Strong Board. Strong Bank

Quickly:

  • A bank’s CEO, Chairman and board of directors face a number of challenges in today’s ever competitive, highly regulated and rapidly evolving financial services industry.

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

ATLANTA — Complex regulations, technological innovations and a highly competitive environment that leaves little room for error have placed unprecedented demands on the time and talents of bank boards.  Still, no one I’m with today seems interested in pity or sympathy.  To wit, I’m in Atlanta, at the Ritz-Carlton Buckhead, as we host Bank Director’s annual Bank Board Training Forum.  With us are 200+ men and women committed to strengthening their bank’s performance by enhancing the skills and abilities of their boards.

I’m buoyed by their collective optimism, especially having surfaced myriad governance issues, compliance challenges, audit responsibilities, risk concerns and areas of potential liability. What follows are five takeaways from presentations made today that are growth, risk or team-oriented.

  1. When it comes to growing one’s bank, an acquisition of another institution certainly helps a buyer achieve operating scale efficiencies, which in turn increases its valuation.
  2. In addition to traditional M&A as a driver of growth, we are seeing more partnerships with (and outright acquisitions of) non-banks in order to enhance non-interest income and the expansion of net interest margins.
  3. Personally, I appreciated Jim McAlpin (a partner at the law firm of Bryan Cave) for elaborating on the phrase “Strong Governance Culture.” As he explained, the regulatory community takes this to mean a well developed system of internal oversight and a board culture focused on risk management.
  4. When it comes to risk, financial institutions face a quite a few. Indeed, Eve Rogers, a Partner at Crowe Horwath, touched on cybersecurity, economic factors, regulatory changes, shrinking margins and fee restrictions. As she made clear, proactively identifying, mitigating, and, in some cases, capitalizing on these risks provides a distinct advantage to the banks here with us.
  5. In terms of compensation, a good checklist for all banks includes (a) the bank’s compensation philosophy, (b) specific details for how to incorporate a performance plan against a strategic plan and (c) details around how one’s compensation peer group was formed — and when was it last updated.

Tomorrow morning, I share some new ideas for approaching technology in terms of growth and efficiency given the digital distribution of financial goods and services.  As I noted from the stage, we’re seeing some banks, rather than hire from the ground up, take a plug-and-play approach for partnering (or acquiring) FinTech companies. While I certainly intend to talk about the culture and team aspects of technology tomorrow, my focus goes to how and where machine learning, RegTech, payments, white labeling opportunities and core providers allow financial institutions to present a cutting-edge looks and feels to its customers under the bank’s brand.  (*If you’re interested, click here.)

Be Skeptical, Diligent and Courageous

While much of Nashville took a snow day, I had the pleasure of spending time with bankers from across the country (who beat this morning’s storm) at the historic Hermitage Hotel for Bank Director’s annual Bank Board Training Forum.  Admittedly, I sometimes take for granted that a board of directors is responsible for monitoring financial performance, management’s performance, compliance issues and risk management.  A program like the one we’ve put together reinforces that the strategic side of running a business really requires a well-functioning, informed and courageous board of directors and men and women who are not afraid to be skeptical, diligent and courageous. So who’s with us in Music City? The demographics are as follows:

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Key takeaways

A number of presentations noted that financial institutions face a number of risks.  These range from economic factors to regulatory changes, shrinking margins to fee restrictions.  Knowing the extraordinary need for information about our increasingly complex industry, these takeaways stood out in terms of growing an institution:

  • Bank profits have increased significantly post-crisis as problem assets continue to decline.
  • A “combine-and-grow” mindset has driven an uptick in strategic mergers.
  • Efficiency and productivity are both key elements in positioning a bank to grow.
  • One specific common denominator among organic growth banks is a robust and diverse lending platform along with a proven credit culture and process.

When it comes to corporate governance (a term that refers to the structures & processes for the direction and control of a company) and the role of the board, I noticed that bank boards are increasingly independent and active.  In addition, it became clear that as technology changes, proactive input from directors has become even more important.  Finally, in terms of audit committee issues, it bears repeating that audit committee members are required to understand a broad range of highly technical financial, audit and risk management issues.  I was surprised to hear that a typical pitfall of the audit committee is not addressing complex accounting issues… which aligns with the point that board members need to know banking — “not just your bank.”

Now, even if we get more snow & ice, the lights will be on again tomorrow here in Nashville where we continue to cover board-specific issues.  I’ll be checking back in after we wrap up the program and invite you to connect via twitter (@aldominick) or via LinkedIn.

You’re Never Too Experienced

A man who views the world the same at fifty as he did at twenty, has wasted thirty years of his life.

Muhammad Ali certainly spoke the truth when he shared this thought in 1975 — and he makes a compelling case for attending an event like tomorrow’s Bank Board Training Forum at the historic Hermitage Hotel in Nashville, TN.  Personally, I made it into Nashville yesterday morning and with a few unexpected minutes on my hand, found myself engrossed in our inaugural issue of Bank Director magazine from 1991.  To open the magazine, our first editor opined “gone are the days when a bank could afford to stack the board with a compliant group of community leaders whose board membership was little more than a public badge of professional achievement.”  Just as true then as now!

While there are a number of banking conferences happening across the country over the next few weeks, this is the only one I know of that caters to an audience of key decision makers committed to the concept a strong board makes for a strong bank.  The curriculum, developed by industry experts and spearheaded by our editor, Jack Milligan, provides some 120 attendees with both foundational knowledge and the latest information on best practices in all of the critical areas that directors must understand.  From growing the bank to protecting its assets, attracting and compensating the right team to getting current with accounting, regulatory and legal requirements, I know we’re in for a spirited day and half.

If you’re curious to see what we have planned, here’s a link to both BankDirector.com’s event page and also a special piece authored by my friend and colleague Jack entitled “What You Don’t Know Can Hurt You.”  As he makes clear, curiosity has no age.

FI Tip Sheet: Strong Board, Strong Bank

As the banking industry continues to regain its health, efficiency and productivity are key elements in positioning a bank to grow.  Still, the reality remains there is an overcapacity in the US banking industry and the consolidation trend that brought the number of bank charters from over 14,000 to under 7,000 over the last 25 years will continue.  So let me sum in up in word letters: OTSS… only the strong survive.  Today’s post builds on this idea and offers a few takeaways from day one of the Bank Board Training Forum.

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Don’t Cry For Me

Yes, a more demanding regulatory and business environment has placed a substantial burden on bank directors and their boards. However, nearly every conversation/presentation focused on what’s possible — and not what’s broken.  Here are a few characteristics of successful “growth” banks:

  • They have a history of executing accretive transactions that are supported in the market both post-announcement and in terms of performance over time.
  • They tend to under promise and over deliver

While mergers and acquisitions is the principal growth strategy for many of these institutions, don’t sleep on building organically.  Indeed, many of the banks in attendance look at M&A as a complement to their growth plans.

An appetite for technology
We welcomed 117 bank officers and directors to the Hermitage in Nashville yesterday (and I’ll be getting up on stage in a few minutes to do so again this morning).  We went old school and put pen + paper in front of these men and women and asked a few true/false technology-specific questions.  47% have responded so far and here’s what I’m finding:

  • T/F: Our executive team has two people with strong technology understanding/experience…  43 responded true and only 12, false.
  • T/F: I would describe my bank as innovative… 40 responded true and 15 false
  • T/F: Mobile banking is an important part of our strategy… 46 responded true and 8, false

Growing Through Innovation
I heard one bank is consolidating some 200 different software packages, while another introduced concierge banking.  Interestingly, 11 bankers wrote on the survey above that the most innovative “thing” they are doing right now involves mobile banking.

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I’ll try to post more later today, as several of the afternoon conversations tied growth into risk and audit concerns, two topics I’ve covered earlier this week.  Aloha Friday!

Bank Director Education

A simple truth: being a bank leader today demands more time, more attention and more knowledge than ever before. I’m lucky to engage with many exceptional bankers from around the country and am continually impressed with the appetite these executives and board members have for information and insight about our increasingly complex industry.
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While I’m proud of the online, in-person and on-site work of the Bank Director team, I thought to highlight a series of easy-to-access 25-minute videos we produced for banks that have a relationship with us. As you will see in this short overview, we cover important topics such as the role of the board, risk management, key audit, compensation and governance issues and advice on growing the bank.

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These videos naturally align with a one and a half day event we will host at the Hermitage Hotel (pictured above) in our company’s hometown of Nashville, TN next month.  Our Bank Board Training Forum provides directors with cutting-edge preparation for the issues and challenges facing them in today’s ever competitive, highly regulated and rapidly evolving banking and financial services industry.  While just one of seven events we host throughout the year, I’m excited to move my attention from our biggest conference — Acquire or Be Acquired — to our newest.

Caveat emptor (with a banking spin)

Kelsey, Jake, Mika and Katy outside our D.C. offices
Kelsey, Jake, Mika and Katy outside our D.C. offices

I had the pleasure of welcoming two new members to Bank Director earlier this week… Jake Massey and Katy Prejeant joined our team and both have set up shop in our Nashville offices.  As you can see, we invited them east to spend some time in D.C. with our Associate Publisher (Kelsey Weaver), SVP (Mika Moser) and me.  With the five of us huddled around a table on Monday and Tuesday, my focus was admittedly more internally focused then normal.  What follows, however, are three things I subsequently heard, discussed and find myself thinking about as the week wraps up.

(1) Politico shared the opinions of Chris Dodd (Connecticut’s former senator) and Barney Frank (a former congressman from Massachusetts) in an op-ed entitled “Pulling the Plug on Failed Financial Institutions.” In it, the two contend that their infamous financial reform legislation ends forever the ability of the U.S. government to provide support to failing financial companies.  “The Dodd-Frank Act is clear: Not only is there no legal authority to use public money to keep a failing entity in business, the law forbids it,” they write.  While there are parts of their bill that are potentially helpful, “on the bigger picture – whether too-big-to-fail financial institutions still benefit from implicit government subsidies and a high probability of explicit bailouts,” the former Chief Economist of the IMF respectfully disagrees with duo.  Indeed, on the NY Times Economix blog, Simon Johnson writes he feels this way — and is not alone.  Case-in-point, he highlights a point Fed Chairman Bernanke made in response to recent questioning from Senator Elizabeth Warren.  Essentially, Bernanke “confirmed that credit markets still believed the government stands behind big banks.” A fascinating juxtaposition of perspectives courtesy of Politico and the NY Times on our biggest financial institutions.

(2) Last week, Davis and Henderson (D+H) announced it was buying Harland Financial Solutions.  American Banker subsequently ran an interesting article appropriately named “Your Tech Vendor’s Been Sold — What Do You Do Now?” (*subscription required).  While not so much a blueprint as an overview, take note that “regulators are pressing banks to complete thorough due diligence on third-party vendors. But things can get complicated by consolidation of technology firms.”  I wrote about this after our annual Bank Audit Committee conference; albeit, with an eye towards evaluating your external auditor.  The same principles apply here, and a separate article on AB identifies several key components of IT contracts that need extra attention.  Having worked for an IT company from ’05 to ’10, I do understand the challenges they have as services and tools providers in terms of pricing and structuring mutually beneficial contracts.  I do wonder how thoroughly bank executives consider strategic and risky technology plans.  Sure, the expense side can be calculated.  However, this second piece makes clear that “many smaller banks fail to think about exit strategies when negotiating technology contracts.”  Caveat emptor…

(3) Leaving the Latin, but not learning, aside, my final point goes to a new training program spearheaded by our very talented Editor, Jack Milligan.  Now, its been said that you rarely see a strong board with a weak bank — or a strong bank with a weak board.  So as part of our commitment to building stronger banks by building stronger boards, we introduced the Board Training Program yesterday afternoon.

This is a comprehensive and board-focused educational platform developed by a faculty of industry experts.  Take a look and listen to Jack as he explains how we will cover such important topics as the role of the board, risk management, key audit, compensation and governance issues, and advice on growing the bank. 

Aloha Friday!