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.

FinTech Day is One Week Away

The fabric of the financial industry continues to evolve as new technology players emerge and traditional participants transform their business models. Through partnerships, acquisitions or direct investments, incumbents and upstarts alike have many real and distinct opportunities to grow and scale.  If 2015 was all about startups talking less about disruption and more about cooperation, I see 2016 as the year that banks reciprocate.

By Al Dominick, President & CEO, Bank Director

Next Tuesday, at Nasdaq’s MarketSite in Time Square, our team hosts our annual “FinTech Day.” With so many new companies pushing their way into markets and product lines that traditionally have been considered the banking industry’s turf, we look at what fintech means for traditional banks. Likewise, we explore where emerging fintech players may become catalysts for significant change with the support of traditional players.  When it comes to trends like the personalization of banking, the challenges of scaling a company in our highly regulated industry and what shifting customer expectations portend for banks and fintechs alike, we have a full day planned. Take a look at some of the issues we will address.

Riding The Wave Of Change
Al Dominick, President & CEO, Bank Director
Robert H. McCooey, Jr., Senior Vice President of Listing Services, Nasdaq

At a time when changing consumer behavior and new technologies are inspiring innovation throughout the financial services community, we open this year’s program with a look at how collaboration between traditional institutions and emerging technology firms bodes well for the future.

Banking’s New DNA
Michael M. Carter, CEO, BizEquity
Vivian Maese, Partner, Latham & Watkins
Eduardo Vergara, Head of Payments Services & Global Treasury Product Sales, Silicon Valley Bank
Moderated by: Al Dominick, President & CEO, Bank Director

With continuous pressure to innovate, banks today are learning from new challengers, adapting their offerings and identifying opportunities to collaborate.  With this opening session, we focus on the most pressing issues facing banks as they leverage new tools and technologies to compete.

Who Has the Power to Transform Banking
Jeana Deninger, Senior Vice President, Marketing, CoverHound, Inc.
Brooks Gibbins, Co-Founder & General Partner, FinTech Collective
Colleen Poynton, Vice President, Core Innovation Capital
Moderated by: Al Dominick, President & CEO, Bank Director

While fintech startups continue to spearhead the technological transformation of financial services, recent efforts by systemically important financial institutions call into question who reallly has the power to tranform banking. From an investment perspective, recent market turmoil may put some opportunities on hold – while others now have a higher, sharper bar to clear. In this session, we talk to investors about the traits that they look for when backing a venture in the context of a changing economic environment.

Opportunities to Reinvigorate the Banking Industry
Tom Kimberly, General Manager, Betterment Institutional
Thomas Jankovich, Principal & Innovation Leader, US Financial Services Practice, Deloitte Consulting LLP
Pete Steger, Head of Business Development, Kabbage, Inc.
Moderated by: Al Dominick, President & CEO, Bank Director

Many fintech companies are developing strategies, practices and new technologies that will dramatically influence how banking gets done in the future. However, within this period of upheaval – where considerable market share will be up for grabs – ambitious banks can leapfrog both traditional and new rivals. During this hour, we explore various opportunities for financial services companies to reinvigorate the industry.

Opportunities to Financially Participate in Fintech
Joseph S. Berry, Jr., Managing Director, Co-Head of Depositories Investment Banking, Keefe, Bruyette & Woods, Inc. A Stifel Company
Kai Martin Schmitz, Leader FinTech Investment LatAm, Global FinTech Investment Group, International Finance Corporation
Moderated by: Al Dominick, President & CEO, Bank Director

While large, multinational banks have made a series of investments in the fintech community, there is a huge, untapped market for banks to become an early-stage investor in fintech companies. Based on the day’s prior conversations, this session looks at opportunities for banks to better support emerging companies looking to grow and scale with their support.

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While this special event on March 1 is sold out, you can follow the conversations by using #Fintech16 @aldominick @bankdirector @finxtech and @bankdirectorpub.  And as a fun fact, I’ll be ringing the closing bell next Tuesday flanked by our Chairman and our Head of Innovation.  So if you are by a television and can turn on CNN, MSNBC, Fox, etc at 3:59, you’ll see some smiling faces waving at the cameras.

Bank Director’s annual Tech Issue is now available for free

Take a look at Bank Director’s just-published “Tech Issue.” In it, we look at how bank CEOs and executive teams can better engage with fintech companies, what the biggest banks are doing in terms of technology strategy and what the Internet of Things (IoT) means for financial institutions in 2016.

To download this free issue:

  1. On Your Tablet or Mobile Device, Select Apple’s AppStore, Google Play or Amazon’s Apps;
  2. Search “Bank Director Digital Magazine;” and
  3. Download the App to Your Digital Device & Enjoy.

Happy Holidays!

Size & Scale: The King and Queen of Bank M&A?

Earlier this week, I shared my perspectives on bank M&A with the Wall Street Journal.  What follows builds off the piece that ran in Tuesday’s print edition, highlighting key findings from Bank Director’s annual Bank M&A Survey.

By Al Dominick // @aldominick

At a time when J.P. Morgan is getting smaller, the pressure is on for smaller banks to get bigger.  As KPMG recently shared with BankDirector.com, there was a 25% increase in bank deals in the U.S. in 2014, compared to 2013, and there is a good possibility that the number of deals in 2015 will exceed that of 2014.  One reason for this: a larger institution can spread costs (such as investments and regulatory burdens) across a larger customer and revenue base.

Not surprisingly, 67% of executives and board members responding to Bank Director’s 2016 Bank M&A Survey say they see a need to gain more scale if they are going to be able to survive in a highly competitive industry going forward.  As our director of research, Emily McCormick, shared, “many of these respondents (62%) also see a more favorable climate for bank deals, hinting at a more active market for 2016 as banks seek size and scale through strategies that combine organic growth with the acquisitions of smaller banks.”

While the majority of bank executives and boards surveyed feel a need to grow, respondents don’t agree on the size banks need to be in order to compete today.  A slim majority, 32%, identified $1 billion in assets as the right size… interesting, but not surprising, when you consider that 89% of commercial banks and savings institutions are under $1 billion in assets, according to the FDIC (*personally, I’m of the opinion that $5Bn is the new $1Bn, but that’s a topic for another day).  On to the key findings from this year’s research:

  • Two-thirds report their bank intends to participate in some sort of acquisition over the next 12 months, whether it’s a healthy bank (51%), a branch (20%), a nondepository line of business (14%), a loan portfolio (6%) and/or a financial technology firm (a scant 2%).
  • Respondents indicate that credit culture, at 32%, and retaining key talent that aligns with the buyer’s culture, at 31%, are the most difficult aspects of the post-merger integration process.
  • More institutions are using social media channels to communicate with customers after the close of the deal. 55% of respondents who purchased a bank in 2014 or 2015 used social media, compared to 42% of 2011-2013 deals and just 14% of 2008-2010 deals (*FWIW, Facebook, at 26%, is the most popular channel for respondents).
  • Fifty-six percent of respondents have walked away from a deal in the past three years.  Of the respondents who indicate they declined to buy, 60% cite deal price while 46% blame the credit quality of the target institution.
  • Why do banks sell? Of the executives and board members associated with banks sold from 2012 to 2015, 55% say they sold because shareholders wanted to cash out.  Despite concerns that regulatory costs are causing banks to sell, just 27% cite this burden as a primary motivator.

The full survey results are now available online at BankDirector.com, and will be featured in the 1st quarter, 2016 issue of Bank Director magazine.  In addition, for those executives interested in connecting with many of the key decision makers driving the deals mentioned above, our annual Acquire or Be Acquired Conference will be held at the Arizona Biltmore from January 31 through February 2.

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Our 2016 Bank M&A Survey, sponsored by Crowe Horwath LLP, examines current attitudes and challenges regarding bank M&A, and what drives banks to buy and sell. The survey was completed in September 2015 by 260 chief executive officers, independent directors and senior executives of U.S. banks, and former executives and directors of banks that have been acquired from 2012-2015.

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.

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.

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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.

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!

Let’s Talk Compensation

This Sunday, I fly to Chicago for Bank Director’s annual Bank Executive & Board Compensation Conference.  As I prepare to head towards the city that splits its allegiance between the Cubs & WhiteSox, my thoughts move from baseball — congratulations to the new World Series champion San Francisco Giants — to the people, products and performances of various financial institutions.  As I will be blogging and tweeting from our annual event, I thought to use today’s post to tee-up what you can expect on AboutThatRatio.com next Monday, Tuesday and Wednesday.

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Since the demise of AIG, Bear Sterns and Lehman Brothers in 2008, take a minute and think about how many significant changes have occurred throughout the entire financial community.  From new capital requirements to greater scrutiny on executive compensation, these “Dodd-Frank” years remind me of the aftermath of Sarbanes-Oxley’s introduction in the early 2000s in as much as board members continue to wrestle with the ‘what ifs’ and ‘how comes’ of the regulatory environment.

While much of the action taken by nearly every institutions a few years ago can best be described as reactionary and defensive, it strikes me that there are quite a few banks transforming their operating models to stay both relevant and competitive today.   For this reason, I am excited for our team to host several hundred bank executives and outside directors focused on the creation of sustainable long-term value for shareholders next week.  In terms of posts:

  • Monday’s looks at the recruitment, development and compensation of a bank’s most essential talent — both within a bank and on its board.
  • On Tuesday, the “main day” of our conference, I will share the trending topics from the day.  Last year, I wrote how board members and executives continued to struggle with measuring executive performance and retaining key talent.
 At the same time, I made note that many felt the environment in which banks operate in demands productivity, proficiency with technology and the ability to sell.  So I’ll juxtapose last year’s findings with this year’s themes.
  • Wednesday’s piece will be a bit simpler, a 90 second video I’ll have filmed from the conference.

Next Friday’s column?  More of a behind-the-scenes picture recap of the conference as I recently did for Bank Director’s “anniversary.”  Throughout, you can keep track of various conversations on Twitter by following @BankDirector and me, @AlDominick and/or by using #BDComp14.

Happy Halloween!

Know Your Tribe

So… I initially planned to dive into interest rate risk this morning. Prevalent in most M&A conversations taking place in bank boardrooms today, I thought to focus on banks working to protect their equity value as interest rates rise. However, in reviewing the outline for today’s piece, I realized a different kind of risk inspired me: the risk of becoming something you are not.  While I do anticipate posting a piece on interest rate risk in the near future, today’s column parallels the thoughts of Seth Godin.  Specifically, a blog he authored this week entitled “In Search of Meaningful.”

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In his piece, Seth looks at online media and how “people have been transfixed by scale, by numbers, by rankings… how many eyeballs, how big is the audience, what’s the pass along, how many likes, friends, followers, how many hits?  You cannot win this game and I want to persuade you… to stop trying.”  It strikes me that he could just as well be writing about financial institutions competing for relevance in today’s competitive and crowded environment.  While I’ve linked to his post above, see if you follow my logic based on this representative quote:

It’s no longer possible to become important to everyone, not in a reliable, scalable way… But it is possible to become important to a very-small everyone, to a connected tribe that cares about this voice or that story or this particular point of view. It’s still possible to become meaningful, meaningful if you don’t get short-term greedy about any particular moment of mass, betting on the long run instead.

Over the past six months, I have been fortunate to hear how numerous bank CEOs and Chairmen plan to position their institutions for long-term growth.  As I process Godin’s perspective, let me pay his perspectives forward with three of my own specific to community banks:

#1 – You Don’t Have To Be BIG To Be Successful

By this I mean smarts trumps size any day of the week.  While more banks put their liquidity to work, fierce competition puts pressures on rates and elevates risk.  While easy to frame the dynamics of our industry in terms of asset size, competing for business today is more of a “smart vs. stupid” story than a “big vs. small” one.

#2 – You Don’t Have To Be Everywhere

Nor can you be — so stick to what you know best.  I know that margin compression and an extra helping of regulatory burden means times couldn’t be more challenging for growth in community or regional banking.  But that doesn’t mean you have to be all things to all people.  Case-in-point, I was lucky to spend some time with Burke & Herbert Bank’s CEO in Northern Virginia earlier this week.  As they say, “the world has changed quite a bit since 1852 (*the year the bank opened its doors) – that you may be conducting most of your life from your computer, smartphone and/or whatchamajiggy. That’s why we constantly adapt to the way you live and bank.”  Today Burke & Herbert Bank has more than $2 billion in assets and 25 branches throughout Northern Virginia.  Still, they remain a neighborhood bank, choosing to “stay local” as Virginia’s oldest bank.

#3 – You Don’t Have To Do What Everyone Else Does

As Godin writes, the “problem with generic is that it’s easy go as well as easy come.”  Just because USAA rolls out a new mobile offering doesn’t mean you need to — and if BofA decides to reprice a product, can you really compete with them on price?  So which community banks are doing it right in my opinion?  Well, if you’re in Nashville and focused on the medical and music & entertainment industries you probably know Avenue Bank, if you’re a business in the Pacific Northwest, you most likely work with (or at least respect) Banner Bank.  And if you are in the oil and gas business in Texas, First Financial is a big player.  The common thread that binds these three banks together: they have a laser-like focus on their ideal customer base.

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To comment on this piece, click on the green circle with the white plus (+) sign on the bottom right. If you are on twitter, I’m @aldominick. Aloha Friday!

Good is the Enemy of Great

Jim Collins once wrote “good is the enemy of great,” opining that the vast majority of companies “never become great, precisely because the vast majority become quite good – and that is their main problem.”  I have heard many use the title of today’s piece to explain the unexpected; most recently, while talking with a friend about Jurgen Klinsmann’s decision to exclude Landon Donovan from his 23-man World Cup roster (hence today’s picture c/o USA Today).  While I’ll steer clear of any soccer talk until the U.S. takes the field against Ghana in a few weeks, Collins’ statement sparked the three thoughts I share today. Indeed, being “just good” will not cut it in our highly competitive financial industry.

usatsi_7848706_168380427_lowres Let’s Be Real — Times Remain Tough

In yesterday’s Wall Street Journal, Robin Sidel and Andrew Johnson began their “Big Profit Engines for Banks Falter” with a simple truth: “it is becoming tougher and tougher being a U.S. bank.  Squeezed by stricter regulations, a sputtering economy and anemic markets, financial institutions are finding profits hard to come by on both Main Street and Wall Street.”  Now, the U.S. financial sector and many bank stocks have “staged a dramatic recovery from the depths of the financial crisis;” as the authors point out, “historically low-interest rates aren’t low enough to spur more mortgage business and are damping market volatility, eating into banks’ trading profits.”  While I’ve written about the significant challenges facing most financial institutions – e.g. tepid loan growth, margin compression, higher capital requirements and expense pressure & higher regulatory costs — the article provides a somber reminder of today’s banking reality.

Still, for Banks Seeking Fresh Capital, the IPO Window is Open

Given how low-interest rates continue to eat into bank profits, its not surprising to hear how “opportunistic banks capable of growing loans through acquisition or market expansion” are attracting investor interest and going public.  To wit, our friends at the Hovde Group note that seven banks have filed for initial public offerings (IPOs) already this year, putting 2014 on pace to become the most active year for bank IPOs in a decade.  Based on the current market appetite for growth, “access to capital is becoming a larger consideration for management and boards, especially if it gives them a public currency with which to acquire and expand.”  If you’re interested in the factors fueling this increase in IPO activity, their “Revival of the Bank IPO” is worth a read.

Mobile Capabilities Have Become Table Stakes

I’m on the record for really disliking the word “omnichannel.”  So I smiled a big smile while reading through a new Deloitte Center for Financial Services report (Mobile Financial Services: Raising the Bar on Customer Engagement) that emphasizes the need for banks to focus more on a “post-channel” world rather than the omnichannel concept.  As their report says, this vision is “where channel distinctions are less important and improving customer experience becomes the supreme goal, no matter where or how customer interactions occur, whether at a branch, an ATM, online, or via a mobile device.”  As mobile is increasingly becoming the primary method of interaction with financial institutions, the information shared is both intuitive and impactful.

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To comment on today’s column, please click on the green circle with the white plus sign on the bottom right. If you are on twitter, I’m @aldominick.  Aloha Friday!