Jamie Dimon, CEO of JPMorgan Chase & Co., has now been infamously linked to his declaration that the “golden age of banking” is upon us, though bankers and directors often follow that celebratory tone with a caveat, whether they’re speaking about technology, growth or governance topics.
This dynamic became clear at Bank Director’s 2018 Bank Board Training Forum, held Sept. 10-11 at the Four Seasons Hotel Chicago, where nearly 200 directors, chairmen, lead directors and chief executives discussed how the favorable economy has also added pressure and challenge in a range of areas on the priority lists for bank boards, including governance, technology, risk and, of course, growth.
It is clear that a strong economy has kicked earnings into high gear, which draws headlines when buybacks or 30-percent growth in earnings per share is announced on quarterly earnings calls. But at the same time, transition and new challenges are presenting themselves in front of bank leaders regardless of size, location or whether the company is public or private. The industry is shifting, and so does the conversation when bankers and directors discuss anything from growth strategies to technology.
Banks must embrace and leverage the capability of technological advancements, but…
The cost and risk associated with such integrations are, and will remain, a challenge.
In a closing panel of three successful chief executive officers, Scott Dueser, CEO of First Financial Bankshares in Abilene, Texas, Dorothy Savarese, CEO of The Cape Cod Five Cents Savings Bank in Southeastern Massachusetts, and Dave Mansfield, CEO of The Provident Bank in Amesbury, Massachusetts, all said cybersecurity and technological improvements are top-of-mind for their companies, but finding a balance between convenience and value are challenging.
“We’re using technology to enhance—take away the menial tasks. We have to deliver value. We’re not going to do that with just technology,” Mansfield says.
Fintech disruption will continue, but…
“This is not a time to be scared,” says Ed Kelley, vice president of sales for TransCard Payments, LLC, who, along with Ahron Oddman, area vice president at nCino, Inc., billed themselves as “the face of fintech” to the audience.
Payments and small-business lending, which Oddman discussed, highlight two areas where the agility of fintechs enables them to attract more business. Kelley noted that while a challenge, “there’s also a good bit of opportunity” to partner with fintechs to be competitive.
“In order to be competitive, you have to spend money. And in order to spend money, you have to be competitive,” Kelley says, noting the paradox.
Competition among community banks is intense, but…
It’s not seen as coming from the major financial institutions despite their ability to attract low-cost deposits.
Most bankers suggest their competition remains other community banks, credit unions and fintechs, not the largest institutions. Joe Bower, CEO of CNB Bank, a $3 billion bank based in Clearfield, Pennsylvania, says those large institutions “are actually really good for us,” because they often have little interest in the tier of commercial customers a bank similar to his would have, and instead are interested in large-scale commercial real estate clients.
Regulations are beginning to relax, but…
The pressure on sound governance is increasing, both in oversight of bank management and internal governance.
Board refreshment is drawing greater scrutiny as the average age of directors is increasing, according to Alan Kaplan, founder and CEO of Kaplan Partners, a sign that refreshment and diversity remain tough topics for many boards.
A show of hands among attendees indicated that while evaluation is consistent, peer evaluation is less common, though proxy advisory firms like ISS and Glass Lewis are ramping up pressure on boards to evaluate their performance with greater frequency.
Regulators are also placing greater scrutiny on board oversight, highlighted by “direct finger pointing” at the board of Wells Fargo & Co. by the Federal Reserve and legal actions against loan committees in the wake of the financial crisis.
M&A is increasing in number and “red hot,” but…
Traditionally hot metropolitan markets are becoming scarcer in terms of potential targets, and some banks are considering alternatives to traditional deals.
Jonathan Hightower, an M&A attorney in Atlanta with Bryan Cave, points to WSFS Financial Corp.’s $1.5-billion deal to acquire Beneficial Bancorp Inc., which will result in the new $13 billion bank pouring investments into technology.
Despite an active market, Hightower says boards should carefully vet any potential deal, because “if it doesn’t offer opportunity for growth, what’s the point.” Hightower also notes that banks should consider alternative growth strategies, like an initial public offering, that can provide a different path to raise large amounts of capital.
The financial crisis is firmly in the rearview mirror, and the industry is the healthiest it has been in almost a generation by many metrics. But that should not stop banks from planning for the next downturn, or how they can maintain a competitive advantage against their peers.
“This is the way we compete, we think about these things futuristically,” said Jennifer Burke, a partner with Crowe LLC.