2019 Bank M&A Survey: What’s Driving Growth


acquisition-12-3-18.pngOver the past year, Congress has passed both tax reform and regulatory relief—signed into law by President Donald Trump in December 2017 and May 2018, respectively. And the Trump administration has appointed regulators who appear to be more favorable to the industry, including former bankers Joseph Otting, to the Office of the Comptroller of the Currency, and Jelena McWilliams, to the Federal Deposit Insurance Corp.

As a result, the 184 bank executives and directors participating in the 2019 Bank M&A Survey, sponsored by Crowe LLP, voice a resoundingly positive view of Washington, particularly for Trump and Mick Mulvaney. Eighty-seven percent say the Trump administration has had a positive impact on the banking industry. The same percentage give glowing marks to Mulvaney, the interim head of the Consumer Financial Protection Bureau who has turned the agency into less of a regulatory cop and more into a regulator with an even-handed approach toward the financial industry.

The survey examines industry attitudes about issues impacting M&A and growth, along with expected acquisition plans and expectations for the U.S. economy through 2019. It was conducted in September and October 2018.

Tax reform had a big impact on the industry, with many making investments to grow their business. Thirty-seven percent say their bank invested in new growth initiatives as a result of tax reform, and 36 percent in new technology. One-quarter indicate the bank raised employee salaries, and 19 percent paid a one-time bonus to employees. Some shareholders saw gains as well: 25 percent of respondents say their bank paid a dividend, and 10 percent bought back stock.

When asked where the bank designated the largest percentage of its tax windfall, 32 percent point to new growth initiatives, and 26 percent to shareholders.

Additional Findings

  • More than half believe the current environment is more favorable for deals, and 50 percent say they’re likely to acquire another bank by the end of 2019.
  • Thirty percent believe their bank is more likely to acquire as a result of the Economic Growth, Regulatory Relief and Consumer Protection Act, which rolled back some regulations for the banking industry. Two-thirds indicate regulatory reform will have no impact on their M&A plans.
  • Acquiring deposits is very attractive to today’s potential dealmakers: 71 percent say the potential target’s deposit base is a highly important factor in making the decision to acquire. 
  • To better compete for deposits, 29 percent say their bank will acquire deposits via acquisition.
  • Fifty-three percent say branch locations in attractive or growing markets are highly important, and 49 percent place high value on lending teams or talented lenders at the target.
  • Despite more sympathetic regulators and the passage of regulatory relief, 72 percent say their bank’s examiners have grown no less stringent over the past two years.

To view the full results to the survey, click here.

Smart Growth: Expanding Your Branch Network


growth-11-15-18.pngBranches play an important—but changing—role in the typical bank’s retail strategy. Increasing digital adoption may make consumers more apt to deposit a check using a smartphone camera than through a teller, but they still want to visit a branch for advice: A Celent survey published in May 2018 found more than three-quarters of customers want to meet a banker face-to-face to discuss a topic in-depth. Very few—just 12 percent of millennials—say branches are unnecessary, and prefer all-digital interactions.

And that has many banks evaluating whether to expand their branch network, even in today’s digital age. In Bank Director’s 2018 Technology Survey, 54 percent of responding executives and directors said their bank plans to add branches.

Before you move forward with building or acquiring your next branch, here’s what you should keep in mind.

Establish goals.

Understand how the role of the branch fits within the institution’s overall delivery channel strategy, advises Jim Burson, a managing director at Cornerstone Advisors. “Start with, what are your growth objectives as an organization, and then second, how do you envision the role of the various channels supporting that growth objective.”

These goals will differ by bank. Burson says one of his clients prizes a branch’s “billboard value”—it lets customers know the bank is physically located in their market. That CEO values a big sign and a tiny lobby. “That’s a very clear objective for a branch. So, when they [build] new branches, if they can’t get the signing ordinance they want from a community or they can’t get the visibility they want when people are driving down the street, it’s off the table—that location is gone,” says Burson.

Before purchasing property and breaking ground on a new branch, a feasibility study should be conducted, advises John Smith, chief executive officer of retail banking consultant DBSI. Understand the deposit and loan opportunities within a desired market, and if there is room to gain market share for your bank.

“Every market we go into, we look at it strategically,” says William Stuard Jr., the CEO of $1.1 billion asset F&M Financial Corp. The branch should be within an hour or two of the bank’s headquarters in Clarksville, Tennessee, so the footprint is easy to manage.

Geographic expansion starts with a lending team. “We don’t go in and just get a building and try to start from scratch,” says Stuard. The bank’s Hendersonville, Tennessee branch started as a mortgage office, then a loan production office before the bank built a full-service branch in the town’s growing commercial area in 2017.

Taking an incremental approach to branch expansion appears to be a common method for testing the viability of a market.

William Chase Jr., the CEO of Memphis, Tennessee-based Triumph Bank, with $784 million in assets, says starting out with a loan production office helps the bank get into a market faster. “It’s a lot easier to go through the process of finding some nice office space and get an LPO approved,” he says. “Time is money.” And a full-service branch takes time to build.

He also credits commercial real estate expertise on the board with making smart financial choices on property.

Bassett, Nebraska-based Sandhills State Bank, with $242 million in assets, seeks to fill in the gaps in its sparsely populated area in Nebraska. When big banks pull back from the market, “it offers a great opportunity for community banks to fill that vacuum and pick up more deposits,” says CEO David Gale.

The bank’s current investors bought what was then a $28 million asset bank in 2010. The bank’s initial expansion occurred by sending lenders into new markets. These lenders’ first offices were, in fact, a pickup truck. “Our first three branches in 2010 out of the gate were built around lending talent and started out as loan production offices out of their pickups,” says Gale. Once lenders hit $5 million in loans, the bank would add an office in the market. At $10 million, they would open a branch and hire more staff.

Recent expansion has occurred through acquisition: Bank of Keystone in 2016, and in early 2019, the bank will purchase three western Nebraska branches from Western States Bank. At that point, Sandhills State Bank will reach $310 million in assets.

The pending branch acquisition (which is awaiting regulatory approval) will help the bank diversify its agricultural loan portfolio and acquire more deposits to fuel its loan growth. Like many in the industry, the impetus on deposit growth makes a branch acquisition more attractive than starting out organically with a lender in the market—though Gale does express a preference for organic growth.

Bank leaders hungry to acquire branches need to pay attention to opportunities in their markets. Gale has worked to build relationships with other bank CEOs, and this directly led to the the bank’s upcoming branch acquisition. In today’s competitive M&A market, bank CEOs need to be proactive to position their bank to pick up branches.

Improve the branch experience.

More consumers would switch banking providers over a poor branch experience (47 percent) than a poor digital experience (36 percent), according to the Celent survey.

When asked about specific branch experiences that would prompt them to switch, 68 percent cited ill-equipped banking associates, 55 percent long wait times and 49 percent impersonal service, meaning the bank doesn’t know the customer or understand what they need. Wealthier customers are even more sensitive to these oversights.

Some banks are solving this problem by adopting a universal associate or universal banker model.

“[Create] a relevant environment where you’re viewed as a place to get advice from,” says Smith of DBSI. “Today’s financial institutions are primarily still transactional.”

Because universal associates are capable of doing more for the customer—from service to advice—the customer has a better experience, and the bank can reduce its headcount in the branch. The universal banker model can also present a better career path for the employee, which should result in lower employee turnover.

But to make it work, universal associates should be properly trained, and the branch should be designed to make the most of the new model.

At Triumph Bank, universal bankers are “empowered to do almost anything that a customer would need,” from cashing a check to opening an account to financial planning options, says the bank’s human resources officer, Catherine Duncan. “We’ve got people that want to stick around and want to grow with the company. You empower them to make decisions … it keeps them engaged, it keeps them feeling valued.”

In addition to training these employees, the bank created an manual that serves as a go-to guide for any questions the associate might have, so they don’t have to run to a supervisor or another employee, and instead can help the customer confidently and immediately.

Triumph’s newer branches are designed without teller rows, and universal associates greet customers at the door.

At Sandhills, a lightly-staffed model works better in its sparsely populated market. The bank leverages technology to reach its rural customers—mobile adoption exceeds 50 percent, says Gale, which is on par with JPMorgan Chase & Co.—and you won’t find a drive-thru lane. “We want to talk to our customers,” he says.

Branch transformation initiatives should align with the bank’s overall objectives for its branch network, says Burson. And banks should evaluate their branches—old and new—to determine they’re meeting these goals. Too frequently, a branch is built, and the business case for that expansion isn’t revisited. “They don’t manage to the objectives,” he says. And that’s a big mistake.

How Bananas and Tech Firms Can Help Tackle the Talent Challenge


management-11-8-18.pngAll bank executives and directors say that recruiting, retaining and properly incentivizing top talent is a priority, but it’s the banks that truly excel at this that are able to separate themselves on the competitive playing field.

How to tackle the talent challenge was the theme of Bank Director’s 2018 Bank Compensation and Talent Conference, hosted this week at the Four Seasons Resort and Club at Las Colinas in Dallas, Texas.

The first day of the conference laid the groundwork by introducing the conventional techniques used today by human resources professionals throughout the bank industry.

On Monday morning, before the formal beginning of the conference, attendees participated in a half-day workshop, presided over by a panel of experts from Compensation Advisory Partners and Kilpatrick Townsend & Stockton LLP. The topics covered a broad range of issues, from common executive compensation challenges, to strategies for promoting diversity and inclusion, to tools that can be used to properly align pay and performance.

The second day of the conference built on this, in part through a pair of audience surveys.

In one survey, nearly a third (31 percent) of attendees said managing rising compensation and benefit costs is their top compensation challenge for 2019, more than half (56 percent) said they’ve raised wages to better compete for talent and in response to last year’s tax cut, and nearly three-quarters (70 percent) said they’ve expanded their internal training programs to develop young leaders.

These statistics were borne out with anecdotes. Beth Bauman, the head of human resources at Bank of Butterfield, an $11 billion bank based in Bermuda, talked about implementing a talent management program to help guide and groom the bank’s younger employees. And human resources officers from Cadence Bancorporation and Union Bankshares discussed the challenges of merging compensation cultures after an acquisition.

The final day of the conference delved into less conventional approaches to talent management.

The day started with an anecdote from Bank Director’s CEO, Al Dominick, about an Asian grocery store chain that figured out a new way to sell bananas. Instead of selling them in traditional, equally ripe bunches, the chain sold bananas in packages of five, with each banana at a different stage of ripeness. As a result, the bananas ripen in stages over a period of a week, not all at the same time.

The anecdote illustrates how approaching an issue in a creative way can result in an unconventional yet effective solution.

The first presenter on stage on Wednesday, Jason Mars, came not from a bank, but rather from a fintech company. Mars is the founder and CEO of Clinc, a company focused on bridging the gap between research on conversational artificial intelligence and its application for enterprises.

My No. 1 criterion for hiring is intellectual curiosity, because that’s what drives people to do really hard stuff,” said Mars. This is more important to Mars than other, more orthodox measures, like a prospective employee’s college grade point average or even their performance in the interview process.

“Passion is another priority, and flexibility,” said Mars. “It’s about figuring out whether they will be motivated to do hard stuff because they’re passionate, curious and interested.”

And finishing out the conference was a panel of three bank CEOs from across the country, all of whom shared their respective talent and compensation strategies.

One of the more innovative philosophies came from John Holt, CEO NexBank, a rapidly growing bank based in Dallas.
A group of investors acquired control of the bank in 2004, when it had only $55 million in assets. Seven years later, a new management team was brought in to hasten its growth. One way it did so was to promise its employees a bonus equal to 100 percent of their base pay when the bank passed the $8-billion threshold, which it recently eclipsed. The strategy should serve as a retention policy as well, explained Holt, because the bonus pays out over 24 months.

NexBank also buys lunch for its employees every day, offering them a menu of multiple restaurants to order from. It pays 100 percent of their health insurance premiums. And it has added a millennial to its board of directors—the bank’s 37-year-old chief operating officer, now the CEO heir apparent.

The net result, said Holt, was the bank has fewer, better people than many of its competitors, and it faces little employee turnover, sidestepping a perennial problem in any industry.

The point is while there is no magic bullet that will solve all of a bank’s talent and compensation challenges, understanding the tried-and-true approaches to doing so, as well as the less conventional strategies used in the market today, will help banks better compete for the next generation of employees.

How Netflix and JPMorgan Can Help Your Bank Win Right Now


strategy-11-2-18.pngAs one of the best-performing stocks on Wall Street, you can bank on Netflix spending billions of dollars on even more original programming, even without a profit. Likewise, JPMorgan Chase & Co.’s consumer and community banking unit attracted a record amount of net new money in the third quarter.

How do I know this, and what’s the same about these two things?

Read their most recent earnings reports. Netflix doesn’t hide its formula for success, and JPMorgan boasts about its 24 percent earnings growth, fueled by the consumer and community banking unit, which beat analyst projections.

While we all have access to information like this, taking the time to dig into and learn about another’s business, even when not in direct competition or correlation to your own, is simply smart business, which is why I share these two points in advance of Bank Director’s annual Bank Compensation & Talent Conference.

Anecdotes like these prove critical to the development of programs like the one we host at the Four Seasons outside of Dallas, Nov. 5-7.

Allow me to explain.

Executives and board members at community banks wrestle with fast-shifting consumer trends — influenced by companies like Netflix — and increasing financial performance pressures influenced by JPMorgan’s deposit gathering strategies.

Many officers and directors recognize that investors in financial institutions prize efficiency, prudence and smart capital allocation. Others sense their small and mid-size business customers expect an experience their bank may not currently offer.

With this in mind, we aim to share current examples of how stand-out business leaders are investing in their organization’s future in order to surface the most timely and relevant information for attendees to ponder.

For instance, you’ll hear me talk about Pinnacle Financial Partners, a $22 billion bank based in Nashville. Terry Turner, the bank’s CEO, shared this in their most recent earnings report:

“Our model of hiring experienced bankers to produce outsized loan and deposit growth continues to work extremely well. Last week, we announced that we had hired 23 high-profile revenue producers across all of our markets during the third quarter, a strong predictor of our continued future growth. This compares to 39 hires in the second quarter and 22 in the first quarter. We believe our recruiting strategies are hitting on all cylinders and have resulted in accelerated hiring in our markets, which is our principal investment in future growth.”

This philosophy personally resonates, as I believe financial institutions need to (a) have the right people, (b) strategically set expectations around core concepts of how the bank makes money, approaches credit, structures loans, attracts deposits and prices its products in order to (c) perform on an appropriate and repeatable level.

Pinnacle’s recruitment efforts also align with many pieces of this year’s conference. We will talk strategically about talent and compensation strategies and structuring teams for the future, and we will also explore emerging initiatives to enhance recruiting efforts.

We will also explore big-picture concepts like:

Making Incredible Hires
While you’re courting top talent, let’s start the conversation about joining the business as well as painting the picture about how all of this works.

Embracing Moments of Transformation
With advances in technology, we will help you devise a clear vision for where your people are heading.

Creating Inclusive Environments
With culture becoming a key differentiator, we will explore what makes for a high-performing team culture in the financial sector.

As we prepare to welcome nearly 300 men and women to Dallas to talk about building teams and developing talent, pay attention to the former Federal Reserve Chairman, Alan Greenspan. He recently told CNBC’s “Squawk Box” that the United States has the “the tightest market, labor market, I’ve ever seen… concurrently, we have a very slow productivity increase.”

What does this mean for banks in the next one to three years? Hint: we’ll talk about it at #BDComp18.

Future Banking Leadership Formula: Talent, Technology and Training


talent-11-1-18.pngIt’s an old phrase but still rings true today: An organization thrives when you get the right people in the right jobs.

That’s easy to say, but not always easy to do. Future leadership in banking is of great concern to boards today. And while there are myriad methods of finding good people, three key considerations in finding the right people include talent, or a transitioning generation in leadership; technology, or a heightened need for new and better ways to get the job done; and training, or existing employees looking for that golden career opportunity.

Talent: Transitioning Generations
Understanding generational differences is critical if a bank is seeking to attract young talent. Failure to understand these differences will only result in frustration. For example, boomers and millennials may not see eye to eye on a number of things. Older workers talk about “going to work” each day. Younger workers view work as “something you do,” anywhere, any time. If you’re looking for younger talent, whether on your board or within your bank leadership group, take the time to understand these generational classes. The more you know about their needs, expectations, and abilities, the easier it will be to attract them to your organization, resulting in growth that thrives on their new talent.

For younger talent, the hiring process needs to be short and to the point, with quick decision making. Otherwise, they’re quickly scooped up by competitors. Another key area is a greater focus on company culture. Millennials, for example, are sensitive to the delicate balance between work and life. Some may easily turn down a decent paying job for one that provides more control over his or her schedule and life.

Take the time to read, learn, understand, and seek out that younger talent you believe will move your organization to the next level.

Technology: An Opportunity to Rethink What People Do
In the time it takes to write, publish and read this article, the technology target for banks has moved exponentially. Keeping up requires a great deal of focus, investment and thinking outside the box. And because of the pace of change in technology, a chief technology officer (CTO) is a critical part of today’s banking leadership team.

The qualities needed in an effective CTO include the ability to challenge conventional wisdom, move decisively toward objectives and flexibility. Since long-term growth and expense management quite often are dependent upon the right technology, the CTO plays a major role in management’s long-term strategic planning for the bank. Even now, technology is performing the work entire departments used to do just a few years ago.

An effective CTO will help ensure the bank is ready to move into new growth phases of the business, including internet banking, enhanced mobile banking, cybersecurity, biometrics, and even artificial intelligence.

Training: The Value of Existing Employees
While utilizing online recruiting systems can help you find good people, there could be gems right down the hall. Growing talent from within is too often overlooked. Traditionally, boards have felt this is a job for the CEO or human resources. But some have argued that a lack of leadership development poses the same kind of threat that accounting blunders or missed earnings do. This lack of leadership development has two unfortunate results: 1) individual employees seeking to make a greater contribution never get the opportunity to shine and 2) the bank loses a potential shining star to the competitor down the street.

Lack of an effective development program is shortsighted and diminishes the value of great employees. Today’s boards must take specific steps in becoming more involved in leadership development. First, encourage your executive team to be more active in developing the leadership skills of direct reports. Second, expand the board’s view of leadership development. Take an active role in identifying rising stars and let them make some of the board presentations. In this way, the board can assess for itself the efficacy of the company’s leadership pipeline. And meanwhile, the rising stars gain direct access to the board, gleaning new perspectives and wisdom as a result.

As boards consider their duties and responsibilities, identifying future leadership should be at or near the top of the list. Organizational growth depends on it and the bank will be better able to embrace an ever-changing generational, technological and business environment.

Two Traditional Strategies to Supercharge a Bank’s Growth


strategy-10-26-18.pngBankers would be excused for thinking right now that everything has changed in the industry and nothing is the same—that all of the old rules of banking should be thrown out, replaced by digital strategies catering to the next generation of customers.

There is some truth to this, of course, given how quickly customers have taken to depositing money and checking their account balances on their smartphones. Yet, banks should nevertheless think twice before throwing the proverbial baby out with the bathwater.

This is especially true when it comes to growth strategies.

Make no mistake about it, digital banking channels are thriving. At PNC Financial Services Group, two-thirds of customers are primarily digital, up from roughly a third of customers five years ago. And a quarter of sales at Bank of America Corp., the nation’s second biggest bank by assets, now come by way of its digital channels.

Yet, just because digital banking is transforming the way customers access financial products doesn’t logically mean that the old rules of banking no longer apply.

In a recent conversation with Bank Director, Tim Spence, the head of consumer banking at Fifth Third Bancorp, observed that digital channels are still not as effective as traditional mergers and acquisitions when it comes to moving into a new geographic market.

If a bank wants to grow at an accelerated rate, in other words, it shouldn’t cast aside the traditional method of doing so. This is why it’s valuable to continue learning from those who have safely and rapidly built banks over the past 30 years—as the barriers to interstate banking came down.

One approach is to wait for a downturn in the credit cycle to make acquisitions.

This strategy has been used repeatedly by $117 billion asset M&T Bank Corp., based in Buffalo, New York. In the most recent cycle, it acquired the largest independent bank in New Jersey, Hudson City Bancorp, as well as one of the nation’s preeminent trust businesses, Wilmington Trust—both at meaningful discounts to their book values.

Great Southern Bancorp, a $4.6 billion asset bank based in Springfield, Missouri, followed a similar strategy in the wake of the financial crisis. Through four FDIC-assisted transactions between 2009 and 2012, Great Southern transformed from a community bank based in southwestern Missouri into a regional bank operating in multiple states along the Mississippi and Missouri Rivers.

A second approach that has proven to be effective is to buy healthy banks in good times and then accelerate their growth.

Bank One did this to grow from the third largest bank in Columbus, Ohio, into the sixth largest bank in the country, at which point it was acquired by JPMorgan Chase & Co.

Its former chief executive officer, John B. McCoy, pioneered what he called the uncommon partnership: a non-confrontational, Warren Buffett-type approach to buying banks, where the acquired bank’s managers remain on board.

Another bank that has applied this acquisition philosophy is Glacier Bancorp, an $11.8 billion asset bank headquartered in Kalispell, Montana. Starting in 1987 under former CEO Michael “Mick” Blodnick, Glacier bought more than two dozen banks throughout the Rocky Mountain region.

Importantly, however, it wasn’t the assets acquired in the deals that helped Glacier grow from $700 million to $9.5 billion in assets in the 18 years Blodnick ran the bank. Rather, it was the subsequent growth of those banks post-acquisition that accounted for the majority of this ascent.

Glacier’s success in this regard boiled down to its model.

Today, it operates more than a dozen banks in cities and towns throughout the West as divisions of the holding company. These banks have retained their original names—First Security Bank, Big Sky Western Bank and Mountain West Bank, among others—as well as a significant amount of autonomy to make decisions locally.

Approaching acquisitions in this way has reduced the customer attrition that tends to follow a traditional acquisition and rebranding. At the same time, because these banks are now within a much larger organization, they have larger lending limits and access to new, often more profitable deposit products, allowing them to expand both sides of their balance sheets.

In short, while it’s true that the financial services industry is changing as a result of the proliferation of digital distribution channels, it isn’t true that these changes render the traditional growth strategies that have worked so well over the years obsolete.

A Valuable Lesson from the Best Bank You’ve Never Heard of


strategy-8-24-18.pngThere are a lot of places you would expect to find one of the highest performing banks in the country, but a place that wouldn’t make most lists is Springfield, Missouri—the third-largest city in the 18th-largest state.

Yet, that’s where you’ll find Great Southern Bancorp, a $4.6 billion regional bank that has produced the fifth best total all-time shareholder return among every publicly traded bank based in the United States.

Since going public in 1989, just two years before hundreds of Missouri banks and thrifts failed in the savings and loan crisis, Great Southern has generated a total shareholder return, the ultimate arbiter of corporate performance, of nearly 15,000 percent.

What has been the secret to Great Southern’s success?

There are a number of them, but one is that the Turner family, which has run Great Southern since 1974, owns a substantial portion of the bank’s outstanding common stock. Between CEO Joe Turner, his father and sister, the family controls more than a quarter of the bank’s shares, according to its latest proxy report, which places most of their net worth in the bank.

The importance of having “skin in the game” can’t be overstated when it comes to corporate performance. This is especially true in banking, where a combination of leverage and the frequent, unforgiving vicissitudes of the credit cycle renders the typical bank, as one of the seminal books on banking written over the past decade is titled, “fragile by design.”

The trick is to implement structural elements that combat this. And one of the most effective is skin in the game—equity ownership among executives—which more closely aligns the interests of executives with those of shareholders.

“Having a big investment in the company…gives you credibility with institutional investors,” says Turner. “When we tell them we’re thinking long-term, they believe us. We never meet with an investor that our family doesn’t own at least twice as much stock in the bank as they do.”

An interesting allegory that speaks to this is the way the Romans and English governed bridge builders many years ago, as Nassim Taleb wrote in his book Antifragile:

For the Romans, engineers needed to spend some time under the bridge they built—something that should be required of financial engineers today. The English went further and had the families of the engineers spend time with them under the bridge after it was built.

To me, every opinion maker needs to have ‘skin in the game’ in the event of harm caused by reliance on his information or opinion. Further, anyone producing a forecast or making an economic analysis needs to have something to lose from it, given that others rely on those forecasts.

The most important thing having skin in the game has done for the executives at Great Southern is the long-term approach to their family business. “Our dad turned a valuable asset [stock in the bank] over to me and my sister [a fellow director at the bank] and my goal, when I’m finished, is to turn that over to my kids and have it be worth a lot more,” says Turner.

This becomes especially evident when the economy is hitting on all cylinders. “When institutional investors and analysts…are rewarding explosive growth, you need to have a longer-term view,” says Turner. “For instance, the explosive growth you can get from acquisitions is great in terms of the short-term boost to your stock price, but over the longer term that type of thing can reduce your shareholder return.”

Having skin in the game also addresses the asymmetry in risk appetite that otherwise exists between management and shareholders, where the potential reward to management in short-term incentives from taking excessive risk outweighs the potential long-term threat to a bank’s solvency, a principal concern of shareholders.

A long-term mindset promoted by skin in the game also causes like-minded, long-term investors to flock to your stock. This is a point Warren Buffett has made in the past by noting that companies tend to “get the investors they deserve.”

“That point is probably right,” says Turner. “We have a much larger proportion of retail investors than a lot of other companies do. I understand where institutional, especially fund, investors are coming from. It’s great for them to say they’re long-term shareholders, but they have investors in their funds that open their statements every quarter and want to see gains. So it’s harder for big money managers to be truly long-term investors.… It’s a different story with retail investors, who, in my opinion, tend to be longer term by nature.”

This cuts to the heart of what Turner identifies as the biggest challenge to running a successful bank.

“The hardest thing is balancing different constituencies,” says Turner. “We have a mission statement that is to build winning relationships with our customers, associates, shareholders, and communities. What we’re talking about is building relationships that are balanced in a way that allow each of those constituencies to win.”

The moral of the story is that, much like bridge builders in ancient Roman and English times, one of the most effective ways to construct an antifragile bank is by putting skin in the game.

How You Can Foster an Entrepreneurial Environment


entrepreneur-8-8-18.pngGone are the days of bank employees repetitively completing their tasks. A productive day in today’s banking environment consists of collaboration and teamwork to solve challenging problems.

Community banks and credit unions need to deliver on two industry trends to succeed: 1) managing interest rate, compliance, and regulatory risks, and 2) adapting with technology and products to compete against a decline in branch visitors, check volume, and cash transactions. The question is, how?

The answer is new ideas. Managers and leaders must cultivate an entrepreneurial environment where employees are not afraid to share them, because they are the future of the banking industry.

1. Refine the team
Leader Bank itself is an entrepreneurial venture started in 2002 with $6 million in assets. After spending the first six years focusing on implementing traditional methods, we began shifting our hiring practices to include employees with little or no banking experience but that had a lot of potential for creative problem solving. Today, almost 40 percent of our employees (excluding loan officers) are new to the banking industry.

By not hiring solely based on education and experience, and focusing more on potential, we have seen some of our most successful periods of growth to date.

2. Listen to customers
New ideas often present themselves as customer issues.

Take this example: A landlord customer encounters legal complications with his tenant’s security deposit, so to avoid future issues he assumes a greater risk by no longer requiring security deposits. Identifying this real-world problem led to the creation of a new security deposit platform that manages compliance headaches for landlords.

3. Pursue lopsided opportunities
All ideas come with upsides and downsides, but as we all know, the best ideas are asymmetrical, meaning the upsides outweigh the downsides.

A great example is when we developed our rewards checking product.

Before developing the product, we knew we not only wanted to grow deposits but also reward our customers for using us as their primary bank. We analyzed the downside versus the potential upside before deciding to move forward.

The downside vs. the upside
A downside is best kept small and finite. It’s something you would be comfortable with if it actually happened.

With our rewards checking product, the only real downside we could foresee was lack of participation. There is always a risk with a new product or process that the client may not fully adopt it.

However, in this particular situation, the upsides significantly outweighed our fear of failure.

To start, we developed Zeugma in-house. We had existing employees working on it, to keep our cost of investment low. It gave us control of the product features, which allowed us to differentiate leading to strong growth in deposits.

Assessing the upside vs. downside
With any new idea, senior management and the board will want to know what the downside is, and if it is limited. That limitation is finite and can be articulated, then odds of approval increase.

When trying to measure the downsides relative to the upsides, there are questions we ask to lean one way or the other:

  • Is the total potential financial loss greater than the cost of the project?
  • Could the project cause significant reputational damage?
  • Does the project require additional resources?
  • Does the project effort need significant interdepartmental coordination?

If the answers are “no,” then the idea likely carries low risk and can move quickly.

There are also additional ways to mitigate risks throughout the launch process of any new idea.

Start a focus group
There is no better way to see how a new idea works before launching full-force than experimenting with beta groups. Testing the product with hand-selected, vested people first helps gives managers an idea how customers will use the product and understand pitfalls before going live.

Conduct weekly meetings
Weekly meetings are great for adapting procedures as necessary throughout the development and launch process. Teams from product development to marketing can share ideas on how to develop and grow the product to its utmost potential.

Maintain strong financial tracking
Tracking every penny will ease the anxiety that comes along with the development and launch process of any new idea. Start a shared spreadsheet among involved employees and enter in the income and expenses along the way. If the financial budget is kept in check, it is easier to plan where to allocate future expenses.

Also don’t forget to track success, including each new customer acquired or deposit gathered.

Moving forward
Banks are inherently risk-management institutions, which is why understanding the downsides of new ideas is so important.

Transitioning a financial institution to an entrepreneurial, spirited workforce takes time, patience and dedication. Every idea, whether a success or a failure, is a stepping stone to the next. Over time, even in a highly regulated industry like banking, a culture of energy and entrepreneurship can be a competitive advantage.

Have MVB and BillGO Reached True Financial Symbiosis?


payments-7-18-18.pngSometimes a fintech partnership doesn’t result in a new product or service for the bank but can still result in new opportunities for both organizations. The relationship between BillGO, a real-time payments provider based in Fort Collins, Colorado, and MVB Financial Corp., a $1.6 billion asset financial holding company headquartered in Fairmont, West Virginia, isn’t your typical partnership story. Instead, it’s an example of true symbiosis between a bank and a fintech firm, with MVB gaining deposits and fee income while helping BillGO scale its real-time payments solution to more than 5,000 banks and credit unions. Less than a year ago, the company worked with just 200 institutions. It plans to go live with another 3,000 in the next few months.

The two companies were recognized as finalists for the Best of FinXTech Partnership at Bank Director’s 2018 Best of FinXTech Awards.

MVB supports BillGO’s growth in a number of ways. The bank processes its payments, resulting in fee income for MVB. The bank also holds deposits for the company and its B2B clients in connection with their transactions. And the bank’s compliance expertise is another key benefit. “We keep them out of trouble, so to speak,” says MVB CEO Larry Mazza.

This growing understanding of the fintech industry’s needs, gained in part due to its relationship with BillGO, is quietly turning MVB into a bank of choice for fintech firms.

“We’re meeting other, more mature fintech companies that allow us to help them in different ways,” Mazza says. “It’s really started to be very positive for us, in learning fintech [and] in profitability, deposits as well as fee income.”

“They don’t really advertise it, but they do have a specialty with fintech because of their compliance [expertise], because of their ability with payments and their ability with partnerships to deliver some unique offerings that fintech companies can’t normally do by themselves,” says BillGO CEO Dan Holt.

Before partnering with MVB, BillGO worked with a larger bank, but Holt says MVB is a Goldilocks-style bank for the company: Big enough to help the company scale, but small enough to make decisions quickly and develop an in-depth relationship with his company. Holt adds that his company has access to MVB’s executive team, unlike his previous banking provider.

And MVB is an investor in BillGO. “I felt this would be a really good [way] for us to start the process of investing in fintech,” says Mazza. “Once you invest money in it, it definitely piques your interest.” He describes the bank as an active investor, and Mazza has served on the company’s board since January 2017.

This expertise has been invaluable for BillGO, given Mazza’s financial background and his ability to shed light on the needs of the banking industry, says Holt.

Just as the BillGO relationship is a strong reputation-builder for MVB with other fintech firms, Holt says that MVB’s investment in BillGO speaks volumes about his company’s reputation to potential bank clients. New customers feel more comfortable knowing a traditional financial institution is an investor and has completed the associated due diligence.

Holt joined the MVB board late last year as an extension of the partnership between the two organizations, and Mazza says his background has been highly beneficial to the bank. “[Holt] has intimate knowledge into the industry and payment processing,” says Mazza, and his expertise enhances board discussions about technology trends and opportunities. “Our board members could see the difference.”

Many bank boards struggle to add tech-savvy directors, with 44 percent of bank directors and executives in Bank Director’s 2018 Compensation Survey citing this as a key challenge.

“Banks are more traditional. They really honor regulation,” says Mazza. “It’s our lifeblood, and we have taken regulation extremely seriously. We see regulation as a competitive advantage, if we do it right.” But partnering with BillGO, and adding Holt to the board, is helping MVB think like a startup as well. “That has changed our lives,” he says. “BillGO has helped us think more innovatively [and be] more forward-thinking.”

Enhancing the Lending Process Through Data



Customers today expect quicker decisions, and data can empower banks to improve the customer experience. Data can also enable growth as banks gain more and better information about their customers. In this video, Steve Brennan of Validis outlines how banks can confront the challenges they face in making the most of their data.

  • How Data Has Transformed Lending
  • The Benefits of Leveraging Data
  • The Challenges Banks Face
  • Addressing Data Deficiencies