On Bank Branches and a Bank’s Brand

When I think about top performing banks, I typically consider those with the strongest organic growth in terms of core revenue, core noninterest income, core deposit growth and loan growth.  Sure, there has been a lot of talk about growing through acquisition (heck, last week’s post, “Seeking Size and Scale” looked at BB&T’s recent acquisitions and my monthly column on BankDirector.com was entitled “Why Book Value Isn’t the Only Way to Measure a Bank“).  But going beyond M&A, I’m always interested to dive into the strategies and tactics that put profits on a bank’s bottom line.

Build Your Brand or Build Your Branch

Earlier in the week, KBW’s Global Director of Research and Chief Equity Strategist, Fred Cannon, shared a piece entitled “Branch vs. Brand.”  As he notes, “branch banking in the U.S. is at an inflection point; the population per branch has reached a record level in 2014 and is likely to continue to increase indefinitely. The volume of paper transactions peaked long ago and with mobile payment now accelerating the need for branches is waning. As a result, many banks see closing branches as a way to cut costs and grow the bottom line. However, branches have served as more than transactional locations for banks. The presence of branch networks has projected a sense of identity, solidity and ubiquity to customers that has been critical to maintaining a bank’s brand.”  He then poses this doozy of a question:

“If branch networks are reduced, what is the replacement for a bank’s identity?”

Fred and his colleagues at KBW believe banks need to replace branches with greater investments in brand. As he shares, “some of this investment will be in marketing, (as) a brand is more than a logo. We believe banks will also need to invest in systems, people, and processes to project the sense of identity, solidity, and ubiquity that was projected historically by branch networks.”

United Bank, An Example of a High-Performing Bank

One example of a bank that I think is doing this well is United Bank.  On Wednesday, I had the chance to check out their new financial center in Bethesda, MD.  With dual headquarters in Washington, DC and Charleston, WV, the $12.1 billion regional bank holding company is ranked the 48th largest bank holding company in the U.S. based on market capitalization. NASDAQ-listed, they boast an astonishing 41 consecutive years of dividend increases to shareholders – only one other major banking company in the USA has achieved such a record.  Their acquisition history is impressive — as is their post-integration success.  United continues to outperform its peers in asset quality metrics and profitability ratios and I see their positioning as an ideal alternative to the offices Wells Fargo, SunTrust and PNC (to name just three) operate nearby.

A Universal Priority

Clearly, United’s success reflects a superior long-term total return to its shareholders.  While other banks earn similar financial success, many more continue to wrestle with staying both relevant and competitive today.  Hence my interest in Deloitte’s position that “growth will be a universal priority in 2015, yet strategies will vary by bank size and business line.”  A tip of the hat to Chris Faile for sharing their 2015 Banking Outlook report with me.  Released yesterday, they note banks may want to think about:

  • Investing in customer analytics;
  • Leveraging digital technologies to elevate the customer experience in both business and retail banking;
  • Determining whether or not prudent underwriting standards are overlooked; and
  • Learning from nonbank technology firms and establish an exclusive partnership to create innovation and a competitive edge.

With most banks exhibiting a much sharper focus on boosting profitability, I strongly encourage you to see what they share online.

Aloha Friday!

Who Says There Is No Growth In Banking

Two big takeaways from the second day of Bank Director’s 2nd annual Growth conference (#BDGrow14): institutions of all sizes are challenged when it comes to standing out from the crowd & enhancing your mobile banking presence should be a top priority for all boards of directors.

A 2 Minute Recap on the Past 4 Months

 

Take No Risk, Make No Money
While some may not think about enterprise risk management in the context of growing one’s bank, Crowe’s Jennifer Burke made clear that proactively identifying, mitigating, and in some cases, capitalizing on risks provides a distinct advantage to a bank.  Keep in mind that even smaller institutions — with less complex business structures — face myriad risks that might significantly affect their ability to meet their growth plans.  As Jennifer shared, those that proactively identify and respond to risks and opportunities gain a competitive advantage over their peers, especially in responding to our ever-changing business environment.

Millennial and the End of Banking?

The Times-Picayune ran a nice story in today’s edition based on The Growth Conference.  The newspaper noted that “younger generations report more comfort with online and mobile banking tools, posing a hurdle for banks used to ginning up business through face-to-face interactions.”  So it is fair to ask if banks should be scared of the millennial generation.  According to Daryl Byrd, president and CEO of IberiaBank, the answer is no.  As mentioned in this piece (Will Millennials be the end of banking as we know it? Bank execs weigh in at Growth Conference in New Orleans), Byrd was among a panel of industry leaders gathered at the Bank Director Growth Conference to discuss business trends, including the challenges in reaching younger customers.  Byrd, “who noted he is the father of three Millennials, said his children, like many in their generation, aren’t building wealth as much as they are taking on debt. That means their demand for banking services will be limited in the near term,” he said.

Trending Topics

The issues I took note of this morning were, in no particular order:

  • Just like “synergy” became a cliché, so too might “omni” when it comes to delivering a consistent customer experience (e.g. omni-screen, omni-channel, etc);
  • Not all customers are created equally;
  • A bank’s board has the chance to re-set strategies to target, acquire, engage, grow and retain customers… but need to look ahead to what’s possible as opposed to the past to see what has historically delivered results.

To comment on this piece, click on the green circle with the white plus sign on the bottom right. Safe travels home to all who joined us in New Orleans this week (and yes, Aloha Friday!)

The Single Greatest Constraint on Growth

With the revenue pressures facing the banking industry being some of the most intense in decades, banks need to think more constructively about their businesses. At the same time, changing consumer behavior could drive the industry to reallocate its resources to less traditional growth channels in order to stay ahead.  In my view, the words of an English naturalist reflect the single greatest constraint on growth today.

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Powerful Forces

One of our long-term corporate sponsors, PwC, recently shared their thoughts on the future of the retail banking industry.  In their view, “powerful forces are reshaping the banking industry, creating an imperative for change. Banks need to choose what posture they want to adopt – to lead the change, to follow fast, or to manage for the present. Whatever their chosen strategy, leading banks will need to balance execution against… critical priorities and have a clear sense of the posture they wish to adopt.”  If you, like our friends from PwC, are joining us in New Orleans later this week to dive into this very topic, their compelling “Retail Banking 2020” report might make for good airplane company.

Looking Back in Order to Look Ahead

Last year, John Eggemeyer, a Founder and Managing Principal of Castle Creek Capital LLC, helped me to kick off our inaugural Growth Conference.  As a lead investor in the banking industry since 1990, he shared his views on our “mature industry,” That is, banking follows a historic pattern of other mature industries: excess capacity creates fierce competition for business which in turn makes price, not customer service, the key differentiator.  While offering myriad thoughts on what makes for a great bank,  John did share some hard-to-swallow statistics and opinions for a crowd of nearly 200 bankers and industry executives:

  • Publicly traded banks from $1 billion to $5 billion in assets saw their stock values rise at about half the rate of the broader market as a whole since early 2009.
  • Of the 300 or so publicly traded banks in that size range, only about 60 of them traded at their pre-recession price multiples.
  • In the last 40 years, bank stocks always followed the same pattern in a recession: falling in value quicker than the rest of the market and recovering quicker.

I share these three points to provide context for certain presentations later this week.  Some build on his perspectives while others update market trends and behavior.  Still, an interesting reminder of where we were at this time last year.

Getting Social-er

Yesterday, I shared the hashtag for The Growth Conference (#BDGrow14).  Thanks to our Director of Research — @ehmccormick — and Director of Marketing — @Michelle_M_King — I can tell you that nearly 30% of the attending banks have an active twitter account; 78% of sponsors do.  On the banking side, these include the oldest and largest institution headquartered in Louisiana — @IBERIABANK, a Connecticut bank first chartered in 1825 with over $3.5 billion in assets — @LibertyBank_CT and a Durham, NC-based bank that just went public last month — @Square1Bank.  On the corporate side of things, one of the top marketing and communications firms for financial companies —@wmagency, a tech company that shares Bank Director’s love of orange — @Fiserv and a leading provider of personal financial management — @MoneyDesktop join us.  Just six of many institutions and service providers I’m looking forward to saying hello to.

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More to come — from New Orleans, not D.C. — tomorrow afternoon.

Its Growth Week

Its finally here… “Growth Week” at Bank Director.  Yes Discovery Channel, you can keep your shark week.  What we’re about to get into is far more interesting (at least, to some): what’s working in banking today.  Most of our team heads down to the Ritz-Carlton in New Orleans tomorrow and Wednesday for our 2014 Growth Conference.  Before they do, the first of five posts dedicated to building a business.

Growth-Key-Card-1

Think Distinct

Innovation means doing things differently.  Not just offering new products or offerings — but doing things differently across the entire business model.  Going into this event, I know many believe there are simply too many banks offering similar products and services.  I tend to think institutions are challenged when it comes to being distinctive compared with the competitor across the street.  This is not a new issue; however, there are more and more strategies emerging and enablers coming to market that can drive brand value, customer satisfaction and profitable growth.  Case-in-point: the work of our friends at StrategyCorps, whose idea is “be bold… go beyond basic mobile banking.”  One of the sponsors of the conference, I am excited to hear how  financial institutions, like First Financial, benefit from their mobile & online consumer checking solutions in order to enhance customer engagement and increase fee income.

Looking Back in Order to Look Ahead

While easy to frame the dynamics of our industry in terms of asset size, competing for business today is more of a “smart vs. not-so-smart” story than a “big vs. small.” During one of my favorite sessions last year — David AND Goliath — Peter Benoist, the president and CEO of St. Louis-based Enterprise Financial Services Corp, reminded his peers that as more banks put their liquidity to work, fierce competition puts pressures on rates and elevates risk.  As I went back to my notes in advance of this week’s event, my biggest takeaway from his presentation was we all talk about scale and net interest margins… but it’s clear that you need growth today regardless of who you are.  It is growth for the sake of existence.

Getting Social

To keep track of the conversation pre-, on-site and post-event on Twitter, use #BDGrow14 and/or @bankdirector + @aldominick.  In addition, I plan to post every day this week to About That Ratio, with tomorrow’s piece touching on the diminished importance of branch networks to underscore the importance of investments in technology.

FI Tip Sheet: Positive Trends

A few weeks ago, to begin “The Innovator’s Dilemma,” I shared the need for banks to think differently or risk becoming obsolete.  This morning’s column builds on that idea by looking at some of the characteristics of top performing publicly held banks based on a research piece shared by Raymond James.  I studied this list and realized quite a few of the “winners” leverage design trends, the second point in today’s post, to differentiate their messaging.  My third and final point looks at technology expertise making its way into a bank’s boardroom — and provides an excuse to post a number of pictures from my time in Nashville last week. 

Top of the (Performance) Pack
Recently, Raymond James presented its second annual Community Bankers Cup.  This “award” recognizes the top 10% of community banks based on various profitability, operational efficiency and balance sheet metrics culled from a pool of 302 publicly traded community banks with assets between $500 million and $10 billion.  What we see in the firm’s recap is superior financial accomplishment drives superior stock price returns.  These 30 banks (e.g. Eagle Bancorp, First Financial, etc.) demonstrated exceptional results “on a relative basis in one or more of the following measurements of financial performance and stability: non-performing assets to loans and real estate owned, five-year average core deposit percentage, net interest margin, efficiency ratio, return on average assets, and return on average tangible common equity.”  If you are looking for examples of strong + healthy banks that have taken creative ideas to build a business, and subsequently monetized them, take a look at what the Raymond James team writes about these 30 institutions.

Ahead of the Curve
Since the beginning of the most recent global financial crisis in 2008, Getty Images has been tracking the changes in imagery used by financial services providers to represent their brand.  In their words, “gone are the depictions of aspiration and conspicuous wealth as financial services brands try to re-establish trust with their customers.”  In their place comes creative uses of community support “set-up for the long-term to  demonstrate their responsibility for local businesses, communities and the environment.”  Take a look at this “visual trends in financial services marketing” to get a truer sense of what’s working for bank marketers today.

 

Surprisingly Staffed
Last week, our team welcomed 117 bank officers and directors to the Hermitage in Nashville.  At this spectacularly Southern hotel, we went a bit old school and put pen + paper in front of these decision makers to ask five technology-specific questions.  I don’t normally equate technical proficiency with a bank’s officers and directors; however, the vast majority of attendees shared that their executive team has at least two people with strong technology understanding/experience.  While a small sample size, more then 50% of these key leaders responded to our query… and the results underscore, in my opinion, the importance being placed on  technology at community banks.  In addition, I did hear from several Chairmen that they are adding outside directors with an understanding of issues like cyber security risk and how to oversee vendor management.  If you’re interested to see what an event looks like from my POV, here’s a look (photos courtesy of Don Wright Designs & Photography)

Aloha Friday!

To Zig or Zag

While President Obama’s nomination of Federal Reserve Vice Chair Janet Yellen to lead the central bank garnered significant attention this week, the twittersphere was ablaze with news on emerging payments and financial services.  Personally, I focused a lot of my time on retail banking, advertising and marketing stories — a pleasant diversion from the political showdown here in Washington.  Accordingly, this week’s column highlights the creative side of building relationships and engaging with potential customers.  Please let me know what you think via Twitter (@aldominick) or by commenting below.

(1) How Do You Introduce a Mobile-Only Bank? With a Mobile Orchestra, Of Course.  Now, I realize most banks in the U.S. have nowhere near the budget needed for an advertisement like this. Still, BNP Paribas‘ “Hello Bank!” — which claims to be Europe’s first fully digital mobile bank — pulls off “a smart orchestra stunt.” According to AdAge, “the campaign brought together the talents from the musical and tech world for a one-of-a-kind performance by the orchestra that showed what you could do with just your mobile phone.”  Taped during a performance in Prague, the Czech National Symphony Orchestra’s 60 musicians put aside their instruments for a special performance of “Carmen.”  Take a look:

(2) From your ears to your eyes, a test of your social media savvy: #PACYOURBAGS. Do you get the hashtag?  Here’s a hint: this is a promotion run by Bank of the West (a wholly owned subsidiary of BNP Paribas).  Still confused?  While many still wrestle with a social media strategy, the San Francisco-based bank has taken to Instagram and Facebook to offer exclusive Pac-12 content — including news, events and videos — to better engage with current and potential customers under this hashtag.

Bank of the West hashtag

Visit their Facebook page and you’ll be invited to “capture any great moments from this week’s college football games… Tag them with #PACYOURBAGS on Instagram to enter and you could win $250 and a trip for two to the Rose Bowl Stadium on 1/1/14!”  Dare I say, #Cool.

(3) From Prague to the Pac-12, we’ve covered a lot in a short amount of time.  To wrap things up, let me share a story closer to home.  This one involves a few plucky upstarts taking on the biggest of the big.  No, this isn’t a tale of a community bank competing head on with Bank of America; rather, a link to an article that shows multiple startups trying to disrupt various sectors within the consumer goods industry.  Much like their BofA and Wells Fargo brethren, P&G and Unilever “have scale but are under constant assault from savvy upstarts.”  Yes, I’m drawing a parallel between the razor blades you might find in your bathroom to the battle for bank customers vis-a-vis “How Tiny Startups Like Hello and 800Razors Are Stealing Share From CPG Giants.” The premise: “smaller brands’ ability to break through goes to digital disruption in media and retailing.”  An interesting parallel, especially for those bankers willing “to zig away from the strategic and creative zags of category titans.”

Aloha Friday!

Do we have enough banks in the U.S.?

Pirates-baseballAs I do each Friday morning, what follows are three things I’ve learned this week that apply to the financial community.  Let me start with the inspiration for today’s title and end with that for the picture of Pittsburgh’s PNC Park above.

(1) I’ve shared ideas from KBW’s Fred Cannon in the past; let me do so again based on a note he put out this Monday (FSW No New Bank Charters) that I strongly encourage you to read.  In my opinion, Fred is at the top of his field, so when he looks at the decline in new bank charters during the last two years (to zero) and wonders if we have enough banks in place today, its a thought provoking question.  To wit:

U.S. banking is being squeezed from the top, with high levels of concentration, and from the bottom, with no new banks, creating a less dynamic financial sector.  While regulators and legislators worry about the size and concentration of the largest banks, there is an equally concerning trend on the opposite side of the bank size spectrum. There have been no new bank or thrift charters issued during the past two years. This trend stands in sharp contrast to history, with dozens to hundreds of new banks starting each year, including during years of deep recessions. The lack of new bank startups may be causing limited competition for loans for small regional businesses and builders and pushing lending outside the banking system, essentially meaning that there aren’t enough banks in the country to promote maximum economic growth. Concentration and limits on size at the top end, and the dearth of new banks at the small end, will push greater market share of banking into mid-sized banks, in our view. This is good news for profitable mid-sized banks that can take advantage of both trends.

(2) t_1368782681Switching gears to the biggest of the big, we might have to honor Jamie Dimon by making it “his” week if the amount of media coverage continues for the man.  From American Banker to Bloomberg’s Businessweek to the WSJ, not a day went by without some mention of Wall Street’s “Indispensable Man.”  With JPMorgan Chase & Co.’s annual meeting in Tampa next week, our own editor thinks it should be a doozy for Chairman and CEO Jamie Dimon and the company’s 11-member board. The country’s largest bank has come in for some withering criticism ever since it lost a reported $6 billion last year on a disastrous credit derivatives trading strategy.  Ah, trading credit derivatives… I wonder if they will soon replace collateralized debt obligations as the scorn of the American public.

(3) Finally, a tip of the cap to Mars National Bank near Pittsburgh for “tapping a native son’s ties to America’s pastime to raise its local profile.”  According to a piece in the American Banker, the $351 million-asset institution in Mars, Pa., has formed a marketing campaign around pitchman Neil Walker, 27, a second baseman for the Pittsburgh Pirates who grew up seven miles away from the bank’s headquarters.  Mars National is “among several banks that have recently turned to sports stars to build business and spur goodwill;” for those interested in examples of how smaller banks are working to build brand loyalty in their community, this is an easy read that might inspire.

Aloha Friday!