5 Trends from Acquire or Be Acquired 2019

WASHINGTON, DC — To get a sense of what trended at Bank Director’s 25th annual Acquire or Be Acquired conference, here’s a link to five video check-ins.  All 2 minutes or less in length, these summarize various topics and trends shared with 1,300+ attendees.

fullsizeoutput_1b40

 

SAVE THE DATE:

Acquire or Be Acquired Conference
January 26-28, 2020 | Arizona Biltmore Resort | Phoenix, AZ

For early-bird registration, please click here.

Everything You Need to Know About 2019’s Acquire or Be Acquired Conference

WASHINGTON, DC — So, there’s this guy named Warren Buffet who has a few thoughts on business. This Nebraska-based investor once opined “I’d rather pay a fair price for a wonderful company than a wonderful price for a fair company.”  Quite sagacious — and appropriate to share in advance of our 25th annual Acquire or Be Acquired Conference which takes place January 27-29 at the JW Marriott Phoenix Desert Ridge in Arizona.

Since we last hit the desert, several regional banks have been active in the M&A market — and may continue to look for merger opportunities to build up scale. In addition, we’ve seen how tax reform had a big impact on the industry, with many making investments to grow their business.

Now, with the government shutdown straining our economy, big banks beating community banks on the digital front and shifting team & cultural dynamics, we have a lot of ground to cover over two-and-a-half days. Interested to see what we have planned? Take a look at the full agenda.

While I am excited to reconnect with quite a few folks, I am particularly interested in a number of strategic issues that will be discussed. For instance:

  1. Since the stock market doesn’t always reward longer-term thinking, what does a bank’s CEO needs to focus on, especially with many stocks being valued as if a recession is imminent;
  2. How can regional and local banks boost their deposits given the biggest banks 2018 deposit gather successes;
  3. How laggards to the digital movement can catch up with their peers? (One suggestion: take a look at Finxact, a “Tesla-like” financial technology company that offers an innovative, open-core banking platform. I believe it will quickly become a legitimate challenger to FIS, Jack Henry and Fiserv);
  4. The M&A outlook for 2019;
  5. How institutions can gain/acquire/rent the skills needed to vet and negotiate with potential FinTech partners;
  6. When we might see IPOs — realizing the SEC has to re-open before this occurs; and
  7. How many new bank applications will be approved by the FDIC, realizing that 14 were last year.

For those joining us in Arizona, I encourage men to bring a sports coat or a jacket for the evenings as we plan to be outside for our receptions and the desert quickly cools off once the sun sets. In addition, the rumors of people being in their seats at 7:15 – 7:30 on Sunday morning? 100% true. We start at 7:45 AM and there are quite a few pictures from last January’s event if you need visual proof.

Finally, the digital materials for the conference can be found on BankDirector.com. Once you register on-site, you’ll be given a passcode to access the materials that can be used throughout the event.

_ _ _

Whether you are able to join us in person or are simply interested in following the conference conversations via our social channels, I invite you to follow @AlDominick @BankDirector and @Fin_X_Tech on Twitter. Search & follow #AOBA19 to see what is being shared with and by our attendees. If you are going to be with us in Arizona and we’re not already connected here on LinkedIn, drop me a note and let’s fix that.

Making Great Hires

Quickly:

  • Next week, Bank Director hosts its annual Bank Compensation & Talent Conference at the Four Seasons outside of Dallas, Texas.  In advance of the event, a few of my thoughts on how banks might be inspired by Netflix, JPMorgan Chase & Co. and Pinnacle Financial Partners.

WASHINGTON, DC — As one of the best-performing stocks on Wall Street, you can bank on Netflix spending billions of dollars on even more original programming, even without a profit. Likewise, JPMorgan Chase & Co.’s consumer and community banking unit attracted a record amount of net new money in the third quarter.

How do I know this, and what’s the same about these two things?

Read their most recent earnings reports. Netflix doesn’t hide its formula for success, and JPMorgan boasts about its 24% earnings growth — fueled by the consumer and community banking unit — which beat analyst projections.

While we all have access to information like this, taking the time to dig into and learn about another’s business, even when not in direct competition or correlation to your own, is simply smart business, which is why I share these two points in advance of Bank Director’s annual Bank Compensation & Talent ConferenceBank Director’s annual Bank Compensation & Talent Conference.  Anecdotes like these prove critical to the development of programs like the one we host at the Four Seasons outside of Dallas, Nov. 5-7.

Allow me to explain.

Executives and board members at community banks wrestle with fast-shifting consumer trends — influenced by companies like Netflix — and increasing financial performance pressures influenced by JPMorgan’s deposit gathering strategies.

Many officers and directors recognize that investors in financial institutions prize efficiency, prudence and smart capital allocation. Others sense their small and mid-size business customers expect an experience their bank may not currently offer.

With this in mind, we aim to share current examples of how stand-out business leaders are investing in their organization’s future in order to surface the most timely and relevant information for attendees to ponder.  For instance, you’ll hear me talk about Pinnacle Financial Partners, a $22 billion bank based in Nashville. Terry Turner, the bank’s CEO, shared this in their most recent earnings report:

“Our model of hiring experienced bankers to produce outsized loan and deposit growth continues to work extremely well. Last week, we announced that we had hired 23 high-profile revenue producers across all of our markets during the third quarter, a strong predictor of our continued future growth. This compares to 39 hires in the second quarter and 22 in the first quarter. We believe our recruiting strategies are hitting on all cylinders and have resulted in accelerated hiring in our markets, which is our principal investment in future growth.”

This philosophy personally resonates, as I believe financial institutions need to:

  1. Employ “the right” people;
  2. 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;
  3. Perform on an appropriate and repeatable level.

Pinnacle’s recruitment efforts align with many pieces of this year’s conference. Indeed, we will talk strategically about talent and compensation strategies and structuring teams for the future, and explore emerging initiatives to enhance recruiting efforts. We also explore big-picture concepts like:

Making Incredible Hires

While you’re courting top talent, let’s start the conversation about joining the business as well as painting the picture about how all of this works.

Embracing Moments of Transformation

With advances in technology, we will help you devise a clear vision for where your people are heading.

Creating Inclusive Environments

With culture becoming a key differentiator, we will explore what makes for a high-performing team culture in the financial sector.

As we prepare to welcome nearly 300 men and women to Dallas to talk about building teams and developing talent, pay attention to the former Federal Reserve Chairman, Alan Greenspan. He recently told CNBC’s “Squawk Box” that the United States has the “the tightest market, labor market, I’ve ever seen… concurrently, we have a very slow productivity increase.”

What does this mean for banks in the next one to three years? Hint: we’ll talk about it at #BDComp18.

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.

3 Trends (and 3 Issues) Every Bank’s Board Needs To Consider

Quickly:

  • The challenges faced by financial institutions today are as numerous as they are nuanced. Be it data security, emerging technology, fraud, crisis management and/or the effectiveness of internal controls, I opened the 12th annual Bank Audit & Risk Committees Conference by laying out a number of key governance, risk and compliance issues and trends.

CHICAGO — While a sophomore at Washington & Lee University, a professor loudly (and unexpectedly) chastised a close friend of mine for stating the obvious. With a wry laugh, he thanked my classmate “for crashing through an open door.” Snark aside, his criticism became a rallying cry for me to pause and dive deeper into apparently simple questions or issues.

Audit16x9

I shared this anecdote with some 400 attendees earlier today; indeed, I teed up Bank Director’s annual program by reminding everyone from the main stage that:

  1. We’re late in the economic cycle;
  2. Rates are rising; and
  3. Pressure on lending spreads remains intense.

Given the composition of this year’s audience, I acknowledged the obvious nature of these three points. I did so, however, in order to surface three trends we felt all here should have on their radar.  I followed that up with three emerging issues to make note of.

TREND #1:
Big banks continue to roll-out exceptional customer-facing technology.

Wells Fargo has been kicked around a lot in the press this year, but to see how big banks continue to pile up retail banking wins, take a look at Greenhouse by Wells Fargo, their app designed to attract younger customers to banking.

TREND #2:
Traditional core IT providers — Fiserv, Jack Henry & FIS — are under fire.

As traditional players move towards digital businesses, new players continue to emerge to help traditional banks become more nimble, flexible and competitive.  Here, FinXact and Nymbus provide two good examples of legitimate challengers to legacy cores.

TREND #3:
Amazon lurks as the game changer.

Community banker’s fear Amazon’s potential entry into this market; according to Promontory Interfinancial Network’s recent business outlook, it is their greatest threat.

In addition to these trends, I surfaced three immediate issues that banks must tackle

ISSUE #1:
Big banks attract new deposits at a much faster pace than banks with less than $1 billion assets.

If small banks can’t easily and efficiently attract deposits, they basically have no future. ‘Nuf said.

ISSUE #2: 
Bank boards need to know if they want to buy, sell or grow independently.

In a recent newsletter, Tom Brown of Second Curve Capital opined that “if you have less than $5 billion in assets, an efficiency ratio north of 65%, deposit costs above 60 basis points, and earn a return on equity in the single digits, this really is time to give some thought to selling.”  As I shared on LinkedIn yesterday, the 3 biggest bank M&A deals of the year took place in May: Fifth Third Bancorp’s $4.6 billion purchase of MB Financial, Cadence Bancorp’s $1.3 billion acquisition of State Bank Financial and Independent Bank Group’s $1 billion agreement to buy Guaranty Bancorp. 
 I don’t see the pace of consolidation slowing any time soon — and know that banks need to ask if they want (and can) be buyers or sellers.

ISSUE #3:
The risk of data breaches across industries continues to increase.

Be it risk management, internal control or third-party security considerations, every aspect of an institution is susceptible to a data breach — and managing these threats and identifying appropriate solutions takes a village that includes the most senior leaders of an organization.

##

Just as banks need to develop their audit and risk capabilities, skills and talents, so too do officers and directors have both an opportunity and the responsibility to stay abreast of various trends and topics.  Bank Director’s event continues tomorrow with some fascinating presentations. To see what’s been shared already, take a look at Twitter, where I’m tweeting using @aldominick and #BDAudit18.

The Best of FinXTech’s Annual Summit

Quickly:

  • FinXTech’s annual Summit brought together senior executives from across the financial space to focus on new growth strategies and opportunities related to technology.

PHOENIX — I’ve spent the past few days with bank leaders, technology executives, investors and analysts interested to explore emerging trends, opportunities and challenges facing many as they look to grow and scale their businesses.  So as I prepare to head home to DC after some wonderfully exciting days at Bank Director’s annual FinXTech Summit, a few highlights from my time in the desert.

The 10 Finalists for 3 FinXTech Awards

For me, one of the signature pieces of this year’s program occurred on Thursday evening.  Under the stars, we recognized ten partnerships, each of which exemplified how banks and financial technology companies work together to better serve existing customers, attract new ones, improve efficiencies, bolster security and promote innovation.  The finalists for this year’s Best of FinXTech Awards can be seen in this video.

Winners of the 2018 Best of FinXTech Awards

We introduced these awards in 2016 to identify and recognize those partnerships that exemplify how collaborative efforts can lead to innovative solutions and growth in the banking industry.  This year, we focused on three areas of business creativity:

  • Startup Innovation, to recognize successful and innovative partnerships between banks and startup fintech companies that have been operating for less than five years.
  • Most Innovative Solution of the Year, to highlight forward-thinking ideas, we recognized partnerships that have resulted in new and innovative solutions in the financial space.
  • Best of FinXTech Partnership, a category to recognize outstanding collaboration between a financial institution and fintech company, we based this award on growth by revenue, customers and/or reputation plus the strength of integration.

The winners? Radius Bank and Alloy for Startup Innovation, CBW Bank and Yantra Financial Technology for Innovative Solution of the Year and Citizens Financial Group and Fundation for Best of FinXTech Partnership.  To learn more about each, check out this cover story on BankDirector.com

Favorite #FinXTech18 tweet

Well played with the ZZ Top reference — now we just needs to grow out that beard and drop a pair of RayBans into the shot.

Favorite picture

DSC03946.JPG

Three timely (and paraphrased) comments

  1. COMMUNICATION is key…. said nearly every presenter.
  2. Make the tough call to kill bad tech or a bad relationship. You’ll lose customers if you don’t react quickly (h/t to our VP of Research, Emily McCormick).
  3. Change is the key to being valuable; start thinking and working like a startup (h/t @nabeelmahmood).

Video Recaps

During our time in the desert, we shared a number of videos on BankDirector.com.  The page with all videos can be found on FinXTech Annual Summit: Focusing on What’s Possible.  To get a sense of what these short videos look like, here is an example:

Thanks to all those who joined us at the Phoenician.  For more ideas and insight from this year’s event, I invite you to take a look at what we’ve shared on BankDirector.com (*no registration required).

3 Key RegTech Themes

Quickly:

  • Machine learning, advanced analytics and natural language processors dominated conversations at yesterday’s RegTech program at NASDAQ’s MarketSite.

NEW YORK — Where will technology take us next?  As many banks embrace digital tools and strategies, they inevitably grapple with regulatory uncertainty.  This naturally creates friction in terms of staffing levels, operational expenses and investment horizons.  With so many regional and national banks continuing to grow in size and complexity, the responsibility to provide appropriate oversight and management escalates in kind.

Likewise, as more and more community banks rely on technology partners to transform how they offer banking products and services, management teams and boards of directors grapple to assess how such relationships impact compliance programs and regulatory expectations.  Can technology truly deliver on its promise of efficiency, risk mitigation and greater insight into customer behavior?

To address questions and observations like these, my team hosted the Reality of RegTech at NASDAQ’s MarketSite on April 18.  Entering the MarketSite, we aspired to surface ideas for banks to better detect compliance and regulatory risks, assess risk exposure and anticipate future threats by engaging with technology partners.

Over the years, our annual one trek to NASDAQ’s New York home afforded us opportunities to:

  • Learn how BNY Mellon encourages innovation on a global scale;
  • Identify where early-stage technology firms realistically collaborate with financial services providers; and
  • Explore lending strategies and solutions for community banks.

This year, we focused on the intersection of technology with regulation, noting that banks can and should expect an overall increase in regulatory constraints on topics including supervision, systemic risk (such as stress tests), data protection and customer protection.

For Forward-Thinking Banks

At Bank Director, we see the emergence of regulatory-focused technology companies helping leadership teams to bridge the need for efficiency and security with growth aspirations. However, understanding how and when to leverage such technologies confounds many executives.  As our Emily McCormick wrote in advance of the event, forward-thinking banks are looking within their own organizations to figure out how the deployment of regtech fits into the institution’s overall strategic goals while matching up with culture, policies, processes and talent.

Key Takeaways

  1. RegTech is, by its very nature, constantly evolving.  Current solutions focus on one of two things: reducing the cost of compliance via automation or leveraging technology to deliver more effective compliance.
  2. The flip side to the promise of these solutions is a skepticism and concern by both regulators and banks that RegTechs really are in this for the long-haul, are reliable and “safe” to work with.
  3. A first step for banks not already using RegTech?  Develop an implementation road map for one specific need (e.g. BSA / AML) which aligns to the overall strategic vision of the organization (in this case, a desire to grow through acquisition).

Interesting Reads on RegTech

Multiple presentations touched on how and where banks can maximize the potential benefits of their RegTech endeavors by addressing key risks; for instance: uncertain development paths, provider reliability, increased regulatory scrutiny, limited judgment and privacy concerns.  For those looking to go deeper on these issues:

  1. PwC authored a Regulatory Brief that discusses (a) how banks are using RegTechs, (b) the current RegTech landscape, and (c) what banks should do to prepare for RegTech.
  2. Continuity offers an e-book along with a step-by-step system for predictable, repeatable compliance results.
  3. Ascent blogs about the impact of artificial intelligence on regulatory compliance in its Top 5 Ways AI in Compliance Will Affect You in 2017.

Multiple members of the team shared insight and inspiration with #RegTech18 on Twitter (usually tying into our @Fin_X_Tech and @BankDirector handles).  Finally, be sure to check out BankDirector.com (no subscription required) as our editorial team offers up a number of perspectives on RegTech and this year’s event.

Do You Know These 3 Cs of Banking?

Quickly:

  • When it comes to talk about bank mergers and acquisitions, It has been written that the questions rarely change — but the conversations prove irresistible.

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

PHOENIX, AZ — If you’re with us here at the Arizona Biltmore for Bank Director’s annual Acquire or Be Acquired Conference, you’ve heard that banks with low‐cost core deposits continue to attract interest from acquirers.  So as banks wrestle with increased funding costs, that observation sparked an idea about what constitutes the “three Cs” of banking today:

  1. Compliance
  2. Cost Control
  3. Consolidation

For instance, having good on-going relations with one’s regulators is hugely important. In fact, I heard several prominent attorneys share that regulatory risk remains the greatest obstacle to completing an M&A deal.  So having the bank in position to act quickly and confidently when an opportunity arises is a major advantage in today’s competitive M&A environment.  I take this to mean no enforcement actions, satisfactory CRA, good HCR results, etc.

As was discussed yesterday afternoon, when an acquirer can present a credible narrative that a potential deal is consistent with a well-considered strategy — and that the company has the infrastructure appropriate to the new organization, you find a well received merger.

In terms of consolidation, we saw a number of presentations note the 261 bank M&A deals, worth an aggregate $26.38 billion, announced in 2017.  As a point of reference, 241 deals were announced — worth an aggregate $26.79 billion — in 2016.  According to S&P Global Market Intelligence, the median deal value-to-tangible common equity ratio climbed significantly in 2017 to 160.6%, compared to 130.6% for 2016.  Last December alone, 32 deals worth a combined $1.84 billion were announced and the median deal value-to-tangible common equity ratio was 156.5%.

Throughout the fourth quarter, there were 74 bank deals announced in the US, which was the most active quarter since 83 deals were announced in the fourth quarter of 2015. However, last quarter’s $4.4 billion aggregate deal value was the lowest since the third quarter of 2015, which totaled $3.43 billion.

These are by no means the only Cs in banking.  Credit, core technology providers, (tax) cuts… all, huge issues.  So along these lines, I made note of a few more issues for buyers, for sellers — and for those wishing to remain independent.  Take a look:

If you are interested in following the final day of the conference via our social channels, I invite you to follow me on Twitter via @AlDominick, the host company, @BankDirector, or search #AOBA18 to see what is being shared with (and by) our nearly 1,200 attendees.

5 Trending Topics at the Acquire or Be Acquired Conference

Quickly:

  • Large buyers are not in the bank M&A game right now; indeed, banks $25Bn and below continue to drive M&A activity. Case-in-point, 95% of total M&A deals since 2011 have buyer assets less than $25Bn. Might this change in 2018?

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

PHOENIX, AZ — Michael Porter, the noted economist, researcher and teacher, once said, “strategy is about making choices, trade-offs; it’s about deliberately choosing to be different. The essence of strategy is choosing what not to do. No one can tell you which rules to break, but you can acquire more skill in determining which rules to break given your talents and circumstances right now.”

Porter’s perspectives came back to me while listening to KBW’s CEO, Tom Michaud. Yesterday morning, Tom talked about the strategic paths that a bank’s CEO might consider in the years to come. As he shared, pressure from investors to deploy capital stimulated M&A discussions in 2017 — and will continue to impact deals in 2018. He also noted that pressure placed on deposit costs, as interest rates rise, contributes to the potential acceleration of bank consolidation. These were just two of the many notes I jotted down during the first day of our annual event. Broadly speaking, what I heard fell into five categories:

1. Economic trends
2. Regulatory trends
3. Small business lending trends
4. Management succession trends
5. Technological innovation trends

Many banks enter 2018 with steady, albeit slow loan growth — while recognizing modest margin improvement as they continue to focus on controlling expenses. Accordingly, I thought to elaborate on the issues I found interesting and/or compelling. Feel free to comment below if other points caught your eye or ear.

Economic Trends

FJ Capital authored a piece in late October that noted how, as the Fed progresses further into the tightening phase of the interest rate cycle, banks will find it more difficult to fund loan growth by raising new low‐cost deposits. Their view, which I heard echoed here, is banks with low‐cost core deposits will become more valuable over the next few years as banks wrestle with increased funding costs. In addition to this idea, I made note that banks with a strong deposit base could be more attractive to buyers as interest rates rise. However, a remark I’ve heard at past events re-emerged here. Namely, making a small bank profitable is hard; exiting, even harder.

Regulatory Trends

Given the audience here, I wasn’t surprised by the continued talk of removing the synthetic $10Bn designation. If the Fed, FDIC and OCC raise the $50Bn threshold as spelled out in Dodd Frank, we could see more banks in the $20Bn – $40Bn range come together. Given that large regional banks usually can pay high prices for smaller targets, unleashing this capacity could reignite more M&A and boost community bank valuations. In addition, the Community Reinvestment Act remains a major headwind in bank mergers. Many here want improvements in the CRA process, which in turn could reduce regulatory risk for bank M&A.

Small business lending

When it comes to the lifeblood of most banks — small business lending — a recurring question has been where and how community banks can take market share from larger banks. My two cents: closing loans faster is key, as is structuring loans to fit specific borrower profiles while being supremely responsive to the customer. Oh, and credit is a big theme right now — and the best clients typically have the best credit.

Management succession

An inescapable comment / observation: aging management teams and board members has been a primary driver of bank consolidation of late. I noted that the average age of a public bank CEO and Chairman is 60 and 66, respectively. It was suggested that this demographic alone plays a key factor in the next few year’s consolidation activity.

Technological trends

When it comes to bank mergers, one of the big drivers of deals is the rise in technology-driven competition (*along with regulatory costs and executive-succession concerns). I sense that most traditional banks haven’t really figured out the digital migration process we’ve embraced as a world. Finally, it appears that the biggest banks are winning the war for retail deposits.  This is an issue that many management teams and boards should be discussing…

_ _ _

For those of you interested in following the conference conversations via our social channels, I invite you to follow me on Twitter via @AlDominick, the host company, @BankDirector and our @Fin_X_Tech platform, and search & follow #AOBA18 to see what is being shared with (and by) our attendees.

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:

  1. Are FinTechs the industry’s new de novos?
  2. What does it mean that the banking world is deposit rich yet asset poor?
  3. Why are certain credit unions thinking about about buying banks?
  4. In terms of technology spending levels, where are dollars being earmarked and/or spent?
  5. With respect to small business lending, do credit unions or FinTechs pose a more immediate challenge to community banks?
  6. What is an appropriate efficiency ratio for a bank today?
  7. Will big M&A buyers get back in the game this year?
  8. What are some of the critical items in due diligence that are under appreciated?
  9. What does an activist investor look for in a bank?
  10. 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.

21 Reasons I Am Excited About Acquire or Be Acquired

Quickly:

  • Making banking digital, personalized and in compliance with regulatory expectations remains an ongoing challenge for the financial industry. This is just one reason why a successful merger — or acquisition — involves more than just finding the right cultural match and negotiating a good deal.

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

PHOENIX, AZ — As the sun comes up on the Arizona Biltmore, I have a huge smile on my face. Indeed, our team is READY to host the premier financial growth event for bank CEOs, senior management and members of the board: Bank Director’s 24th annual Acquire or Be Acquired Conference. This exclusive event brings together key leaders from across the financial industry to explore merger & acquisition strategies, financial growth opportunities and emerging areas of potential collaboration.

AOBA Demographics

The festivities begin later today with a welcoming reception on the Biltmore’s main lawn for all 1,125 of our registered attendees.  But before my team starts to welcome people, let me share what I am looking forward to over the next 72 hours:

  1. Saying hello to as many of the 241 bank CEOs from banks HQ’d in 45 states as I can;
  2. Greeting 669 members of a bank’s board;
  3. Hosting 127 executives with C-level titles (e.g. CFO, CMO and CTO);
  4. Entertaining predictions related to pricing and consolidation trends;
  5. Hearing how a bank’s CEO & board establishes their pricing discipline;
  6. Confirming that banks with strong tangible book value multiples are dominating M&A;
  7. Listening to the approaches one might take to acquire a privately-held/closely-held institution;
  8. Learning how boards debate the size they need to be in the next five years;
  9. Engaging in conversations about aligning current talent with future growth aspirations;
  10. Juxtaposing economic expectations against the possibilities for de novos and IPOs in 2018;
  11. Getting smarter on the current operating environment for banks — and what it might become;
  12. Popping into Show ’n Tells that showcase models for cooperation between banks and FinTechs;
  13. Predicting the intersection of banking and technology with executives from companies like Salesforce, nCino and PrecisionLender;
  14. Noting the emerging opportunities available to banks vis-a-vis payments, data and analytics;
  15. Moderating this year’s Seidman Panel, one comprised of bank CEOs from Fifth Third, Cross River Bank and Southern Missouri Bancorp;
  16. Identifying due diligence pitfalls — and how to avoid them;
  17. Testing the assumption that buyers will continue to capitalize on the strength of their shares to meet seller pricing expectations to seal stock-driven deals;
  18. Showing how and where banks can invest in cloud-based software;
  19. Encouraging conversations about partnerships, collaboration and enablement;
  20. Addressing three primary risks facing banks — cyber, credit and market; and
  21. Welcoming so many exceptional speakers to the stage, starting with Tom Michaud, President & CEO of Keefe, Bruyette & Woods, Inc., a Stifel Company, tomorrow morning.

For those of you interested in following the conference conversations via our social channels, I invite you to follow me on Twitter via @AlDominick, the host company, @BankDirector and our @Fin_X_Tech platform, and search & follow #AOBA18 to see what is being shared with (and by) our attendees.

Blockchain: What It Is and How It Works

Quickly:

  • Many speculate that blockchain could turn out to be one of the most revolutionary technologies ever developed.

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

WASHINGTON, DC — J.P. Morgan’s CEO, Jamie Dimon, recently threw some big time shade at bitcoin.  However, as the Wall Street Journal shared this morning, he’s “still enamored with the technology that underpins it and other virtual currencies.”  For those wondering about where and why blockchain might revolutionize the business of banking, take a look at our just-released Q4 issue of Bank Director Magazine.  We dedicated our cover story to “Understanding Blockchain,” and this post teases out some of the key concepts bank executives and board members might focus in on.  Authored by John Engen, the full piece can be found, for free, here.  As you’ll read, the article covers three major points:

What is Blockchain

If you’re on the board of a typical U.S. bank, odds are that you don’t know much about blockchain, or distributed ledgers, except that there’s a heavy buzz around the space—and a lot of big bets being made. As John Engen wrote, being a know-nothing might be fine for now, but going forward could be untenable.

At its most basic, blockchain is a digital-ledger technology that allows market participants, including banks, to transfer assets across the internet quickly and without a centralized third party.

Some describe it as the next, inevitable step in the evolution of the internet; a structure to help confront concerns about security, trust and complexity that have emerged from a technology that has opened the world to sharing information.  To others, it looks more like business-process improvement software—a way to improve transparency, speed up transaction times and eliminate billions of dollars in expenses that markets pay to reconcile things like credit default swaps, corporate syndicated debt and other high-volume assets.

Where are things heading

“Trying to guess how blockchain is going to affect us in the next 20 years is kind of like standing in 1995 and trying to imagine mobile-banking technology,” said Amber Baldet, New York-based JPMorgan Chase & Co.’s blockchain program leader, in an online interview. “I’m sure the ultimate applications are things we can’t even imagine right now.”

For now, the space certainly has the feel of the 1990s internet, with hundreds of startups and billions of investment dollars chasing distributed-ledger initiatives.  Armonk, New York-based IBM Corp., a big blockchain supporter, estimates that 90 percent of “major” banks in the world—mostly those with trading, securities, payments, correspondent banking and trade finance operations—are experimenting with blockchain in some way.

Collaboration is the current buzzword

Most large banks are involved in consortiums with names like Ripple, Hyperledger, R3 and Enterprise Ethereum Alliance.  Smaller banks are taking more of a wait-and-see approach.  For all the promise of speed and efficiency, blockchain’s real power lies in its transparency, which makes data both trackable and immutable.  Ultimately, blockchain could usher in new business models, which require different ways of thinking.

##

For members of a bank’s board, we created this “Blockchain 101” video.  In it, I touch on the potential application of blockchain in terms of digital identities, digital banking and cross-border payments.  In addition, the ten minute video surfaces key concepts and business ideas that remain material to many today.

*This video is just one of the offerings found in our Bank Services program designed to help board members and senior executives develop strategies to help their bank grow, while demonstrating excellence in corporate governance that shareholders and customers deserve and today’s regulators demand.