How A Cat Named Jackson Ties Into the Biggest Tech IPO in 15 Years

As we wind down the year, I’m taking a look back on the biggest tech IPO of 2020.

WASHINGTON, DC — I first ventured into nCino‘s Wilmington, NC headquarters when the pioneer in cloud banking and digital transformation solutions employed less than ten people. Today, that number exceeds 1,000. Since that first flight into ILM, I have met a number of their senior team, enjoyed myself at their annual nSight conferences and heard how cloud-based companies like theirs appeal to bank executives and their boards.

Their employment growth parallels the success of their business, one that transitioned from a private company to a public one this summer. As you can see, their IPO (code-named “Project Jackson”) made it on the cover of Bank Director magazine this summer.

I was delighted that our editorial team chose both the story name, and cover art, based on the inspiration behind “Project Jackson.” In addition, proud that we shed light on a much bigger story; namely, how the Covid-19 pandemic impacts the process of going public.

As an early New Years gift, I took this out from behind the BankDirector.com paywall and share the unabridged article, authored by John Maxfield, below.

Project Jackson

Nobody at nCino slept well the night of July 13, 2020. The company, a pioneer of cloud-based services for financial institutions, was going public the next day. Never before had the spotlight shone so intensely on the rapidly growing technology company based in Wilmington, North Carolina. It was a moment of truth. Its leadership team and employees had spent almost a decade building the company — now investors would judge it over the course of a single day. Going public is always a gamble, but never more so than in a global pandemic.

Dory Weiss woke up early the next morning. The 41-year-old vice president of engineering at nCino was scrambling to upload photos onto a mobile app. The app would broadcast images taken by nCino employees onto Nasdaq’s seven-story monitor in Times Square. What better way to mark the occasion, Weiss thought, than a picture of her cats with an nCino-themed pinata that a colleague gave her for Cinco de Mayo? There was only one problem. “Getting cats to do anything you want them to do is a fool’s errand,” Weiss laments. “So there was this laughably bad photograph of the cats and my partner, Katie, trying to stage them.”

Similar scenes were unfolding in hundreds of homes across Wilmington and around the world. Over 900 nCino employees in 12 countries uploaded more than 6,000 photos that morning. They then spent hours watching a livestream of Nasdaq’s giant monitor as it cycled through the images.

Weiss arrived at nCino’s headquarters around 8 a.m. Hundreds of her colleagues would have done the same, but for the social-distancing restrictions enacted to slow the spread of Covid-19. The few dozen who showed up that morning planted themselves in a pair of common areas on the second and third floors, with the rest patched in remotely.

Everyone was watching CNBC.

“There’s an IPO today,” announced David Faber, co-anchor of CNBC’s morning show, Squawk on the Street. “nCino, N-C-N-O. Cloud software for financial institutions — fintech.”

“I want that,” co-anchor and Mad Money host Jim Cramer responded. “What is it? nCino?”

“Yeah. N-C-N-O,” Faber repeated.

“Done. I want 10%.”

After pricing at $31 per share the night before, nCino’s stock opened for trading at $71 two minutes before noon. People erupted into cheers. By the end of the day, nCino’s stock closed at $91.59, good for a 195% surge on its first day as a public company. Only one other technology company in the past 20 years — China’s search engine giant, Baidu, which debuted in 2005 — performed better.

Had this been the height of the tech bubble in early 2000, no one would have been surprised. But this was two weeks after the close of the worst economic quarter in the United States since the Great Depression. Nearly a third of economic output had vanished. Four months earlier, 6.9 million people filed for unemployment benefits in a single week. How did nCino’s share price nearly triple in this environment? And how did its executives, employees and advisors navigate the intricacies of filing an initial public offering — from securing regulatory approval, to enticing investors, to actually listing on the exchange — when they couldn’t meet with each other, let alone investors, in person?

The story of nCino’s IPO — code-named “Project Jackson,” after CEO Pierre Naudé’s cat, which was named after the nCino employee, Reid Jackson, whose car it was found under one day in the company’s parking lot — is compelling on its own. Yet, it also sheds light on a bigger story about how the process of going public may have been permanently altered by the Covid-19 pandemic.

The journey to become a publicly traded company started for nCino at a meeting on the 27th floor of Bank of America Corp.’s building in midtown Manhattan on Sept. 24, 2019. The nation’s second largest bank by assets was acting as its lead underwriter; it’s also an nCino client. “We sat down, talked about the company and mapped out the process, working backward from when we wanted to go public,” recalls Jonathan Rowe, chief marketing officer of nCino.

The original plan was to debut in late May. That way, nCino could benefit from the results of its latest fiscal year, which would close on Jan. 31, yet still beat the summer lull when traders and portfolio managers flee New York City for places like the Hamptons.

The biggest undertaking at that stage was drafting the S-1, the document submitted to the Securities and Exchange Commission for an IPO. In nCino’s case, its S-1 ran 322 pages, densely packed with legalese, risk factors, an explanation of the business and financial statements for the preceding three years. “Drafting the S-1 is an incredibly involved process,” says nCino’s chief corporate development and legal officer, Greg Orenstein, who took the lead on the process. “Essentially, we are describing over eight years’ worth of work, product development, innovation and customer success in one document for investors to use to decide whether to invest in our company.” Hours were spent parsing the simplest terms, like how to distinguish between banks that were customers of nCino, and customers of those banks — nCino has “customers,” it decided; its bank customers have “clients.”

Everything proceeded like clockwork in the two months after nCino confidentially filed its S-1 on the Thursday before Christmas 2019. Its IPO working group responded to questions and addressed requested edits to the document from the SEC. Its financial team closed the books on the 2020 fiscal year. And its executives and advisors began preparing the presentation they would use on its roadshow, a grueling two weeks spent flying around the country pitching the company’s stock to institutional investors.

Then Covid-19 struck.

“We were moving along as the virus spread around the country, then the markets started getting hit,” recalls David Rudow, nCino’s chief financial officer. “The speed at which the stock market declined was very concerning. To me, it’s like, ‘The market is discounting some really bad news.’”

By mid-March, the stock market was in freefall. The S&P 500 dropped 9.5% on March 12 — the sixth worst drop in the history of the index. Four days later, it tumbled 12% — the biggest single-day decline since Black Monday on Oct. 19, 1987. All told, the S&P 500 had lost 38% of its value by then. Meanwhile, the Chicago Board Options Exchange’s Volatility Index, or VIX, a measure of expected future stock market volatility, spiked by a factor of five — exceeded in recent years only in the immediate wake of Lehman Brothers’ bankruptcy in 2008.

“The arrival of the pandemic and market volatility was really an opportunity to sit back and try to figure out what was going to happen,” says Martin Wellington, managing partner at Sidley Austin’s office in Palo Alto, California, who served as nCino’s outside counsel in the IPO process. “I’ve done IPOs and lots of other capital markets transactions in the midst of market volatility, but the thing that made this fundamentally different was the inability to have physical interactions with people.”

By late March, Rudow says, it became a foregone conclusion. “We said, ‘You know what? We’re just going to hold off.’”

The decision to delay the IPO fell to nCino’s CEO, Naudé, a distinguished-looking South African who’s built like a rugby player and speaks with an Afrikaans accent.

Sharing the stage with Frank Sorrentino (CEO of ConnectOne Bank) and Pierre Naudé at Experience FinXTech

The 61-year-old executive grew up as one of five children of a well-to-do farmer in Worcester, South Africa. From an early age, he fit the psychological profile of an entrepreneur, exhibiting a restless disdain for authority and an appetite for competition. “I always struggled with authority over me, people trying to tell me what to do,” he says. Despite this, Naudé served an obligatory year in the South African military after graduating from high school. He spent three months in basic training and two months in guerrilla warfare training before returning to his hometown for the last seven months to effectively serve as a beat cop. “Nothing ever happened,” he says. “If I think back, still to this day, I think we were as useless as you possibly could get.”

A turning point came after Naudé finished his military service. “I sat back and said, ‘What am I going to do now?’” he recalls. “I literally did not have a plan.” So he applied for a job at a bank — Boland Bank, the equivalent of a regional bank in the United States. He spent the next few months learning how to program, and then the following eight years doing just that. One of Boland’s claims to fame during Naudé’s time at the bank, and a project he was intimately involved in, was stringing together the first ATM network in South Africa. “We wrote lots of code, wrote the core, wrote teller systems, wrote deposit systems, a loan system, et cetera,” Naudé says.

After traveling to the United States to train and scout technology for Boland, Naudé immigrated with his wife and infant daughter to America in 1987. He moved first to Philadelphia, where he worked as a consultant. He then moved to Iowa, working while going to school at Upper Iowa University, before a former colleague from Boland recruited him to work at S1 Corp., a software development company near Atlanta. It was at S1, which specialized in payment processing and financial services software, that Naudé made the connections that later brought him to nCino.

Naudé is a popular leader by all accounts. “Why do I always tear up when this man talks,” commented an nCino employee in an internal chat log provided to the author from a company “all-hands” meeting in April 2020. “For those of you who are starting on your career paths and are fortunate enough to be part of the nCino family,” wrote another, “embrace it and appreciate it. There is no other company that even comes close in culture to what we have here.”

This is intentional. “The thing I want to make sure you understand is that we have never paid a consultant to come and tell us about culture and values and those things,” Naudé says. “I think the benefit of being 30 years old, coming to America, starting at the bottom again, and working for a variety of managers — that experience gave me a deep understanding of the value of people. And so when we started the company, literally after about six months, we probably had 20 people, I thought, ‘Well, it’s probably time to get our values together.’ So I drew them up. They’re the same values that drive us today.”

Among Naudé’s colleagues at nCino, Orenstein probably knows him best. “I’ve been fortunate to know Pierre for 15 years and I consider him a dear friend,” says Orenstein, who had previously worked with Naudé at S1. “Pierre is just Pierre. There’s no pretending to be someone he’s not. He’s just an extremely transparent person, and as you spend time with him, you pick up on that.”

While Naudé decided in early March to delay nCino’s IPO, the project’s working group of executives, legal advisors and investment bankers continued laboring behind the scenes. It was never a matter of if nCino would go public, only a matter of when. One question looming over them was whether it was even possible to pull off an IPO in a pandemic, given that they wouldn’t be able to meet prospective investors in person.

It was proposed in early April that they start testing the waters with investors over video-conferencing platforms like Zoom Video Communications and BlueJeans by Verizon. The initial reaction, Wellington recalls, was, “We’ll never do that. Let’s just wait for this to pass, and then in May, when we can get back together with people, we’ll go around and do the usual testing-the-waters meetings.” Within weeks, however, their perspective had shifted. “We were like, ‘Okay, we’re doing this virtually,’” says Wellington, who advises regularly on IPOs. “The bankers were saying, ‘Yeah, we’ve done one or two, and it seems to work pretty well. But of course, we’ll wait for this to pass before we can do the roadshow, because no one would ever invest in an IPO without being able to meet the management team in person.’”

After the federal government declared the Covid-19 pandemic a national emergency on March 12, the IPO market froze. Not a single company went public for the rest of the month, compared to nine IPOs over the same period in 2019. The market started thawing in April, with new listings slowly trickling out. The pace picked up in May, with seven IPOs in the first week alone. But the breakthrough moment came on May 21.

That day, shares of direct-to-consumer insurance company SelectQuote climbed 35% on its first day of trading. That opened the floodgates. Thirty-seven companies went public in June, nearly a dozen more than in June 2019. Among those was ZoomInfo Technologies, which closed 62% higher in its debut. Far from being an IPO apocalypse, 2020 had become a bonanza.

“We thought in late March and early April that you would never get an IPO done in this market,” Wellington says. “But not only were IPOs getting done, the receptivity to them was surprising, frankly.”

The Federal Reserve is largely to thank for this. By March 15, it had cut the federal funds rate to 0%. That same day, it announced a round of quantitative easing, an unconventional monetary policy tool first deployed in the financial crisis of 2008-09 that floods capital markets with liquidity in order to drive down long-term interest rates. Over the next two and a half months, the Fed purchased $2.8 trillion worth of government bonds and other long-term securities. This lowered bond yields and triggered a deluge of capital into equities — especially technology stocks. Throughout the following four months, despite a steep drop in economic activity and sharp increase in unemployment, the S&P 500 recovered most of its lost ground, led by the likes of Amazon.com, Microsoft Corp. and Apple.

These events coincided with auspicious developments within nCino, too. On May 18, it completed its first-quarter review, capturing the company’s success with the Paycheck Protection Program, a loan program administered by the Small Business Administration designed to help small businesses survive the pandemic. All told, banks originated over $50 billion in PPP loans using nCino’s cloud-based Bank Operating System. New customers purchased its software; existing customers subscribed to new services. The coronavirus crisis had become a proving ground for nCino.

The moment was ripe, nCino’s executives concluded. They decided to pull the trigger after Memorial Day. The company would go public in mid-July.

We wanted to be one of the companies that helped open the IPO market,” Rowe explains. “We’ve always seen ourselves as a leader in cloud banking, so we brought that same mentality to the IPO process — not only from the perspective of the financial services industry, but for the economy overall.”

The success of nCino through the early stages of the Covid-19 pandemic wouldn’t come as a surprise to anyone who had followed the company. Amongst its founding software benefits, as it incubated within Live Oak Bancshares in 2010, was facilitating remote work.

The Wilmington-based bank specialized in originating SBA loans to veterinarians, which minimized credit risk because the loans were backed by the government. But to generate enough scale to earn a respectable profit, the strategy had to expand nationwide. In lieu of branches, Live Oak bought a pair of corporate jets — “branches in the sky” — to shuttle loan officers around the country winning business. There was just one catch. To make the vision a reality, the bank needed software that enabled its loan officers to remotely complete loan files from end to end.

Of the millions of lines of code embedded in nCino’s software, Nathan Snell wrote the first one. Even on a video conference call, the 34-year-old chief innovation officer of nCino emits the peculiar breed of confidence that’s born from a union of acute intelligence and knowing success from a young age. As the son of an engineer, Snell grew up surrounded by technology in Santa Cruz, California. His earliest memory is of using a soldering iron to build computers. He taught himself how to program and, at age 11, convinced a popular talk radio host in San Francisco to hire him to design her website.

Snell eventually made his way to Live Oak in 2010, after graduating from the University of North Carolina Wilmington and getting to know the bank’s founder and CEO, James “Chip” Mahan, and president, Neil Underwood. “I wasn’t actually sure if I wanted to join them fully, so I did some consulting to start,” Snell says. “About a week in, I was looking at how they were operating and was like, ‘Wow, there’s a lot of opportunity here.’ I spent a lot of time with Chip and Neil, and they were both just phenomenal. As a budding entrepreneur, I was like, ‘Wow, it would be amazing to be able to work directly with these guys and learn from them.’ So I shuttered what I was doing and joined them full-time.”

In doing so, Snell became nCino’s first employee.

From its earliest days, nCino had grand ambitions. Naudé hung a sign in its makeshift office space declaring it the global headquarters of the worldwide leader in cloud banking. “Every day you walked in and you’re like, ‘Wow, we’re the worldwide leader with only 10 people,’” recounts Rowe, who joined the company eight years ago as one of its earliest employees.

The year 2012 proved to be a seminal one for nCino. After other banks expressed interest in Live Oak’s software, nCino, a play on the Spanish word for “oak,” was spun out as a separate company. By the end of that year, the newly independent company had raised $9 million in capital, hired more employees and signed on 25 customers. It followed that in 2013 by raising $10 million from Wellington Management Co., a prominent institutional investor in the banking space, and hosting its first user conference, nSight, which long-tenured employees look back on as the company’s coming-out party. Over the next five years, nCino would grow to 130 customers and 270 employees.

Originally, nCino focused on the smaller institutions that populate the financial services industry — community and regional banks as well as credit unions. But that changed in late 2014, when SunTrust Banks, a $205 billion bank at the time, became its first enterprise banking client. (SunTrust has since merged with BB&T Corp. to form Truist Financial Corp., the sixth largest commercial bank in the United States. It remains an nCino customer.)

SunTrust was spending north of $20 million a year to digitize its commercial lending system. That’s when Pam Kilday, head of operations for its wholesale bank, came across nCino. “I thought, ‘This is exactly what I’m trying to build for not only commercial loans, but all of business banking,’” Kilday recalls. “We decided to investigate the feasibility of bringing nCino in, doing kind of a co-development, which flew in the face of everything we had been doing. At first, just about everybody wanted to fire me.”

(A year after retiring from SunTrust in 2018, Kilday joined nCino’s board of directors.)

The technology wasn’t the only thing that attracted SunTrust to nCino, Kilday says — it was also the people. “I thought Pierre was the real deal,” she says. “Everything we saw, every commitment they made to us at that time, they delivered. Whether it was documentation on their security setup, whether it was their contractual agreements with Salesforce at the time. Everything they told me was true. If they could do something, they would say it. If they couldn’t, they would tell me.”

That may sound trite, but it’s a frequent refrain of nCino customers. “Our relationship with nCino developed before I got to know Pierre, though I’ll say he sealed the deal as most CEOs can do when they get into a high-pressure situation,” says Frank Sorrentino III, chairman and CEO of ConnectOne Bancorp, a $7.6 billion bank based in Englewood Cliffs, New Jersey. “But the nCino organization sold the relationship on its own. There’s a great group of people there. They’re committed to building a better mousetrap to help banks provide a level of service that clients will expect in the future.”

By the time nCino publicly filed its S-1 with the SEC on June 22, 2020, it boasted more than 1,100 bank and credit union customers, over 900 employees spread across seven global offices and $138 million in annual revenue.

On July 14, the morning of nCino’s IPO, Rowe woke up at 4 a.m. and walked three blocks to the beach. Nine years earlier, he left a position as a professor at the University of North Carolina Wilmington to join the embryonic nCino team. Rowe is a study in contrasts. He masks intensity with levity. He’s an executive at nCino yet takes video calls during the pandemic in the unfinished basement of his house, framed by hastily constructed shelves and insulation falling from the ceiling.

Sitting on the beach that morning waiting for the sunrise, Rowe was more reflective than ecstatic. He had been involved in Project Jackson since the beginning. And now, despite nCino’s decision to go public in a global pandemic, there was little doubt that it would be a success. The evening before, 8 million shares of nCino’s stock, equal to 8.5% of its total outstanding share count, were allocated to institutional investors at $31 per share. The demand for the offering was 49 times oversubscribed. Far from being a hindrance, conducting a virtual roadshow, consisting of more than 50 meetings over five days, proved to be a blessing in disguise. “I didn’t think about it until now,” says Rudow, “but because you’re touching so many more people, it probably helped build the book.”

But Rowe and the marketing team’s work wasn’t done. They mailed over 900 swag boxes to employees, packed with miniature nCino-themed bells to mark the occasion. They repainted and reconfigured Naudé’s office to serve as a makeshift studio for the media interviews he would conduct that day. And along with Nasdaq, they co-hosted an internal broadcast giving nCino employees a behind-the-scenes view of the day’s events, walking them through exactly how a company goes public.

While the stock market opens for trading at 9:30 a.m. EST, it isn’t until later in the morning that newly listed companies on Nasdaq start to actively trade. “We do not open up our IPOs at the same time as the broader market,” explains Joe Brantuk, chief client officer at Nasdaq. “There’s about 8,000 publicly traded companies in the United States and we want to give portfolio managers and traders an opportunity to position their existing holdings at the market open before turning their focus to new listings.”

Instead, Nasdaq reserves a “quotation window” for each new listing on the morning it debuts. This is the on-deck circle, if you will, just before a company’s stock begins trading. During this window, which can last from 10 minutes to multiple hours, Nasdaq’s market makers work with a stock’s underwriters to find an “indicative price” at which there’s a balance between buyers and sellers. If there are too many sellers relative to buyers, the stock could dramatically fall. If there are too many buyers relative to sellers, the reverse will happen. Neither is ideal. To minimize volatility, the goal is to find the price at which approximately 10% of the newly listed shares will trade hands — nCino’s magic number was 800,000 shares.

The quotation window for nCino opened at 10:10 a.m.

At 10:15 a.m., Nasdaq’s market makers were fielding buy orders for 4.7 million shares versus sell orders of 200,000 shares.

At 10:48 a.m., 486,000 shares were paired off at $62.

At 11:00 a.m., 708,000 shares were paired off at $65.

At 11:15 a.m., the threshold had been reached: 931,000 shares paired off at $70.

Still, they kept going.

By 11:40 a.m., 1.5 million shares were paired at $71 — about 20% of the total raise.

At 11:55 a.m., Jay Heller, head of capital markets at Nasdaq, gave the two-minute warning.

At 11:58 a.m., nCino’s stock opened for trading at $71 per share.

By 4 p.m., when the market closed for the day, nCino’s stock stood at $91.59 per share.

There is no single answer to the question of what makes for a successful IPO. The timing must be right. The story must be right. The market dynamics must be right. And, especially in the case of nCino, which went public in a pandemic, you must make the most of a challenging situation.

There is no question that nCino prevailed on all accounts. It is a company that is leading the digital revolution of one of the biggest industries in America. Its culture and story appeal to investors across the board. And its nimble response to the restrictions imposed on the IPO process from the pandemic — from negotiating the inability to meet with investors in person to orchestrating an IPO experience that nearly 1,000 remote employees could participate in — made it, in many ways, bespoke for this moment.

Quick Guide: Bank Mergers & Acquisitions

Mergers & Acquisitions will continue to serve as one of the biggest revenue drivers for banks in the United States.

By Al Dominick // @aldominick

I’m in Chicago to host Bank Director’s annual Bank Audit & Risk Committees Conference, an exclusive event for Chief Executive Officers, Chief Financial Officers, Chief Risk Officers, Chairmen and members of the board serving on an audit or risk committee.  As I reviewed my speaker notes on yesterday’s flight from D.C., it strikes me that of all of the risks facing a bank’s key leadership team today — e.g. regulatory, market, cyber — knowing when to buy, sell or grow independently has to be high on the list.

While we welcome officers and directors to a series of peer exchanges and workshops today, the main conference kicks off tomorrow morning. To open, we look at the strategic challenges, operating conditions and general outlook for those banks attending this annual event.  With public equities and M&A valuations at multi-year highs, numerous institutions having raised capital to position themselves as opportunistic buyers and sellers continuing to take advantage of a more favorable pricing environment, I thought to share three points about bank M&A for attendees and readers alike:

  1. In 2014, there were 289 whole-bank M&A transactions announced (and 18 failed-bank transactions) for a total of 307 deals. Through the first quarter of this year, there have been 67 whole-bank M&A transactions announced and just 4 failed-bank transactions.
  2. KPMG’s annual Community Banking Outlook Survey illustrates that M&A will be one of the biggest revenue drivers for community banks over the next three years, especially as community banks face the need to transform their businesses in an effort to reach new customer segments and streamline their operations.
  3. The continued strengthening of transaction pricing — with 2015 transaction multiples at the highest levels since 2008 — is an important and emerging trend.

According to Tom Wilson, a director of investment banking with the Hovde Groupmany of the factors driving the current M&A cycle have been well documented and remain largely unchanged.  These include improving industry fundamentals, increased regulatory costs, net interest margin compression in a low rate environment, industry overcapacity and economies of scale.  As he notes, while those themes have been playing out in various forms for several years, some additional themes are emerging that are significantly impacting the M&A environment; for example, “the advantages of scale are translating to a significant currency premium. For years we have seen a significant correlation between size, operating performance and currency strength. Lately, that trend has become a significant currency advantage for institutions with greater than $1 billion in assets and resulted in smaller institutions being constrained in their ability to compete for acquisition partners because of a weaker valuation.”

Moreover, an industry outlook published by Deloitte’s Center for Financial Services earlier this year says that the “M&A activity seen in 2014 is likely to continue through 2015, driven by a number of factors: stronger balance sheets, the pursuit of stable deposit franchises, improving loan origination, revenue growth challenges, and limits to cost efficiencies.” However, their 2015 Banking Outlook also acknowledged that “as banks move from a defensive to an offensive position to seek growth and scale, they should view M&A targets with a sharper focus on factors such as efficiencies, growth prospects, funding profile, technology, and compliance.”

##

For those looking for more on bank M&A, let me suggest a read of our current digital issue (available for free download through Apple’s App Store, Google Play and Amazon.com).  In it, we look at how to “bullet-proof” your deal from shareholder lawsuits and have a great video interview with ConnectOne Bank’s CEO, Frank Sorrentino, who talks about how his bank fought back against fee-seeking shareholder activists.  To follow the conversations from the JW Marriott and Bank Director’s annual Bank Audit & Risk Committees Conference, check out #BDAUDIT15, @bankdirector and @aldominick.

From Bank Director’s 2015 Acquire or Be Acquired Conference: The “New Consolidators” (Video)

To kick things off today, we took a look at those banks reshaping the banking industry.  With M&A providing an avenue for banks to drive improved operating leverage, earnings, efficiency and scale, we focused on the emergence of mid-sized regional banks that are growing through the consolidation of smaller banks.  My thanks to Jack Kopnisky, President & CEO, Sterling National Bank & Sterling Bancorp (NYSE: STL), Ben Plotkin, Vice Chairman of the Board, Stifel Financial Corp (NYSE: SF) and Frank Sorrentino, Chairman & CEO, ConnectOne Bank (NASDAQ: CNOB) for sharing their time and opinions in their session entitled “The New” Consolidators this morning.

Spotlight on FinTech

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

Yodlee_logo.svg

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

web-Logo-Malauzai@2x

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

db_logo.ba0411771e22

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

##

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.

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.

img_1174

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!

FI Tip Sheet: Some of Banking’s Best CEOs

Last month on Yahoo Finance, Sydney Finkelstein, professor of management and an associate dean at Dartmouth’s Tuck School of Business, produced a list of the Best CEOs of 2013, one that includes Jeff Bezos of Amazon, Pony Ma of Tencent,  John Idol of Michael Kors, Reed Hastings of Netflix and Akio Toyoda of Toyota.  Inspired by his picks, I reached out to a number of colleagues that work for professional services firms to ask their thoughts on the top CEOs at financial institutions — along with why they hold them in such regard.  What follows in this morning’s tip sheet are myriad thoughts on some of the best CEOs in the business today — broken down into three categories: the “biggest banks” with $50Bn+ in assets, those with more than $5Bn but less than $50Bn and finally, those in the $1Bn to $5Bn size range.

AboutThatRatio = image for Jan 10.001

(1) Top CEOs at financial institutions over $50Bn

The names and logos of institutions over $50Bn — think M&T with some $83Bn in assets, KeyCorps with $90Bn, PNC with $305Bn and US Bancorp with $353Bn — are familiar to most.  Leading these massive organizations are some tremendously talented individuals; for example, John Stumpf, the CEO at Wells Fargo.  Multiple people shared their respect for his leadership of the fourth largest bank in the U.S. (by assets) and the largest bank by market capitalization.  According to Fred Cannon, the Director of Research at Keefe, Bruyette & Woods, John “has created and maintains a unified culture around one brand, (one) that demonstrates strength and stability.  Wells is exhibit #1 in the case for large banks not being bad.”

Similarly, U.S. Bancorp’s Richard Davis garnered near universal respect, with PwC’s Josh Carter remarking “Richard has continued to steer US bank through stormy seas, continuing to stay the course running into the downturn, taking advantage of their position of relative strength, weathering the National Foreclosure issues and managing to avoid being considered part of ‘Wall Street’ even though US Bank is one of the 6 largest banks in the U.S.”

Finally, Steve Steinour, the CEO at Huntington Bancshares, inspired several people to comment on his work at the $56Bn institution.  Case-in-point, Bill Hickey, the co-Head of the Investment Banking Group at Sandler O’Neill, pointed out that since taking the helm in 2009, Steve has led a “remarkable turnaround… Huntington is now a top performer and is positioned to be the dominant regional bank in the Midwest.”

(2) Top CEOs at financial institutions between $5Bn and $50Bn

For banks between $5Bn and $50Bn, Greg Becker at Silicon Valley Bank garnered quite a few votes.  Headquartered in Santa Clara, California, I think they are one of the most innovative banks out there — and several people marveled that it has only grown and diversified under Greg’s leadership.  According to Josh Carter, “what they’re doing is a good example of how a bank can diversify their lending approach while maintaining a prudent credit culture.”  This echoes what Fred Cannon shared with me; specifically, that the $23Bn NASDAQ-listed institution is “the premier growth bank with a differentiated product.”  

Fred also cited the leadership of David Zalman, the Chairman & Chief Executive Officer at Prosperity Bancshares Inc., a $16 billion Houston, Texas-based regional financial holding company listed on the NYSE.  According to Fred, David demonstrates how to grow and integrate through acquisitions that is a model for other bank acquirors.  C.K. Lee, Managing Director for Investment Banking at Commerce Street Capital, elaborated on David’s successes, noting their development “from a small bank outside Houston to one of the most disciplined and practiced acquirers in the country and more than $20 billion in assets. The stock has performed consistently well for investors and the acquired bank shareholders – and now they are looking for additional growth outside Texas.”

Keeping things in the Lone Star state, C.K. also mentioned Dick Evans at Frost Bank.  In C.K.’s words, “this is a bank that stayed true to its Texas roots, maintained a conservative lending philosophy, executed well on targeted acquisitions and a created distinctive brand and culture. As Texas grew into an economic powerhouse, Frost grew with it and Mr. Evans was integral to that success.”

Finally, Nashville’s Terry Turner, the CEO of Pinnacle Financial Partners, drew Bill Hickey’s praise, as he “continues to successfully take market share from the larger regional competitors in Nashville and Knoxville primarily as the result of attracting and retaining high quality bankers. Financial performance has been impressive and as a result, continues to trade at 18x forward earnings and 2.4x tangible book value.”

(3) Top CEOs at financial institutions from $1Bn to $5Bn

For CEOs at banks from $1Bn to $5Bn, men like Rusty Cloutier of MidSouth Bank (“a banker’s banker”), David Brooks of Independent Bank Group (“had a breakout year in 2013”) and Leon Holschbach from Midland States Bancorp (“they’ve not only grown the bank but added significant presence in fee-income businesses like trust/wealth management and merchant processing”) drew praise.  So too did Jorge Gonzalez at City National Bank of Florida.  According to PwC’s Josh Carter, Jorge took over a smaller bank in 2007 “with significant deposit concentrations, large exposures to South Florida Real Estate, weathered a pretty nasty turn in the economy and portfolio value and emerged with a much stronger bank, diversified loan portfolio and retained key relationships.  Jorge has also managed to maintained an exceptional service culture, with a significant efficiency level and has combined relationship driven sales to grow the bank.  Jorge has also diversified the product mix and is one of the few smaller banks that can really deliver on the small bank feel with big bank capabilities.”

In addition, Banner Bank’s CEO, Mark Grescovich, won points for his work at the commercial bank headquartered in Walla Walla, Washington.  Mark became CEO in August 2010 (prior to joining the bank, Mark was the EVP and Chief Corporate Banking Officer for the $24Bn, Ohio-based standout FirstMerit). In Fred Cannon’s words, the transformation “is truly exceptional and Mark accomplished this by encouraging and utilizing a talented team of bankers from legacy Banner.”

Finally, Ashton Ryan at First NBC in New Orleans is one I’ve been told to watch.  Indeed, C.K. Lee shared how “Ryan capitalized on the turmoil in New Orleans banking to turn in strong organic growth, with targeted acquisitions along the way. The bank is recently public and has been rewarded by the market with a strong currency to go with its strong balance sheet and earnings.”

##

In addition to the list above, I have been very impressed by Peter Benoist at Enterprise Bank in St. Louis, look up to Michael Shepherd, the Chairman and Chief Executive Officer for Bank of the West and BancWest Corporation and respect the vision of Frank Sorrentino at ConnectOne.  This is by no means a comprehensive list, and I realize there are many, many more leaders who deserve praise and recognition.  Click the “+” button on the bottom right of this page to comment on this piece and let me know who else might be recognized for their leadership prowess.

Aloha Friday!

What you learn at a puppet show

Hank Williams "walking" the red carpet in Nashville

I wrapped up a fairly intense period of travel with a day trip to NYC on Monday and a subsequent overnight in Nashville on Tuesday & Wednesday. While in the Music City, our Chairman invited me to join him at a puppet festival (yes, you read that right). The show, a musical chronicle of the history of country music, benefitted the Nashville Public Library Foundation and the Country Music Hall of Fame. Laugh if you will, but I will tell you, it was amazingly creative. As I mingled with various benefactors of both institutions, I found myself engaged in conversation with the former managing partner at Bass, Berry & Sims. Having led one of the preeminent law firms in the Southeast, his perspective on how dramatically the legal profession has changed in the last fifteen years struck a nerve. The parallels between his profession and the banking space were immediately apparent. So with Patsy Cline playing in the background, we talked about the future of banking, professional services firms and relationship building in general. As we did, I made a mental note to share three thoughts from this week that underscore how things continue to change in our classically conservative industry.

(1) First Republic’s founder and CEO, Jim Herbert, shared some of his Monday morning with me while I was in NYC. Jim founded the San Francisco-based bank in 1985, sold it to Merrill Lynch in 2007, took it private through a management-led buyout in July 2010 after Merrill was acquired by Bank of America, then took it public again this past December through an IPO. For those in the know, First Republic is one of this country’s great banking stories. Not only is it solely focused on organic growth, it’s also solely focused on private banking. While my conversation with Jim was off-the-record, I left his office convinced its the smarts within, not the size of, a bank that will separate the have’s from the have not’s in the years ahead. Clearly, as new regulations and slim profit margins challenge the banking industry, the skills and backgrounds of the employees who work in banking must change.

(2) Speaking of successful banks that have successfully navigated recent challenges… KeyCorp’s Chief Risk Officer, Bill Hartman, joined us last week for Bank Director’s annual Bank Audit Committee Conference in Chicago. Bill is responsible for the bank’s risk management functions, including credit, market, compliance and operational risk, as well as portfolio management, quantitative analytics and asset recovery activities. While I shared some thoughts about that program last week, I thought to elaborate on how KeyCorp divides the roles and responsibilities of its Audit and Risk Committees. Some still think you “retire” to the board; as he showed, that is definitely not the case – especially not at an institution that counts 2 million customers, 15,000 employees and assets of $89 Bn. In terms of Key’s Audit Committee, members oversee Internal Audit, appoint independent auditors and meet with the Chief Risk Officer, Chief Risk Review Officer, and of course, for financial reporting, the CFO. I thought it was interesting to note their Audit Committee met 14 times in 2012 — twice as often as the institution’s Risk Committee convened. With many smaller banks considering the creation of such a committee, let me share the focus of their Risk Committee. Strategically, it is responsible for:

  • Stress testing policy;
  • Dividend and share repurchases;
  • Modeling risk policy;
  • Asset and liability management; and
  • Setting tolerances, key risk indicators and early warning indicators

For those thinking about introducing a Risk Committee into their bank, take a look at what some of our speakers shared leading up to last week’s Audit Committee conference for inspiration.  For a recap of the event, our editor shares his thoughts in today’s Postcard from the Bank Audit Committee Conference.

(3) Yesterday, I was pleased to learn that ConnectOne’s CEO, Frank Sorrentino, agreed to participate in our annual Bank Executive & Board Compensation Conference in November. In addition to being one of the more active bankers I follow on Twitter, I’ve written about his bank going public in a previous post. Today, it’s a WSJ piece that shows U.S. regulators grilling banks over lending standards and “warning them about mounting risks in business loans” that has me citing the NJ-based bank. This particular article quotes the CEO of the Englewood Cliffs, N.J. bank in terms of lending standards (yes, a subscription is required). He reveals that regulators recently asked what he is doing to ensure he isn’t endangering the bank by making risky loans. His response: “the bank is trying to offset the lower revenue from low-interest-rate commercial loans by cutting expenses.” While I get the need for oversight, I do wonder how far the regulatory pendulum will continue to swing left before sanity/reality sets in at the CFPB, FDIC, OCC, etc. I’ll stop before I say something I regret, but do want to at least encourage a Twitter follow of Frank and his “Banking on Main Street” blog.

Aloha Friday!

Friday Fun

Below are three stories related to the financial community that I read/watched/heard this week… An added bonus? After this sentence, About That Ratio is 100% free of any mention of today’s nonsensical sequester.

(1) So, the IPO market for banks is ringing? This week, McKinney, Texas-based Independent Bank Group (the parent of Independent Bank) went loud with its plans to raise up to $92 million in an initial public offering. The bank plans to use the proceeds from the IPO to, surprise, surprise, repay debt, shore up its capital ratios for growth & acquisitions and for working capital.  This filing comes only a few weeks after ConnectOne in NJ (CNOB) closed its previously announced offering of 1.6M shares of common stock @ $28/share.  Good to see…

(2)… and with Independent Bank’s news, now might be time to take a read through this brief overview of the JOBS Act put out by the attorneys at MoFo.  Why?  A centrepiece of the Act is its new IPO on-ramp approach…

(3) On the non-IPO tip, check out this cool/intuitive infographics for tech trends posted by NASDAQ to its Facebook page yesterday afternoon.  Who said social media + banks ain’t quite as simpatico as they might be…

Image

Aloha Friday to all!

%d bloggers like this: