How Capital One Can Inspire Your Digital Efforts

While venture-backed fintech firms continue to garner attention for being “ahead of the times,” don’t sleep on the franchise being built by Capital One.

By Al Dominick // @aldominick

Should you look at the term “innovation” and disassociate it with the banking sector, you are forgiven.  But innovative is exactly the description I favor for Capital One Financial Corp. (NYSE: COF), especially as I define the term as an ability to monetize creative ideas, products and processes.  Indeed, the McLean, VA-based bank ranked first among the 20 publicly-traded banks with assets of more than $50 billion in Bank Director magazine’s annual Bank Performance Scorecard and is widely considered at the forefront of taking a technology-based, consumer-centric focus to banking.

As we see in their financial performance, Capital One managed to increase net income and benefited from the high profitability of a substantial credit card operation and the stable funding of a regional banking franchise.  As you can read, the company rated highly on traditional profitability metrics: they posted a return on average assets (ROAA) of 1.53, a return on average equity (ROAE) of 10.33 and a Tangible Common Equity ratio of 9.82.  So while various fintech companies make news for their valuations (*hello Stripe, which received major funding from Visa and other investors, valuing the startup at $5 billion) or loan volume (**hola Lending Club, which originated nearly $2 billion in loans during Q2), I’m paying attention to Capital One’s performance.

Nonetheless, their financial numbers don’t tell the whole story.

As our editor, Jack Milligan, writes in “How Young and Hungry Fintech Companies are Disrupting the Status Quo,” the digital financial services space “is exploding in activity as new technology companies push their way into markets and product lines that traditionally have been the banking industry’s turf.” To this point, many bank executives should take note of Capital One’s focus on technology and its business model.  Its CEO, Richard Fairbank, is focused on leading the digital transformation of banking and is not shy in stating that “the winners in banking will have the capabilities of a world-class software company.  Most of the leverage and most of our investment is in building the foundational underpinnings and talent model of a great digital company.  To succeed in a digital world (you) can’t just bolt digital capabilities onto the side of an analog business.”

Cases in point, Capital One acquired money management app Level Money earlier this year to help consumers keep track of their spendable cash and savings.  Prior to that, they acquired San Francisco-based design firm Adaptive Path “to further improve its user experience with digital.”  Over the past three years, the company has also added e-commerce platform AmeriCommerce, digital marketing agency Pushpoint, spending tracker Bundle and mobile startup BankOns.  Heck, just last summer, one of Google’s “Wildest Designers” left the tech giant to join the bank.

More and more banks are realizing that they have to fundamentally change to keep up with the industry’s digital transformation.  But shifting an organizational structure — and culture — to become more focused on what customers want and expect in an increasingly digital age is no simple task.  Not everyone can offer a broad spectrum of financial products and services to consumers, small businesses and commercial clients like Capital One does.  But all can certainly learn from the investments, partnerships and efforts being made by this standout institution.

In case you’re wondering…

Bank Director’s Bank Performance Scorecard uses five key metrics that measure profitability, capitalization and asset quality. ROAA and ROAE are used to gauge each bank’s profitability.  KeyCorp (NYSE: KEY), of Cleveland, ranked second, and rated highest for capital adequacy, with a TCE ratio of 9.87. In third place, U.S. Bancorp (NYSE: USB), of Minneapolis, topped the profitability metrics with a 1.55 ROAA and 13.53 ROAE. Wells Fargo & Co. (NYSE: WFC) and Comerica Inc. (NYSE: CMA) rounded out the top five.

What To Do With FinTech

For the 699 financial institutions over $1Bn in asset size today, the drive to improve one’s efficiency ratio is a commonly shared goal.  In my mind, so too should be developing relationships with “friendly” financial technology (FinTech) companies.

By Al Dominick // @aldominick

Small banks in the United States — namely, the 5,705 institutions under $1Bn in assets* — are shrinking in relevance despite their important role in local economies.  At last week’s Bank Audit & Risk Committees Conference in Chicago, Steve Hovde, the CEO of the Hovde Group, cautioned some 260 bankers that the risks facing community banks continue to grow by the day, citing:

  • The rapid adoption of costly technologies at bigger banks;
  • Declining fee revenue opportunities;
  • Competition from credit unions and non-traditional financial services companies;
  • Capital (in the sense that larger banks have more access to it);
  • An ever-growing regulatory burden; and
  • The vulnerability all have when it comes to cyber crime.

While many community banks focus on survival, new FinTech companies have captured both consumer interest and investor confidence.  While some of the largest and most established financial institutions have struck relationships with various technology startups, it occurs to me that there are approximately 650 more banks poised to act — be it by taking the fight back to competitive Fintech companies or collaborating with the friendly ones.

According to John Depman, national leader for KPMG’s regional and community banking practice, “it is critical for community banks to change their focus and to look for new methods, products and services to reach new customer segments to drive growth.”  I agree with John, and approach the intersection of the financial technology companies with traditional institutions in the following manner:

For a bank CEO and his/her executive team, knowing who’s a friend, and who’s a potential foe — regardless of size — is hugely important.  It is also quite challenging when, as this article in Forbes shows, you consider that FinTech companies are easing payment processes, reducing fraud, saving users money, promoting financial planning and ultimately moving our giant industry forward.

This is a two-sided market in the sense that for a FinTech founder and executive team, identifying those banks open to partnering with, investing in, or acquiring emerging technology companies also presents great challenges, and also real upside.  As unregulated competition heats up, bank CEOs and their leadership teams continue to seek ways to not just stay relevant but to stand out.  In my opinion, working together benefits both established organizations and those startups trying to navigate the various barriers to enter this highly regulated albeit potentially lucrative industry.

*As of 6/1, the total number of FDIC-insured Institutions equaled 6,404. Within this universe, banks with assets greater than $1Bn totaled 699. Specifically, there are 115 banks with $10Bn+, 76 with $5Bn-$10Bn and 508 with $1Bn – $5Bn.

Bank Mergers and Acquisitions

“The reality is organic growth is tough,’’ said Chris Myers, the president and CEO of the $7.2-billion Citizens Business Bank in Ontario, California, who spoke at our Acquire or Be Acquired conference in January.  His bank is one of those in the “sweet spot” for higher valuations and higher profitability, but even he feels the pressure to grow. “A lot of banks are stretching to try to grow [loans] and do things they wouldn’t have done in the past,’’ he said, commenting on the competition for good loans. “ We are going to need to do some acquisitions.”

By Al Dominick // @aldominick

The classic build vs. buy decision confronts executives in every industry.  For bank CEOs and board members today, mergers and acquisitions (M&A) remain attractive inasmuch as successful transactions improve operating leverage, earnings, efficiency and scale.  While I recently wrote that the best acquisition a bank can make is of a new customer, today’s post looks at what’s happening with bank M&A by sharing a few of my monthly columns that live on BankDirector.com:

  • Why Big Banks Aren’t Merging — with global companies announcing huge acquisitions, I look at where the banking industry is today.
  • Stressed Into Selling — after the largest U.S.-based banks passed the Federal Reserve’s stress tests, I write about modeling various economic conditions that might help a bank’s board to anticipate potential challenges and opportunities.
  • Don’t Sell The Bank —  figuring out when a bank should be a buyer—or a seller—had been on my mind since the Royal Bank of Canada announced a deal for “Hollywood’s bank,” City National, and this piece explored why now is not the time to sell.
  • Why Book Value Isn’t the Only Way to Measure a Bank — as the market improves and more acquisitions are announced, why I expect to see more attention to earnings and price to earnings as a way to value banks.
  • Deciding Whether to Sell or Go Public — while the decision to sell a company weighs heavily on every CEO, there comes a point where a deal makes too much financial and cultural sense to ignore.

In addition to these five columns, I invite you to read this month’s column, “Mind These Gaps,” which posts today on BankDirector.com.  It focuses on various pitfalls that have upended deals that, on paper, looked promising (e.g. due diligence and regulatory minefields, the loss of key talent/integration problems and bad timing/market conditions).  With perspectives from some of the country’s leading investment bankers and attorneys, it is one I’m pleased to share.  Don’t worry, unlike other sites, there is no registration — or payment — required.

Looking for Great FinTech Ideas

A fundamental truth about banking today: individuals along with business owners have more choices than ever before in terms of where, when and how they bank. So a big challenge — and dare I suggest, opportunity — for leadership teams at financial institutions of all sizes equates to aligning services and product mixes to suit core customers’ interests and expectations.

By Al Dominick // @aldominick

Sometimes, the temptation to simply copy, paste and quote Bank Director’s editor, Jack Milligan, is too much for me to resist. Recently, Jack made the case that the distinction between a bank and a non-bank has become increasingly meaningless.  In his convincing words:

“The financial service marketplace in the United States has been has crowded with nonbank companies that have competed fiercely with traditional banks for decades. But we seem to be in a particularly fecund period now. Empowered by advances in technology and data analysis, and funded by institutional investors who think they might offer a better play on growth in the U.S. economy than traditional banks, we’re seeing the emergence of a new class of financial technology – or fintech – companies that are taking dead aim at the consumer and small business lending markets that have been banking industry staples for decades.”

Truth-be-told, the fact he successfully employed a word like ‘fecund’ had me hunting down the meaning (*it means fertile).  As a result, that particular paragraph stuck in my mind… a fact worth sharing as it ties into a recent Capgemini World Retail Banking Report that I devoured on a tremendously turbulent, white-knuckling flight from Washington, D.C. to New Orleans this morning (one with a “minor” delay in Montgomery, AL thanks to this morning’s wild weather).

Detailing a stagnating customer experience, the consultancy’s comprehensive study draws attention “to the pressing problem of the middle- and back-office — two areas of the bank that have not kept pace with the digital transformation occurring in the front-office. Plagued by under-investment, the middle- and back-offices are falling short of the high level of support found in the more advanced front-offices, creating a disjointed customer experience and impeding the industry’s ability to attract, retain, and delight customers.”

Per Evan Bakker for Business Insider, the entirety of the 35-page report suggests “banks are facing two significant business threats. First, customer acquisition costs will increase as existing customers are less likely to refer their bank to others. Second, banks will lose revenue as customers leave for competitors and existing customers buy fewer products. The fact that negative sentiment is global and isn’t limited to a particular type of customer activity points to an industry wide problem. Global dissatisfaction with banks is likely a result of internal problems with products and services as well as the growing number of non-bank providers of competing products and services.”

While dealing with attacks from aggressive, non-bank competitors is certainly not a new phenomenon for traditional banks, I have taken a personal interest in those FinTech companies looking to support (and not compete with) financial institutions.  So as I set up shop at the Ritz-Carlton New Orleans through Wednesday for our annual Bank Board Growth & Innovation conference, let me shine the spotlight on eight companies that may help address some of the challenges I just mentioned. While certainly just the tip of the FinTech iceberg, each company brings something interesting to the table:

As unregulated competition heats up, bank CEOs and their teams need to continue to seek ways to not just stay relevant but to stand out.  While a number of banks seek to extend their footprint and franchise value through acquisition, many more aspire to build the bank internally. Some show organic growth as they build their base of core deposits and expand their customer relationships; others see the value of collaborating with FinTech companies.  To see what’s being written and said here in New Orleans, I invite you to follow @bankdirector, @aldominick + #BDGrow15.

The Fight for Relevancy

I’m sure it is really simple for those not invested in the future of banking to write that CEOs, their boards and executive teams should cut branches and full-time employees to make their banks more efficient.  But I’m of the belief that you can’t save your way to long-term profitability and viability — and not everyone can be like Capital One and reinvent their business model from digital to analog on the fly.

Last October, Richard Fairbank, the Chairman and CEO of Capital One, expressed the following opinion on an earnings call: “Ultimately, the winners in banking will have the capabilities of a world-class software company. Most of the leverage and most of our investment is in building the foundational underpinnings and talent model of a great digital company. To succeed in a digital world (you) can’t just bolt digital capabilities onto the side of an analog business.”  Now, I am a big believer that many banks have immediate opportunities to expand what banking means to individual and business customers. Heck, I wrote as much to open a special supplement to Bank Director magazine that highlights a number of interesting technologies that have re-shaped the fortunes of banks across the U.S.  As you can see in the graphic above (produced for and by our team), the intersection of financial services with technology tools is immense.

Nonetheless, the interaction, communication, coordination and decision-making in regulated banks is vastly different than those of an up-and-coming technology company.  No matter how much both sides want to work with the other (to gain access to a wider customer footprint, to incorporate emerging technologies, etc.), the barriers to both entry and innovation are high.

Keep in mind that there has been an enormous shift in asset concentration and customer loyalty during the past two decades. Today, the ten biggest banks in the U.S. now have more assets than all of the other institutions combined. Concurrently, major consumer brands such as Apple and Google have emerged as significant non-bank competitors while “upstarts” like LendingClub and OnDeck jockey to provide loans to traditional bank customers.

So to stay both relevant and competitive, I believe a bank’s leadership team needs to develop a culture of disciplined growth that encourages creativity and yes, risk taking.  For a leadership team, this requires a combination of knowledge, skill and courage — all things we designed our annual Bank Board Growth & Innovation Conference at the Ritz-Carlton New Orleans to provide (*fwiw, this is a complement to our annual M&A conference — Acquire or Be Acquired).

In the coming days, I’ll be looking at how the processes of interaction, communication, coordination and decision-making in a regulated bank are vastly different than those of a tech firm.  Cleary, the fight for relevancy is on in the banking space… and to see what’s being written and said, I invite you to follow @bankdirector, @aldominick + #BDGrow15.

Mid-April Bank Notes

I recently wrote How the Math Works For Non-Financial Service Companies.  Keeping to the quantitative side of our business, I’m finding more and more advisors opining that banks of $500 – $600M in asset size really need to think about how to get to $2B or $3Bn — and when they get there, how to get to $7Bn, $8Bn and then $9Bn.  With organic growth being a bit of a chore, mergers and acquisitions remain a primary catalyst for those looking to build.  But what happens if you don’t have a board (or shareholder base for that matter) that understands what it takes to grow a company through acquisitions?  This question — not deliberately rhetorical — and two more observations, form today’s post.

A Collection of Individual Relationships

Just because a bank is in a position to consider a merger or acquisition doesn’t mean it is always the best approach to building a business.  This thought crossed my mind with Nashville-based Pinnacle Bank’s recent acquisition of Chattanooga’s CapitalMark Bank & Trust — the first deal struck by the bank in the last eight years (h/t to my fellow W&L’er Scott Harrison at the Nashville Business Journal for his writeup).  Run by Terry Turner, the bank enjoys a great reputation as a place to work and business to invest in.  As Terry shared with the audience at this year’s Acquire or Be Acquired conference, he doesn’t hire someone who’s been shopping their resume, a point that stuck with me and resonated with a number of other executives I was seated near.  So when I think of team building, his institution is one I hold in high regard.

The same can be said for First Republic, who like Pinnacle, is known for organic growth and fielding a standout team.  The bank recently posted a 90 second video from its CEO and Founder, Jim Herbert, that gives his thoughts on culture and teamwork.  Having written about Jim as part of a “Best CEO” series, this clip highlights the foundation for their continued success.

General Electric decides it no longer needs to be a bank

If you somehow missed GE’s announcement, the Wall Street Journal reported this is the conglomerate’s most significant strategic move in years.  While I will let others weigh in on the long-term benefits in selling its finance business that long accounted for around half the company’s profits, it was nice to see our friends at Davis Polk advising GE through the sale of most of GE Capital’s assets.  So the assets of the 7th largest bank in the country, some $500 billion in size, will be sold or spun off over the next two years.  Why?  “The company concluded the benefits aren’t worth bearing the regulatory burdens and investor discontent.”  Feel free to share your comments on this below.

How the Math Works for Non-Financial Service Companies

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

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

The unfortunate answer?

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

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

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

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

Finding That Competitive (FinTech) Edge

On a flight to Boston yesterday morning, I found myself reading various research and analyst reports about forces effecting change on the banking community.  As Bruce Livesay, executive vice president and chief information officer for First Horizon National Corp. in Memphis, Tennessee recently shared with our team, “you can’t have a discussion about banking without having a discussion about technology.”  As such, today’s piece about finding your FinTech edge.

A simple truth with a profound impact: the interaction, communication, coordination and decision-making in a large, regulated bank is vastly different than those of an up-and-coming FinTech company.  No matter how much both sides want to work with the other (to gain access to a wider customer footprint, to incorporate emerging technologies, etc.), the barriers to both entry and innovation are high.  Still, the need for institutions to better target customer segments while rolling out product offerings that differentiate and cross-sell naturally intersect with the use of technology.

Over the past few months, I’ve looked at nine technology companies that I think are doing interesting work (you can find write ups here, here and here).  As I go deeper into this space, I realize defining the FinTech sector might prove as elusive as understanding the genesis of each company’s name.  Still, let me take a crack at it and define “FinTech” as those financial technology companies that sell or enable:

  • Acquisition & engagement tools
  • Mobile payments offerings
  • Lending options
  • Security products
  • Wealth management support
  • Analytics
  • Money transfers
  • Asset management
  • Automated planning / advice

Regardless of the FinTech companies populating each product line, it is clear that the cumulative effect is a transformation of the fabric of the financial industry.   As I read in a recent Deloitte report (2015 Banking Industry Outlook), FinTech applies not just to customer-facing activities, but also to “internal processes, including balance sheet management, risk, and compliance.”  Moreover, learning from non-bank technology firms and establishing partnerships is fait accompli for most bank executives and board members today.

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As I’ve shared in the past, I am a big believer that many banks of all sizes have immediate opportunities to expand what banking means to individual and business customers.  If you’re curious for examples on what’s working — and why, take a look at this special supplement to Bank Director magazine that highlights a number of interesting technologies that have re-shaped the fortunes of various community banks.  For more on the board’s role in oversight of this important sector, take a look at our Editor, Jack Milligan’s, white paper on the topic.

Spotlight on FinTech

If forced to pick but one industry that serves as a catalyst for growth and change in the banking space, my answer is “FinTech.” As NJ-based ConnectOne Bank’s CEO, Frank Sorrentino, opined late last week, “financial institutions today operate in a constant state of reevaluation… at the same time, low interest rates and a brand new tech-driven consumer landscape have further contributed to the paradigm shift we’re experiencing in banking.” After I shared “Three FinTech Companies I’m Keen On,” I was asked who else I am taking note of in the financial technology sector; hence today’s spotlight on three additional companies.

Yodlee_logo.svg

The fabric of the banking industry continues to evolve as new technology players emerge in our marketplace.  With banks of all sizes continuing to implement innovative technologies to grow their organizations, companies like Yodlee have emerged “at  the heart of a new digital financial ecosystem.”  The NASDAQ-listed company counts 9 of the 15 largest U.S. banks as customers along with “hundreds of Internet services companies.”  These companies subscribe to the Yodlee platform to power personalized financial apps and services for millions of consumers.  With thousands of data sources and a unique, cloud platform, Yodlee aspires to transform “the distribution of financial services.” It also looks to redefine customer engagement with products like its personal financial management (PFM) service, which pulls together all of a customer’s financial information from multiple accounts.

web-Logo-Malauzai@2x

Now, technology in the financial world encompasses a broad spectrum of tools. For most officers and directors, I have found conversations about what’s happening in this space naturally incites interest in mobile banking.  So let me turn my focus to Malauzai, a company I first learned of while talking with Jay Sidhu (*Jay is the former CEO of Sovereign where he grew the organization from an IPO value of $12 million to the 17th largest banking institution in the US… he is now CEO of the very successful Customer’s Bank).  This past spring, he talked about the benefits of working with the company that was formed in 2009 to “participate in the mobile banking revolution.”  Malauzai works with about 320 community banks and credit unions across the country, providing the tools needed to connect to a customer through smartphone applications.  Specifically, the company builds mobile banking “SmartApps” that run across mobile platforms (e.g. Apple and Android) and several types of devices from smart phones to tablets.

db_logo.ba0411771e22

Certainly, many FinTech companies have a laser-like focus on individual customer needs.  Case-in-point, Openfolio, a startup that “brings the principles and power of social networks – openness, connectivity, collective intelligence – to the world of personal investing” (h/t to Brooks and Gareth at FinTech Collective for sharing their story).  Openfolio’s premise: in our sharing economy, people will divulge investing ideas and “portfolios, in percentage terms, within their networks.”  Accordingly, Openfolio provides a place where investors share insights and ideas, and watch how others put them into action. As they say, “we all learn from each other’s successes (and mistakes).”  As reported in TechCrunch, the company doesn’t reveal dollar amounts folks have invested, preferring to reveal how much weight different categories have in an investor’s portfolio to reveal information about markets.

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Personally, it is very interesting to watch companies such as these spur transformation.  If you are game to share your thoughts on FinTechs worth watching, feel free to comment below about those companies and offerings you find compelling.

Bank Director’s 2015 Acquire or Be Acquired Conference Primer

On Sunday, January 25, we kick off Bank Director’s 21st annual “Acquire or Be Acquired” Conference (@bankdirector and #AOBA15) at the luxurious Phoenician resort in Scottsdale, Arizona.  I am so very excited to be a part of this three day event — and am supremely proud of our team that is gearing up to host more than 800 men and women.  With so many smart, talented and experienced speakers on the agenda, let me share a primer on a few terms and topics that will come up.  In addition, you will find several links to recent research studies that will be cited before I share one example of the type of issues being both presented and addressed at “AOBA.”

Colorful Language

Just as M&A is a colorful — and complex — issue, so too are the words, terms and considerations used by attorneys, investment bankers and consultants in management meetings, in the boardroom or at the negotiating table.  Here are three terms I thought to both share and define in advance of AOBA (ay-o-bah):

  • Triangular merger: This happens when the acquirer creates a holding company to acquire the target and both the acquirer and the target become subsidiaries of the holding company.
  • Cost of capital: You could say this is the cost to a company of its capital, but another way to look at it simply is this: the minimum return you need to generate for your investors, both shareholders and debt holders. This is what it costs you to operate and pay them back for their investment.
  • Fixed exchange ratio: This is the fixed amount for which the seller exchanges its shares for the acquirer’s shares. If the buyer’s stock price falls significantly post-announcement, that could mean the seller is getting significantly less value.

Again, these are but three of the many terms one can expect to hear when it comes to structuring, pricing and negotiating a bank merger or acquisition.

Research Reports

Throughout the year, our team asks officers and directors of financial institutions to share their thoughts on board-specific issues — like growth and more specifically, mergers & acquisitions.  Allow me to share an overview on these two research reports along with links to the full results:

Of note: 84% of the officers and board members who responded to this Growth Strategy Survey, sponsored by the technology firm CDW, say that today’s highly competitive environment is their institutions’ greatest challenge when it comes to organic growth — a challenge further exacerbated by the increasing number of challengers from outside the industry primed to steal business from traditional banks.

Of note: There’s no shortage of financial institutions seeking an acquisition in 2015, but fewer banks plan to sell than last year, according to the bank CEOs, senior officers and board members who completed Bank Director’s 2015 Bank M&A Survey, sponsored by Crowe Horwath LLP.

Valuing a Bank

Understanding what one’s bank is really worth today is hugely important.  Whether buying, selling or simply growing organically, a bank needs metrics in place to know and grow its valuation.  On BankDirector.com this past October, I shared why earnings are becoming more important than tangible book value (Why Book Value Isn’t the Only Way to Measure a Bank). Clearly, a bank that generates greater returns to shareholders is more valuable; thus, the emphasis on earnings and returns rather than book value.  Yes, investors and buyers will always use book value as a way to measure the worth of banks. Still, I anticipate conversations at the conference that builds on the idea that as the market improves and more acquisitions are announced, we should expect to see more attention to earnings and price-to-earnings as a way to value banks.

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Please feel free to comment on today’s piece below or share a thought via Twitter (I’m @aldominick).  More to come from the “much-warmer-than-Washingon DC” Arizona desert and Acquire or Be Acquired in the days to come.