On Recent Bank Mergers and Acquisitions

Earlier this week, American Banker’s Robert Barba wrote that bank M&A could reach an “inflection point” (sorry, paywall). With bank valuations increasing — and asset quality improving — I’m seeing deal premiums make a comeback, along with banks able to pay them.  The title of Robert’s piece caught my attention, as did his look at BB&T’s agreement in early September to buy the $2 billion-asset Bank of Kentucky Financial in Crestview Hills.  While that high-stakes deal has generated headlines, let me share some observations about another transaction that “shows well.”


As Robert wrote on Tuesday, the $188 billion-asset BB&T is “often viewed as one of the bigger banks most likely to acquire. It managed to make a few deals during the downturn, including buying the operations of BankAtlantic from its holding company and picking up Colonial Bank’s assets and deposits from the Federal Deposit Insurance Corp.”  While this deal alone does not represent a resurgence of big bank M&A, it might foreshadow a pick up in activity.

Of course, no two deals are alike — and as the structure of certain deals becomes more complex, bank executives and boards need to prepare for the unexpected. The sharply increased cost of regulatory compliance might lead some to seek a buyer; others will respond by trying to get bigger through acquisitions so they can spread the costs over a wider base.  For this reason, I wrote a piece for BankDirector.com called “Deciding Whether to Sell or Go Public” earlier this week (no registration required).  As you can read, David Brooks, the chairman and CEO at $3.7-billion asset Independent Bank Group based in McKinney, Texas, and Jim Stein, the former CEO of the Bank of Houston and now vice chairman of Independent Bank, talked with me about their experiences and decision to merge their banks.

With merger activity on the rise, more boards of directors are considering whether the time is right for their financial institution to find a strategic partner, especially if they want to maintain the strategic direction of the institution or capture additional returns on their shareholders’ investment.  In the end, no one knows what will happen with bank M&A in the coming months, but looking at deals like the one Robert wrote about and the one I shared… well, one can guess.

Aloha Friday!

FI Tip Sheet: Acquire or Be Acquired

So we had a little snow in D.C. this week… and a bit of wind too. Fortunately, I’m heading west towards Bank Director’s 20th annual Acquire or Be Acquired conference this morning. As I wrote about on Wednesday, I will be checking in on a daily basis from the historic Arizona Biltmore with insight and observations from our flagship “AOBA” conference. Before I hit the desert, let me share three thoughts that tie into the conference themes of bank mergers and acquisitions as I make my way from D.C. towards Phoenix.


7,000 is so 2013

Let’s simply start with a number: 6,891. Confused? Don’t be. This is the number of federally-insured institutions nationwide as of last Fall — falling below 7,000 for the first time since federal regulators began keeping track in 1934 (according to the FDIC). Now, let me put this into context; specifically, by asset size. 6,158 banks (90% of all U.S. banks) have assets of less than $1 billion. 562 banks have assets between $1 billion and $10 billion and only 108 institutions have assets greater than $10 billion. The kicker? The “distribution of wealth” heavily favors the biggest of the big. Case-in-point: banks with $10 billion or more in assets controlled 24% of total industry assets in 1984 (according to the American Banker). That share has swelled to over 80% today. When you think about things in these terms, its not surprising to hear the majority of bank M&A will occur in the <$1Bn range.

What’s the deal?

According to SNL Financial, there were 227 M&A transactions in 2013 — up from 218 in 2012. Nonetheless, these numbers pale in comparison to “the halcyon days of late 1990s.” As our editor, Jack Milligan, wrote in a post that ran on this site in December, we may “eventually see the emergence of a new tier of banks in the $10 billion to $50 billion range that will consolidate attractive banking markets… and help drive consolidation into yet another phase.” Still, hurdles to doing a deal remain. For instance:

  1. Higher capital and liquidity requirements;
  2. Today’s regulatory environment presents many significant and ongoing challenges; and
  3. Access to capital markets remains limited to many.

That said, I’m sure we will continue to see the combination of really strong companies — think this week’s union between North Jersey banks ConnectOne and Center Bancorp – and do agree with Jack’s perspective on what the future holds.

Ready to raise your hand?

I’m confident that an advisor (or two, or three or ten) will declare a merger or acquisition to be the principal growth strategy for community banks. I’m also anticipating conversations that entail the need for a bank’s CEO and board to re-examine their branch networks and strategies. Steering clear of anything that relates to the actual structure of deal, here are three questions I think will crop up early (and often) at AOBA:

  1. How do you know your bank has the right team in place to implement, and deliver, sustained results?
  2. If I’m not ready to sell — but am not in a position to buy — how can I grow?
  3. How can I, as a potential acquirer, create a strategic advantage vs. my peers?

If you’re joining us in Arizona this weekend, I’m looking forward to saying hello. If you’re not able to make it but want to follow the conversations from afar, #AOBA14 and @aldominick on Twitter should do the trick.

Aloha Friday!

Can Banking Be Right-Sized?

Size matters?
Size matters?

Although its been said many times, many ways, I can’t tell you what size really matters in banking today. Pick a number…  $500M in asset size?  $1Bn?  $9.9Bn?  Over $50Bn?  7,000 institutions?  6,000?  3,000? Less?  As a follow-up to last week’s guest post by Bank Director magazine’s editor, I spent some extra time thinking about where we are heading as an industry — and the size and types of banks + bankers leading the way.  What follows are three things I’m thinking about to wrap up the week that shows that size matters; albeit, in different ways.

(1) Not a single de novo institution has been approved in more than two years (astonishing considering 144 were chartered in 2007 alone) and the banking industry is consolidating.  Indeed, the number of federally insured institutions nationwide shrank to 6,891 in the third quarter after this summer — falling below 7,000 for the first time since federal regulators began keeping track in 1934, according to the FDIC.  Per the Wall Street Journal, the decline in bank numbers, from a peak of more than 18,000, has come almost entirely in the form of exits by banks with less than $100 million in assets, with the bulk occurring between 1984 and 2011.   I’ve written about how we are “over-capacity;” however, an article on Slate.com takes things to an entirely different level.  In America’s Microbank Problem, Matthew Yglesias posits America has “far far far too many banks…. (that) are poorly managed… can’t be regulated… can’t compete.”  He says we should want the US Bankcorps and PNCs and Fifth Thirds and BancWests of America to swallow up local franchises and expand their geographical footprints.  He sees the ideal being “effective competition in which dozens rather than thousands of banks exist, and they all actually compete with each other on a national or regional basis rather than carving up turf.”  While I have no problem with fewer banks, limiting competition to just the super regional and megabanks is a terrible thought.  Heck, the CEO of Wells Fargo & Co. wrote in the American Banker this August how vital community banks are to the economy.  So let me cite a rebuttal to Slate’s piece by American Banker’s Washington bureau chief Rob Blackwell.  Rob, I’m 100% with you when you write “small banks’ alleged demise is something to resist, not cheer on” and feel compelled to re-share Mr. Stumpf’s opinion:

…we need well-managed, well-regulated banks of all sizes—large and small—to meet our nation’s diverse financial needs, and we need public policies that don’t unintentionally damage the very financial ecosystem they should keep healthy.

(2) To the consolidation side of things, a recent Bank Director M&A survey found 76% of respondents expect to see more bank deals in 2014.  Within this merger mix exists strategic affiliations.  While the term “merger of equals” is a misnomer, there are real benefits of a strategic partnership when two like-sized banks join forces.  Case-in-point, the recent merger between Rockville Bank and United Bank (which will take the United name).  Once completed, the institution will have about $5 billion in assets and be the 4th largest bank in the Springfield, MA and Hartford, CT metropolitan area.  According to a piece authored by  Jim Kinney in The Republican, United Bank’s $369 million merger with the parent of Connecticut’s Rockville Bank “is a ticket to the big leagues for both banks.”  In my opinion, banks today have a responsibility to invest in their businesses so that they can offer the latest products and services while at the same time keep expenses in check to better weather this low interest rate environment.  United Bank’s president-to-be echoed this sentiment.  He shared their “dual mandate in the banking industry these days is to become more efficient, because it is a tough interest rate environment, and continue to grow… But it is hard to grow and save money because you have to spend money to make money.”   Putting together two banks of similar financial size gives the combined entity a better chance to this end.

(3) In terms of growth — and by extension, innovation — I see new mobile offerings, like those from MoneyDesktop, adding real value to community banks nationwide.  This Utah-based tech firm provides banks and credit unions with a personal financial management solution that integrates directly with online banking platforms.  As they share, “account holders are changing. There is an ongoing shift away from traditional brick & mortar banking. Technology is providing better ways for account holders to interact with their money, and with financial institutions.”  By working directly with online banking, core and payment platforms, MoneyDesktop positions institutions and payment providers as financial hubs and offers marketing tools that dramatically impact loan volume, user acquisition and wallet-share.  As technology levels the playing field upon which institutions compete, banks that leverage account holder banking information to solidify relationships bodes well for bank and customer alike.

Aloha Friday!

Bank M&A: Dead, Dying, or Becoming Something Different?

This week, I’ve worked with our team to put the finishing touches on Bank Director’s agenda for our 20th annual Acquire or Be Acquired Conference.  Widely regarded as the financial industry’s premier M&A event, the conference affectionately referred to as “AOBA” attracts bank CEOs, CFOs, Chairmen and outside directors from across the country to Arizona each January.  I keep hearing about the various drivers to doing a deal today — think economics, the burden of government regulation and increasing cost of capital.  As industry and economic headwinds challenge banks both large and small, I can think of no better perspective on what’s going on than that from my friend, colleague and Editor of Bank Director magazine, Jack Milligan.  While I typically share three of my thoughts on About That Ratio each Friday, Jack graciously agreed to author today’s column and share his.  Enjoy! 

Today's guest author, Jack Milligan
Today’s guest author, Jack Milligan

I have written about commercial banks since the mid-1980s and during that time have witnessed three banking crises (the thrift crisis in the late ‘80s soon followed by the commercial real estate crisis in the 1990s and, of course, the global financial crisis that occurred in 2007 and 2008), saw the U.S. Congress pass landmark banking legislation like the Gramm-Leach-Bliley Act of 1999 and Dodd-Frank Act of 2010, reflected upon the death of one regulatory agency (Office of Thrift Supervision) and birth of another (Consumer Financial Protection Bureau), and observed a parade of kings like Walt Wriston, Hugh McColl and Sandy Weill come and go.  But the most significant thing I’ve watched happen during all that time has been the industry’s profound consolidation into an hourglass distribution where a small number of very large banks control a significant majority of the nation’s deposits, and a very large number of very small banks fight for what’s left.

This trend of consolidation coincidentally also began in earnest in the 1980s – and in fact the first banking story I ever wrote was about (if memory serves) post-merger integration.  We just dipped below 7,000 banks in the United States (6,891 to be exact according to the FDIC), which seems like a good time to reflect on the question of how much more consolidation will occur.  We all know that bank merger activity has dropped precipitously since the global financial crisis, and we all know why.  In the maelstrom of the worst economic downturn since the Great Depression, in which the industry’s asset quality looked like it had been riddled by a machine gun, only a few large banks had the financial strength and appetite to acquire another institution, often with some form of government assistance.  Normal M&A was for all practical purposes dead.

Since the crisis has abated and the U.S. economy has gradually stabilized, some level of M&A has returned – but certainly not to pre-crisis levels.  Last year there were 129 healthy bank acquisitions for a total of $11.9 billion, and the deal total and aggregate dollar value for 2013 might be even lower.  In 2007 there were 235 bank deals for a total value of $71 billion.  But even those numbers pale in comparison to the halcyon days of late 1990s, when the average annual deal flow was twice that and aggregate values were in the hundreds of billions of dollars.  Many banks, buyers and sellers alike, have been waiting for the M&A market to kick back in – but to what?  To the 2007 level? Or to something closer to 1998, when there were 475 bank deals?  It is theoretically possible that the M&A market will never revive and the industry won’t consolidate much more than it already has.

In a recent piece in the American Banker, financial writer and researcher Harvey Winters reasons, correctly, that there are many small banks in rural locales like Nebraska that aren’t attractive takeover candidates and won’t ever be consolidated.  Winters says there might never be an M&A spring so-to-speak in such isolated and (from the perspective of an acquirer) unattractive markets.  The country’s very large banks that are still under the nationwide deposit cap and theoretically could grow larger through acquisitions are also being waved off by their regulators who today are much more concerned about the systemic risk that very large banks pose to the financial system than they were before the crisis.

In the good old days, large aggressive acquirers that were assembling nationwide banking franchises just as fast as they could helped drive the rest of the M&A market.  But those buyers are all gone, at least for now.  My own view is that bank M&A (and therefore consolidation) isn’t dead, but it is becoming something different.  I think we’ll see the rise of middle-market consolidators that have the capital and the skills to assemble their own intrastate, and later regional, franchises.

A perfect example is Richmond, Virginia-based Union First Market Bancshares’ recent acquisition of Charlottesville, Virginia-based StellarOne Corp.  Union First had $4 billion in assets and StellarOne $3 billion, and the combined $7-billion asset institution now bills itself as the largest community bank in Virginia — which is to say the largest bank that isn’t named Bank of America, Wells Fargo, etc.  The new First Union may continue to consolidate the Virginia market, or perhaps venture into neighboring Maryland or North Carolina, or maybe do all three.  If I am correct, we will eventually see the emergence of a new tier of banks in the $10 billion to $50 billion range that will consolidate attractive banking markets like Virginia and help drive consolidation into yet another phase.  There are many small banks that will never attract a buyer, and a handful mega-banks that will never do another acquisition, but that doesn’t mean that bank consolidation has reached a dead-end.


Jack Milligan is the Editor of Bank Director magazine, a position to which he brings over 30 years of experience in financial journalism organizations.   Jack’s professional background includes stints as editor in chief of U.S. Banker, a leading magazine covering the banking industry; editor in chief at SNL Financial, a research and publishing company specializing in financial services; and general editor at Institutional Investor, a prominent financial magazine.  He’s on Twitter (@BankDirectorEd) and LinkedIn if you want to follow/connect with him.

A Build vs Buy Banking Story

For the first time in a while, I get the sense that members of the boards at financial institutions across the country are not just ready, but also eager, to embrace various strategies that leverage emerging technologies.  Accordingly, what follows are three things I’m thinking about as the week wraps up that have a distinctly tech spin to them.


Bringing IT In-House

Kudos to Scott Mills — President of The William Mills Agency — for sharing this American Banker profile of FirstBank, a $13 billion Denver institution.  With more than 115 locations in Colorado, Arizona and California, the bank is unusual in that it develops its own core banking software — made possible by an in-house IT team of 250+, or 12% of the bank’s 2,100 workers.  According to the piece, having a “homegrown core and in-house expertise enables the bank to be nimble and make changes quickly.”  Obviously, banks continue to use technology to generate efficiencies.  In fact, I’m seeing some community banks come up with creative solutions to meet their needs.  Case-in-point, this recent Bank Board & Executive Survey — conducted by Bank Director and sponsored by consulting firm Grant Thornton LLP — shows 84% of bankers surveyed plan investments in new technologies to make their institutions more efficient.  Still, FirstBank’s efforts to build instead of buying from outside vendors trumps any other bank’s effort that I’ve come across this year.  Oh yeah, their blog is pretty darn good too.

Finding the Right Partner(s)

For those more comfortable collaborating with firms who specialize in developing IT solutions, let me pass along an observation from my time with CEOs in San Francisco and Chicago.  Over the last month or so, I’ve talked with at least 13 CEOs about how they plan to stay — or potentially become — relevant in the markets they serve.  I’m not that surprised to hear that many want to get rid of branches — but do wonder as they turn to technology to fill in the gap if they have the right people in leadership positions.  Many smaller banks are focused on C&I lending and serving their business communities, so I don’t wonder about their branching focus, but do wonder about their hiring practices.  Certainly, it will become even more imperative to understand the various technology opportunities — and risks — what with so many “non-technical” executives and board members setting paths forward.

Square Peg, Round Hole?

Finally, I have something of a payments-focused writing streak going on this site, and I’m keeping it going thanks to this WSJ report vis-a-vis Square, the payments startup with a square credit-card reader.  As I found out, the company is eliminating a monthly flat-fee option for smaller businesses in favor of its usual “per swipe” fee.  The change is “prompting concern among some of Square’s more than four million customers, which include small businesses that were attracted to Square because it offered a cheaper alternative to traditional credit-card processors, which charge swipe fees of 1.5% to 3%.”  I wonder if this is opportunity knocking for community banks?  Certainly other point-of-sale vendors have seen it that way.


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!

Building for the Future

Typically, my Friday columns on About That Ratio highlights three thoughts from the previous week; case-in-point, “On Fee Income + Staying Relevant.”  To vary things up, I’m expanding today’s piece by looking to five of the leading financial technology companies for inspiration.  In no particular order, something I learned from each specific to financial institutions’ efforts or opportunities to build for the future.

(1) Let me open with this visual representation about “engaging with digital consumers.”  Infograhphically speaking (their words, not mine), Infosys took a look at the complex behaviors consumers display when sharing their personal data.  Specifically, the technology company polled 5,000 “digitally savvy consumers” in five countries about how they trade personal data in the retail, banking and healthcare sectors. Their resulting study shows the key challenge facing business is to navigate the complex behaviors consumers display when sharing their personal data.


(2) Given these digital consumers’ growing use of smartphones — and comfort with their built-in cameras — image capture is a logical next step for bill enrollment and payments via mobile devices.  So it makes sense that Fiserv recently launched “Snap-to-Pay” — a feature that enables consumers to pay bills with a snap of their smartphone cameras.  Essential bill information, such as the company to be paid and the amount due, is captured by taking a picture of a paper bill and then used to automatically populate the appropriate fields on the smartphone screen.  Yup, another cool addition to the payments space.

(3) Competing with Infosys and Fiserv for financial institutions’ business and loyalty is FIS, the world’s largest provider of banking and payments technology.  For the third year in a row, the company achieved the No. 1 ranking on the FinTech 100, an annual listing of the top technology providers to the financial services industry compiled by American Banker, Bank Technology News and research firm IDC Financial Insights.  As I perused their site, I paused on their mobile prepaid solutions to see what they offer for the un-banked and under-banked consumers.  These potential customers represent a significant opportunity to financial institutions, and the suite of mobile offerings offered by FIS looks to robust and user-friendly.

(4) I’m a loyal American Airlines frequent flier (1,417,248 program miles to-date and going strong) and frequent user of their mobile app.  So when I saw that American Airlines Federal Credit Union completed its conversion to a new core processing system offered by Jack Henry & Associates earlier this week, I took note.  While I’m not a customer, I knew about the credit union thanks to in-flight magazines and connections through DFW.  What I didn’t realize is the size of the Texas-based credit union. It has more than $5.6 billion in assets and operates as the thirteenth largest in the United States.  Likewise, I didn’t realize that Jack Henry & Associates’ products and services are delivered through just three business units, with one supporting more than 750 credit unions of all asset sizes.

(5) Thinking about the airlines makes me think of government control and oversight (hello FAA, TSA, etc).  Just as some try to treat the airline industry as a public utility (it is not), so do some look at the banking space (again, it is not).  Still, increased regulatory involvement and tighter credit markets require greater emphasis on IT governance and risk compliance.  For this reason, numerous North American and European banks rely on Cognizant for risk management solutions across their operations in credit risk, operational risk and market risk.  As they share in Tackling Financial Crime, financial institutions seeking new revenue streams have “taken refuge in technologically advanced IT-enabled solutions… to stay ahead of the competition.”  However, the increasing use of plastic money, e-commerce, online banking and high-tech payment processing infrastructure has opened up new opportunities for financial criminals.  Hm, how to end on a positive.  Perhaps a link to the governance, risk and compliance solutions bank officers & directors might want to learn more about to defend against such cyber crime…

Aloha Friday!

This part of Washington remains open

Happy hour comes earlier to the District these days...
Happy hour comes earlier to the District these days…

Nothing political on About That Ratio today.  Business as usual here in our D.C. office.  Sure, the streets might be emptier, but as you can tell from this picture of the Dubliner (outside our offices), 5:00 just comes a little earlier these days.

(1) I wrote about payments, and Bitcoin, a few weeks ago.  On Wednesday, Bloomberg ran a piece called “If This Doesn’t Kill Bitcoin, What Will?” In case you missed it, the alleged operator of the Bitcoin-based online marketplace Silk Road was arrested in San Francisco on Tuesday on money-laundering and narcotics-trafficking charges.  While the Bloomberg piece lays out some pretty crazy things (e.g. a murder-for-hire plot), it does invite a broader discussion on the viability of Bitcoin or other virtual currencies.  As the author shares, this week’s event “highlights how using an ostensibly untraceable currency makes for a lovely invitation to blackmailers.”  Lovely indeed, and certainly not the end of the debate about Bitcoin’s future.

(2) As I pondered the future of payment networks like this, I found myself reading a blog authored by Jim Marous: “It’s Time for Banks & Credit Unions to Embrace Change.” Jim’s a good follow on twitter (@JimMarous) and I really like the KPMG report he cites in his post (Reshaping Banking in a Dynamic Business and Regulatory Climate). Jim opens with a disheartening truth: while “technology and distribution channels have changed, banks and credit unions are still faced with many of the same strategic challenges we talked about 20 years ago.”  A good primer for anyone preparing their 2014 strategic plans.

(3) Finally, a tip of the cap to American Banker for their article on Georgia Commerce’s agreement to buy Brookhaven Bank in Atlanta.  As they write, this is a sign that in some parts of the country, “it is becoming more financially advantageous to sell out instead of raising capital.”  When Selling a Bank Becomes Preferable to Raising Capital requires a subscription to AB; however, its clear to me that industry and economic headwinds challenge banks both large and small. In a sense, the boards’ decision to merge shouldn’t surprise but may inspire other community bank CEOs and their directors to consider staging an exit rather than gearing up for a capital raise.

Before wishing everyone a great Friday, let me single out our Associate Publisher, Kelsey Weaver, and wish her the best of luck as she moves home to Nashville next Monday. Fortunately she will remain with our team; our happy little D.C. office, however, will not be the same.  ##WWGS

Aloha Friday!

Three out of Four Say…


Last week, I shared that Cullen/Frost acquired another institution in Texas.  A stalwart of community banks, many analysts and investors cite their strength as proof that M&A isn’t a necessity to grow one’s business.  Still, organic growth has yet to return to the degree to which was hoped for by many other bankers at this point.  So with apologies to Deloitte, the following three points from members of the accounting world’s “Big Four” focus on the strategies some might consider to build their franchise value without requiring an acquisition.

(1) KPMG’s John Depman writes about the “unprecedented change afoot in the banking industry.”  In his view, technology is rapidly evolving and it’s changing consumer expectations about how banks should be serving them.  He carries this message throughout his “Community Banks That Fail to Leverage Technology May Become Obsolete” piece that is up on BankDirector.com.  According to John, community banks have been slower to embrace technology as a means to interact with and serve customers.  In doing so, they risk becoming obsolete.  To this end, he shares a number of key issues that directors and boards need to consider and subsequently work with senior management to address.  These range from “customer loss vs. investment return” to evaluating bank branch strategies.  Ultimately, “the model that defined our industry for generations has now been turned on its head.  The road to transforming your community bank won’t be short.  But, it’s a road that must be taken.”

(2) Keeping to this transformation theme, PwC’s Financial Services Managing Director, Nate Fisher, highlights how banks can align their pricing structure by using data from customer preferences, purchasing patterns and price sensitivity.


(3) Finally, banks continue to report increases in mobile banking usage, at least, according to a July 30th piece that ran in American Banker’s “Bank Technology News.”  There, they recognize the latest “Mobile Banking Intensity Index” which shows how features like mobile check deposit continue to be adopted quickly.  This lines up with a number of tweets I’ve recently seen from Ernst & Young (“EY”).  Some relate to the banking industry coping with the challenges of the mobile money ecosystem.  Others refer to the strategies that are emerging, and potential pitfalls to be avoided “in a landscape where competitors include businesses (telecoms and tech firms, for instance) that until recently had nothing to do with financial services.”  According to EY, in 2001, there was only one mobile payment system in the market. Today, there are 150 in everyday use and 90 more in development. Wow…

Aloha Friday!

Swimming With Sharks

A resident of the Mandalay Bay in Las Vegas
A resident of the Mandalay Bay in Las Vegas

I’ve been on a lot of planes lately, and while I read a ton, I also listened to several interesting podcasts to pass the time.  One in particular brought statistician Nate Silver and author Malcolm Gladwell together with ESPN’s Bill Simmons to discuss how periodicals are adjusting to the Internet age (ok, some sports came up too). I liked their premise that it doesn’t take much skill to be the first to do something, but the later you are, the smarter you have to be.  Much as the publishing/media industry needs to speed up the creative process, so too do financial institutions of all sizes.  Take a listen to the podcast if you’re interested in their take; for three things I’m thinking about based on the last four days, read on.

(1) Yes, credit unions and banks are both financial institutions; this, however, is where the similarities end in my opinion.  I spend so much of my time with bankers that I decided to flip the script and attend the National Directors’ Convention for credit unions in Las Vegas this week.  As I depart the Mandalay Bay (today’s draft title was “Banking on Sin”), today’s tongue-in-cheek title is a nod to those organizations that compete with banks.  True, I enjoyed the cheerleading aspect of certain sessions; for example, “A Higher Purpose: Why Credit Unions Are Different Than Banks.”  Nonetheless, as session after session juxtaposed a credit union’s marketing, lending and risk & compliance efforts with those of community banks, I’m not sure why credit unions should continue to be exempt from taxes as they are.  Look, my Grandfather helped set up a credit union in Massachusetts, and I appreciate why credit unions were initially granted nonprofit status.  But as they directly compete with banks, the tax question stirs the pot at our conferences… and does have me scratching my head about the fairness of an uneven playing field.

(2) Woody Allen is credited with saying 90% of life is showing up. But John Kanas and his team at Florida-based BankUnited (which has $12.6 billion in assets) are doing a lot more than that.  At least, that’s what I’m thinking after reading “A Steal of a Deal” by our very talented Managing Editor, Naomi Snyder.  While a lot of attention in Bank Director’s current issue goes to “The Top Performing Banks” due to our scorecard that ranks all NYSE and NASDAQ listed banks, Naomi’s piece is a must-read.  As you will see, the best mid-sized bank in the country is headed by an incredible dealmaker with an appetite not just for risk but with an eye for long-term growth.

(3) Thinking about growing a bank puts a board’s role in strategic planning front and center.  So when Promontory’s founder and CEO, Gene Ludwig, writes that “Big Changes Loom for Bank Boards,” I think it’s an appropriate link to share.  In a piece that runs on American Banker, the former head of the OCC writes “the do’s and don’ts of board governance are still emerging, and there is an honest debate over the core topics — how effective new and detailed expectations are at improving safety and soundness, and whether new standards are merging the concepts of governance and management. However, the fact of the matter is that regulators are not going to back away from their enhanced expectations for the board. Board members and managers who do not take heed proceed at their peril.”  Take a read if you’re interested in his nine points a bank and its board might consider in today’s highly charged regulatory environment.

Aloha Friday!

Know thy customer

The Park Hyatt Washington
The Park Hyatt Washington

Earlier this week, I spent a night at one of my favorite DC hotel’s, the Park Hyatt Washington.  As I checked in (and later, out) I paid close attention to their customer service efforts — and by extension, my customer experience.  Off-the-charts positive from start to end.  So as I wrap up this week’s travel (DC, Nashville and St. Louis to be exact), I thought to share three customer-focused thoughts from the last few days.

(1) I wrote about Brett King leading up to our annual Growth Conference.  He’s a best-selling author who, in this video “The Battle for the Bank Account: And Why the Banks Will Probably Lose,” explores the end-game in the emergence of the mobile wallet and what it means for the “humble” bank account. How does this apply to the experience a consumer may have with their bank?  Simply, when one can get a salary paid directly onto a phone, when your iTunes account doubles as a prepaid debit card and when you can use Facebook to send money – its fair to wonder will there be any need for traditional retail banking in the future?  A longer video than we normally post to BankDirector.com but one certainly worth a watch.

(2) Today’s American Banker shares a recent study from Market Rates Insight.  Their work found that customers want products like identity theft alerts and mobile bill pay from their banks. As the publication summarizes, many community banks are unable or unwilling to offer those products.  So community banks may be leaving money on the table due to an inability or an unwillingness to offer a number of coveted financial products.  One wonders how much financial flexibility these institutions have in terms of new investments relative to the heavy compliance costs burdening such banks?  However, if smaller banks cannot compete on price, can they really expect to maintain a loyal customer base without fulfilling “basic” customer expectations?

(3) A I head towards the mighty Mississippi this morning, I took note of another report, this one by assurance, consulting and tax firm Moss Adams.  Western bank CEOs and their direct-report executives should expect average salary increases in the 3% to 5% range during 2013, according to a survey run by the firm.  Also, the industry as a whole should expect a nearly 50% reduction compared to 2012 in the number of institutions that continue to subject their executive officers to a salary freeze.  The firm also found compensation strategies continue to favor incentive-based compensation over salaries in order to place a greater emphasis on variable costs for the retention of key executive officers.  So if a key to great customer service includes a consistency of communication and direction from key leaders, this report bodes well for executives meriting a salary increase. 

Aloha Friday!

Before I pack my bags

DC food trucks got some business...
By staying local, a few DC food trucks picked up extra business this week…

For the first time in nearly two months, I did not leave the friendly confines of Washington, D.C. for work.  Next week, AA gets my business back with a trip to San Francisco — followed by one the following week to Chicago and the next, to New York and Nashville.  Yes, I anticipate sharing a number of stories in the weeks ahead, but these three had me excited to post today.  As always, my #FridayFollow-inspired post on things I heard, learned or discussed that relate to financial organizations.

(1) File this one under “things that make you go hmmm.”  Earlier this week, the American Banker published an interesting piece entitled “Fed Reveals Secret Lessons of Successful Small Banks.”  As I’ve written in multiple M&A-focused posts, many investment banks  predicted a wave of consolidation among community banks after the financial crisis hit while positing that financial institutions need at least $1 billion of assets to compete/remain relevant.  This piece, however, cites recent St. Louis Fed research that shows the asset range with the most “thrivers” — the term the StL Fed used to describe remarkable banks — was $100 million to $300 million.  As the American Banker notes, much of the research stemming from the crisis focused on the mistakes banks had made, so the St. Louis Fed decided to take the opposite approach.  If you have a subscription to AB, their recap is worth a read.

(2) Disruptive technologies were front & center a few weeks ago in New Orleans at our annual Growth Conference.  Yesterday afternoon, McKinsey put out “Disruptive technologies: Advances that will transform life, business, and the global economy.”  While not specific to our industry, the fact that the “mobile internet” placed first should reinforce the conversations taking place in bank boardrooms today.  According to the authors, 4.3 billion people are yet to be connected to the Internet, with many expected to first engage through mobile devices.  Considering the six-fold growth in sales of smartphones and tablets since launch of iPhone in 2007, well, you can see why I’m bullish on banks getting social and enhancing their mobile offerings ASAP.

(3) Finally, for those quants looking for a good, non-Krugman economics piece, look no further than the NY Times’s “Economix” blog.  The most recent post: How a Big-Bank Failure Could Unfold.  In the piece, the authors consider what could happen if there were a hypothetical problem at a major international financial conglomerate such as Deutsche Bank or Citigroup.  As they note, “defenders of big banks are adamant that we have fixed the problem of too big to fail.”  This entry considers the alternative.  So for those with a desire to stay up late during this Memorial Day three-day weekend?  This might be a read for you.

Aloha Friday!

A #FF-Inspired Financial Roundup

Checking in from St. Louis, the “Gateway to the West”

A somewhat abbreviated Friday Follow-inspired post (coming to you from the great state of Missouri). On this Good Friday, I’m keeping things simple and sharing “just” three things I learned this week.

  • Of the news this week, Senator Tim Johnson’s announcement that he will not seek re-election in 2014 is especially noteworthy.  Why?  Well, the Democrat from South Dakota chairs the powerful Senate Banking Committee.  His departure, according to this report from the Wall Street Journal, sets the stage for a hotly contested race to succeed him.  This should interest many bank executives; “while he is regarded as sympathetic to the concerns of financial firms that operate in his home state, including community banks, Mr. Johnson has also fought GOP attempts to roll back or water down portions of the Dodd-Frank financial overhaul law.” I wonder if the next chair will push for legislation to breakup the big banks as the committee has discussed?  As you can read in the American Banker (subscription required), guessing has already begun.
  • While I’d like to move off the topic of legislation and regulation, our own Chairman forwarded a client alert from the law firm of Goodwin Procter that kept my attention on rules and procedures.  The title, Nasdaq Proposes Rule Requiring Internal Audit Function at All Listed Companies, says a lot.  As you dig in, you’ll see this would go into effect by year-end.  From a bankers point-of-view, financial institutions that are publicly traded already face the pressure of doing more with fewer resources.  Every business function, including internal audit, is expected to bring value to an institution.  So, much like the Senator’s announcement, this proposed rule is one to watch.
  • Finally, on the payments front, there’s been a lot of talk about the mobile consumer and his/her mobile wallet.  For example, how Google Wallet poses a threat to big banks that make $$ off of card products.  Yes, mobile devices have increasingly become tools that consumers use for banking, payments, budgeting and shopping. However, in this WSJ article (Consumer Using Phones to Bank, but Not Buy) we’re told “Americans are increasingly using their phones to avoid a trip to the bank, but they still have little interest in having mobile devices replace their wallets.”  The piece builds on the results of a Federal Reserve survey released on Wednesday.  The Fed finds the adoption of various tools isn’t as robust as one might be led to believe.  If you have the time, it might be worth downloading the Fed’s results.

Aloha Friday!

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