Tag: Second Curve Capital

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3 Trends (and 3 Issues) Every Bank’s Board Needs To Consider

Quickly:

  • The challenges faced by financial institutions today are as numerous as they are nuanced. Be it data security, emerging technology, fraud, crisis management and/or the effectiveness of internal controls, I opened the 12th annual Bank Audit & Risk Committees Conference by laying out a number of key governance, risk and compliance issues and trends.

CHICAGO — While a sophomore at Washington & Lee University, a professor loudly (and unexpectedly) chastised a close friend of mine for stating the obvious. With a wry laugh, he thanked my classmate “for crashing through an open door.” Snark aside, his criticism became a rallying cry for me to pause and dive deeper into apparently simple questions or issues.

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I shared this anecdote with some 400 attendees earlier today; indeed, I teed up Bank Director’s annual program by reminding everyone from the main stage that:

  1. We’re late in the economic cycle;
  2. Rates are rising; and
  3. Pressure on lending spreads remains intense.

Given the composition of this year’s audience, I acknowledged the obvious nature of these three points. I did so, however, in order to surface three trends we felt all here should have on their radar.  I followed that up with three emerging issues to make note of.

TREND #1:
Big banks continue to roll-out exceptional customer-facing technology.

Wells Fargo has been kicked around a lot in the press this year, but to see how big banks continue to pile up retail banking wins, take a look at Greenhouse by Wells Fargo, their app designed to attract younger customers to banking.

TREND #2:
Traditional core IT providers — Fiserv, Jack Henry & FIS — are under fire.

As traditional players move towards digital businesses, new players continue to emerge to help traditional banks become more nimble, flexible and competitive.  Here, FinXact and Nymbus provide two good examples of legitimate challengers to legacy cores.

TREND #3:
Amazon lurks as the game changer.

Community banker’s fear Amazon’s potential entry into this market; according to Promontory Interfinancial Network’s recent business outlook, it is their greatest threat.

In addition to these trends, I surfaced three immediate issues that banks must tackle

ISSUE #1:
Big banks attract new deposits at a much faster pace than banks with less than $1 billion assets.

If small banks can’t easily and efficiently attract deposits, they basically have no future. ‘Nuf said.

ISSUE #2: 
Bank boards need to know if they want to buy, sell or grow independently.

In a recent newsletter, Tom Brown of Second Curve Capital opined that “if you have less than $5 billion in assets, an efficiency ratio north of 65%, deposit costs above 60 basis points, and earn a return on equity in the single digits, this really is time to give some thought to selling.”  As I shared on LinkedIn yesterday, the 3 biggest bank M&A deals of the year took place in May: Fifth Third Bancorp’s $4.6 billion purchase of MB Financial, Cadence Bancorp’s $1.3 billion acquisition of State Bank Financial and Independent Bank Group’s $1 billion agreement to buy Guaranty Bancorp. 
 I don’t see the pace of consolidation slowing any time soon — and know that banks need to ask if they want (and can) be buyers or sellers.

ISSUE #3:
The risk of data breaches across industries continues to increase.

Be it risk management, internal control or third-party security considerations, every aspect of an institution is susceptible to a data breach — and managing these threats and identifying appropriate solutions takes a village that includes the most senior leaders of an organization.

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Just as banks need to develop their audit and risk capabilities, skills and talents, so too do officers and directors have both an opportunity and the responsibility to stay abreast of various trends and topics.  Bank Director’s event continues tomorrow with some fascinating presentations. To see what’s been shared already, take a look at Twitter, where I’m tweeting using @aldominick and #BDAudit18.

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Let the Good Times Roll

Checking in from a rain-soaked Reagan National airport, where I think I see the plane I’ll take down to New Orleans taxiing towards its gate.  Yes, it’s “Growth Week” at Bank Director, and I’m heading to the Crescent City to host bank CEOs, Chairmen and board members keen to focus on big picture business issues surrounding growth (not necessarily associated with mergers and acquisitions) and profitability.

New Orleans

A Deep Dive

I realize the phrase “let the good times roll” is most frequently heard during Mardi Gras celebrations in New Orleans; I’m using it to tee up Bank Director’s Growth Conference that kicks off tomorrow morning at the Ritz-Carlton.  Once the lights come up, I’ll be interested to hear:

  • How growth is driving pricing;
  • Why efficiency & productivity are both key elements in positioning a bank to grow; and
  • If “overcapacity” in the US banking industry offers opportunities.

I’m particularly excited for our opening session with Thomas Brown, CEO, Second Curve Capital.  We’ve asked him to help us “set the table” for the next two days of conversations with an outlook for banks across the country by reviewing the current capital market and operating conditions, thereby providing financial context to the next two days’ presentations.  If I don’t cover his remarks in my post tomorrow, you can bet our editor, Jack Milligan, will on his must-read blog The Bank Spot.

A Look Back

Much of last year’s conversation revolved around technology and the need to adapt to a changing marketplace, as well as the importance of creating a unique niche in a competitive landscape dominated by the biggest banks.  Many of our bank speakers at the conference had a more nuanced view of technological change. Richard Hill, the chief retail banking officer for the $19-billion asset Hancock Holding Co. in Baton Rouge, Louisiana, said when he got into banking in the 1970s, the prediction was that checks would go away and branch banking would go away. That clearly didn’t happen, or at least not at the accelerated pace that many predicted. The problem for his bank and for many others is that profits are getting squeezed with low interest rates, and the bank needs to make investments that expand revenue. As he said, “a great challenge we have is figuring all this out.”

Take Our Your Crystal Balls

Let me wrap up by sharing a 2 minute video our team compiled on the “future” of banking.  We played it at our Acquire or Be Acquired conference in January and the perspectives of KPMG’s national banking leader, the CEO of Congressional Bank, etc. are worth a watch and listen.

Laissez les bons temps rouler!

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