Sharing a few bank-inspired observations from Asheville, North Carolina on a glorious Saturday evening.
Reduce and Redirect
Creating Options
Earlier this week, I welcomed officers and directors from across the United States to Nashville, TN. From a stage (and not a Zoom), I asked them:
What are your options as we head into the Fall? No, not your personal ability to buy or sell an asset or security. Rather, the options you, as a leaders of your bank, see for the institution you are a part of today?
Strategically speaking, this is a fundamental issue for those in a leadership position to address.
Sure, there are topics that will dominate boardroom discussions — such as diversifying earnings streams and differentiating the bank’s reputation relative to others.
But let me ask you: who are your competitors? By extension, who are the peer groups that you should be basing your performance against? Once answering these, what options do you know are available, right now, that can put space between your bank and their business? Further, what options do you need to create in order to stay both relevant, and competitive in the months ahead?
Creating “optionality” is a concept that continues to rattle around in my mind. Indeed, it ties into the concept of franchise value and is one that members of a bank’s board need to prioritize. It opens conversations around delivery methods and channels, business relationships and partnerships — and yes, growth opportunities (be it organic or through acquisition).
As we talked about in Nashville, banks are under enormous pressure to prepare for an unknown future. Ahead of this year’s exclusive in-person event, I came up with three basic questions I find timely and relevant. Take a read and let me know if you agree.
The SouthState Podcast: My Take On Banking, Leadership and FinTech
Last week, I had the pleasure of spending a few minutes with Tom Fitzgerald and Caleb Stevens on their Community Bank Podcast. Produced by SouthState’s Correspondent Division, the two dedicate their pod to helping community bankers grow themselves, their team — and their profits. For about 23 minutes, the three of us explored:
- The hallmarks of a great business leaders;
- The biggest trends I’ve observed in banking over the last 5 years;
- The role of community banks (less than 1B in assets);
- Who’s gaining traction in the bank technology space; and
- How I feel about curiosity & empathy.
Oh yes, and I botched my ice cream analogy early on. As someone with a sweet tooth, I meant to reference Baskin & Robbins‘ 31 flavors of ice cream while talking leadership characteristics. As a child in Needham, MA, the idea that I’d have to choose between chocolate, coffee, oreo, cookie dough, etc posed a real challenge — especially as we’d go as a post-dentist treat! So when Caleb asks me about key facets of leadership in banking today, please understand my Covid-brain took me back to those fun childhood memories… which is how I wound up bellyflopping on the analogy!!
Tech Trends in Banking (Since WFH Began)
WASHINGTON, DC — Since March, I’ve talked with quite a few bank CEOs about their interest in modern and secure technologies. The underlying focus? Improving the experience provided to their customers.
In parallel to such one-on-one conversations, my colleague, Emily McCormick, surveyed 157 independent directors, chief executive officers, chief operating officers and senior technology executives of U.S. banks to understand how technology drives strategy at their institutions — and how those plans have changed due to the Covid-19 pandemic.
She conducted the survey in June and July — and we just released the results in Bank Director’s 2020 Technology Survey, sponsored by CDW. Here are a few key takeaways:
Focus on Experience
Eighty-one percent of respondents say improving the customer experience drives their bank’s technology strategy; 79% seek efficiencies.
Driving the Strategy Forward
For 64% of respondents, modernizing digital applications represents an important piece of their bank’s overall technology strategy. While banks look to third-party providers for the solutions they need, they’re also participating in industry groups (37%), designating a high-level executive to focus on innovation (37%) and engaging directors through a board-level technology committee (35%). A few are taking internal innovation even further by hiring developers (12%) and/or data scientists (9%), or building an innovation lab or team (15%).
Room for Improvement
Just 13% of respondents say their small business lending process is fully digital, and 55% say commercial customers can’t apply for a loan digitally. Retail lending shows more progress; three-quarters say their process is at least partially digital.
Spending Continues to Rise
Banks budgeted a median of $900,000 for technology spending in fiscal year 2020, up from $750,000 last year. But financial institutions spent above and beyond that to respond to Covid-19, with 64% reporting increased spending due to the pandemic.
Impact on Technology Roadmaps
More than half say their bank adjusted its technology roadmap in response to the current crisis. Of these respondents, 74% want to enhance online and mobile banking capabilities. Two-thirds plan to upgrade — or have upgraded — existing technology, and 55% prioritize adding new digital lending capabilities.
Remote Work Permanent for Some
Forty-two percent say their institution plans to permanently shift more of its employees to remote work arrangements following the Covid-19 crisis; another 23% haven’t made a decision.
Interestingly, this survey reveals that fewer banks rely on their core provider to drive their technology strategy. Forty-one percent indicated that their bank relies on its core to introduce innovative solutions, down from 60% in last year’s survey. Sixty percent look to non-core providers for new solutions. Interested to learn more? I invited you to view the full results of the survey on BankDirector.com.
When Will Bank Mergers Return?
WASHINGTON, DC — The bank M&A market is currently in a deep chill, thanks to the Covid-19 pandemic. It is unclear when deal activity will heat up, so who better to ask than Tom Michaud, the President & CEO, Keefe, Bruyette & Woods, A Stifel Company, as part of Bank Director’s new AOBA Summer Series. In this one-on-one, I ask him about:
- The banking industry’s second quarter results;
- Why bank stocks have not participated in the overall market recovery;
- The medium and long term implications of the pandemic on the industry;
- The area of Fintech he thinks will be the hottest for the balance of 2020; and
- How the November elections might impact the banking industry.
There are 10 videos in the AOBA Summer Series, with topics directed at C-suite executives or boards. We talk about how important scale has become, given compressing net interest margins, increasing efficiency ratios and climbing credit costs. We explore why banks’ technology strategy cannot be delegated. We observe why some banks will come out of this experience in a bigger, stronger position. And we look at leadership, appreciating that many executives are leading in new, more positive and impactful ways. To watch, click here.
Streaming Now: The AOBA Summer Series
Dreaming of a trip to Phoenix, and the Acquire or Be Acquired Conference, next January doesn’t seem so odd this summer.
WORKING FROM HOME — For decades, business leaders began to book their travel to the Arizona desert — for Bank Director’s Acquire or Be Acquired Conference — in early August. As evidenced by the nearly 1,400 at the Arizona Biltmore earlier this year, the annual event has become a true stomping ground for CEOs, executives and board members. Many laud it as the place to be for those that take the creation of franchise value seriously. I’ve even heard it referred to as the unofficial kickoff of banking’s new year.
Just seven months ago, Acquire or Be Acquired once again brought together industry leaders from across the United States to explore merger opportunities, acquisition trends and financial growth ideas. With 418 banks represented, participants considered strategies specific to lending, deposit gathering and brand-building. They talked regulation, met with exceptional fintechs and networked with their peers under sunny skies.
Not one openly worried about a global pandemic.
Yet here we are, all of us dealing with fast-moving challenges and unimaginable risks.
So what can we do to help?
This is the question that proved the catalyst for our new AOBA Summer Series. Indeed, we created this free, on-demand, compilation of thought leadership pieces to provide pragmatic information and real-world insight.
With CEOs and leadership teams being called upon to make decisions they have never been trained for, we realized the type of information typically shared in January has immediate merit this summer. So instead of waiting until winter, this new Summer Series provides both color and context to the tough decisions — those with profound long-term consequences — that confront executives every day.
Ten videos comprise the AOBA Summer Series, with topics appropriate for the C-suite’s or board’s consideration. Streaming on BankDirector.com, we talk about how important scale has become in the banking industry… how one’s technology strategy cannot be delegated… how it certainly seems that there will be banks that come out of this in a bigger, stronger state. Here’s a screen-grab of what you’ll come across:
In one-on-one conversations like these, we acknowledge how net interest margins are compressing — which will drive up efficiency ratios — and credit costs are climbing. And we look at leadership, appreciating that many are leading in new, more positive and impactful ways. In addition, this new series provides:
A SNAPSHOT ON CURRENT CONDITIONS
At our January Acquire or Be Acquired Conference, Tom Michaud, President & CEO, Keefe, Bruyette & Woods, A Stifel Company, provided his outlook for the industry. Now, we ask him to update his perspectives on M&A activity and share his take on the potential implications of the pandemic.
HOW FINTECHS FIT
A growing number of technology companies have been founded to serve the banking industry. Not all of them have what it takes to satisfy bankers. During various sessions we learn how a variety of banks approach innovation — and the specific attributes a leadership team should look for in a new fintech relationship.
THE LEVERS OF VALUE CREATION
With nCino’s CMO, Jonathan Rowe, our Editor-in-Chief talks about the levers of creating value vis-a-vis the flywheel of banking. Together, they explain how certain technologies promote efficiency, which promotes prudence, thereby promoting profits, which can then be invested in technology, starting the cycle all over again.
Hearing from investment bankers, attorneys, accountants, fintechs, investors and — yes, other bankers — about the outlook for growth and change in the industry proves a hallmark for Acquire or Be Acquired, be it in-person or online.
As this new series makes clear, The future is being written in ways unimaginable just a few months ago. We invite you to watch how industry leaders are making sense of the current chaos for free on BankDirector.com.
An Easy Way to Lose Sight of Critical Risks
CHICAGO — Let me ask you a question:
How does the executive team at your biggest competitor think about their future? Are they fixated on asset growth or loan quality? Gathering low-cost deposits? Improving their technology to accelerate the digital delivery of new products? Finding and training new talent?
The answers don’t need to be immediate or precise. But we tend to fixate on the issues in front of us and ignore what’s happening right outside our door, even if the latter issues are just as important.
Yet, any leader worth their weight in stock certificates will say that taking the time to dig into and learn about other businesses, even those in unrelated industries, is time well spent.
Indeed, smart executives and experienced outside directors prize efficiency, prudence and smart capital allocation in their bank’s dealings. But here’s the thing: Your biggest—and most formidable—competitors strive for the same objectives.
So when we talk about trending topics at today and tomorrow’s Bank Audit and Risk Committees Conference in Chicago, we do so with an eye not just to the internal challenges faced by your institution but on the external pressures as well.
As my team at Bank Director prepares to host 317 women and men from banks across the country this morning, let me state the obvious: Risk is no stranger to a bank’s officers or directors. Indeed, the core business of banking revolves around risk management—interest rate risk, credit risk, operational risk. To take things a step further:
Given this, few would dispute the importance of the audit committee to appraise a bank’s business practices, or of the risk committee to identify potential hazards that could imperil an institution. Banks must stay vigilant, even as they struggle to respond to the demands of the digital revolution and heightened customer expectations.
I can’t overstate the importance of audit and risk committees keeping pace with the disruptive technological transformation of the industry. That transformation is creating an emergent banking model, according to Frank Rotman, a founding partner of venture capital firm QED Investors. This new model focuses banks on increasing engagement, collecting data and offering precisely targeted solutions to their customers.
If that’s the case—given the current state of innovation, digital transformation and the re-imagination of business processes—is it any wonder that boards are struggling to focus on risk management and the bank’s internal control environment?
When was the last time the audit committee at your bank revisited the list of items that appeared on the meeting agenda or evaluated how the committee spends its time? From my vantage point, now might be an ideal time for audit committees to sharpen the focus of their institutions on the cultures they prize, the ethics they value and the processes they need to ensure compliance.
And for risk committee members, national economic uncertainty—given the political rhetoric from Washington and trade tensions with U.S. global economic partners, especially China—has to be on your radar. Many economists expect an economic recession by June 2020. Is your bank prepared for that?
Bank leadership teams must monitor technological advances, cybersecurity concerns and an ever-evolving set of customer and investor expectations. But other issues can’t be ignored either.
So as I prepare to take the stage to kick off this year’s Bank Audit and Risk Committees Conference, I encourage everyone to remember that minds are like parachutes. In the immortal words of musician Frank Zappa: “It doesn’t work if it is not open.”
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.
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:
- 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;
- How can regional and local banks boost their deposits given the biggest banks 2018 deposit gather successes;
- 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);
- The M&A outlook for 2019;
- How institutions can gain/acquire/rent the skills needed to vet and negotiate with potential FinTech partners;
- When we might see IPOs — realizing the SEC has to re-open before this occurs; and
- 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.
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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.
On the Horizon for Bank CEOs, Their Leadership Teams and Boards
WASHINGTON, DC — Can community banks out-compete JP Morgan, BofA and Wells Fargo? This is the elephant in the room awaiting 853 bank executives and board members — representing 432 Banks — at our upcoming Acquire or Be Acquired Conference. The lights don’t officially come up on our 25th annual event at the JW Marriott Phoenix Desert Ridge until Sunday, January 27. So in advance, three big questions I anticipate fielding in the desert.
Does 2019 Become the Year of BigTech?
As noted by H2 Ventures and KPMG, Amazon is providing payment services and loans to merchants on its platform, while Facebook recently secured an electronic money licence in Ireland. Alibaba, Baidu and Tencent have become dominant operators in China’s $5.5 trillion payments industry. Add in Fiserv’s recent $22B acquisition of First Data and Plaid’s of Quovo and we might be seeing the start of a consolidation trend in the financial technology sector. Will such investments and tie-ups draw the attention of big technology companies to the financial services industry?
Has the window to sell your bank already closed?
When I heard the rumor that BBVA might be buying UK-based Atom Bank — one of the proverbial European challenger banks — I started to look at acquisition trends here in the U.S. Case-in-point, we put together the following graphic in December for BankDirector.com
We know that some community banks have been holding out hopes of higher pricing multiples or for a strategic partner. These institutions might find the window of opportunity to stage an exit isn’t as open as it was just a few years ago. This doesn’t mean the window has shut — but I do think an honest assessment of what’s realistic, at the board level, is appropriate.
Wither the bond market?
A NY Times op-ed piece posits that the bond market reveals growing cracks in the financial system. Authored by Sheila Bair, the former chairwoman of the FDIC, and Gaurav Vasisht, director of financial regulation at the Volcker Alliance, it warns that “regulators are not doing enough to make sure that banks are prepared.” While the duo calls for thicker capital cushions for big banks and tighter leveraged loan underwriting standards, I wonder how executives joining us in Arizona feel about this potential threat to our economy?
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As the premier bank M&A event for bank CEOs, senior management and board members, Bank Director’s 25th annual Acquire or Be Acquired Conference brings together key bank leaders from across the country to explore merger & acquisition strategies and financial growth opportunities. If you’re joining us in the desert, I’ll share a few FYIs later this week. If you’re unable to join us in Phoenix, AZ, I’ll be tweeting from @aldominick and using #AOBA19 when sharing on social platforms like LinkedIn.
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…
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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.
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.
About That Ratio 