for non-bank financial services companies to underprice banks and take significant business from traditional players. Nowhere is this more clear then in the lending space. Through alternative financial service providers, borrowers are able to access credit at lower borrowing costs. So who are banks competing with right now? Here is but a short list:

FastPay, who provides specialized credit lines to digital businesses as an advance on receivables.
Kabbage, a company primarily engaged in providing short-term working capital and merchant cash advance.
OnDeck, in business to provide inventory financing, medium-term business loans.
Realty Mogul, a peer-to-peer real estate marketplace for accredited investors to invest in pre-vetted investment properties.
BetterFinance, which provides short-term loans for consumers to pay monthly bills and purchase smartphones.
Lenddo, an online platform that utilizes a borrower’s social network to determine credit-worthiness.
Lendup, a short-term online lender that seeks to help consumers establish credit and avoid the cycle of debt.
Prosper, an online marketplace for borrowers to create and list loans, with retail and institutional investors funding the loans.
SoFi, an online network helping recent graduates refinance student loans through alumni network.

As unregulated competition heats up, bank CEOs and Chairmen continue to seek ways to not just stay relevant but to stand out. Unfortunately, the math isn’t always in their favor, especially when alternative lenders enjoy operating costs far below banks and are not subject to the same reserve requirements as an institution. As we were reminded, consumers and small businesses don’t really care where they borrow money from, as as long as they can borrow the money they want.

Thanks to Halle Benett, Managing Director, Head of Diversified Financials Investment Banking, Keefe, Bruyette & Woods, A Stifel Company for inspiring this post. He joined us yesterday morning at the Four Seasons Chicago and laid out the fundamental shifts in banking that have opened the door for these new competitors. I thought the math he shared with the audience was elegant both in its simplicity — and profound in its potential results. Let me know what you think with a comment below or message via Twitter (@aldominick).

January 27, 2015January 29, 2015

From Bank Director’s 2015 Acquire or Be Acquired Conference: A 45 Second Video Recap of Day Two

On Tap For Day Three

Last night, I shared three takeaways from our second full day at AOBA (Three Observations From Bank Director’s 2015 Acquire or Be Acquired Conference). Looking ahead to our final half day, we kick things off with a series of discussion groups that address the following issues:

New Lending Markets for Community Banks
Growing with SBA Loans
Everything You Wanted to Know about Civil Money Penalties
Capital Plans & Nontraditional Alternatives
Incorporating M&A into Your Strategic Planning Process
Beyond eMail – Purpose-Built Tools for Mobile Executives

With coffees in hand, we move into our first general session, led by PwC, entitled “What You Can Learn from the Country’s Biggest Banks.” Following that presentation, we have back-to-back breakout sessions available before closing with “The Butterfly Effect of Technology on Banks Today.” To see an abbreviated PDF version of the three day agenda, please click 2015 AOBA Agenda (Overview).

To follow the conversation on Twitter, I invite you to follow me @aldominick, follow @bankdirector and tweet using the hashtag #AOBA15.

November 7, 2014December 31, 2014

This Week in Pictures (and Videos)

As I wrap up the week, let me take a look back at Bank Director’s annual Bank Executive & Board Compensation conference vis-a-vis video recaps and a gallery of pictures from the Swissotel Hotel in Chicago.

Video Recaps

If you’re curious for a <90 second summary of our time in the Windy City, take a read at what I wrote on Monday (Does Anyone Want To Work At A Bank?) or Tuesday (Trending at #BDComp14) and check out these two videos. The first, of our talented editor Jack Milligan; the second, my two cents.