A Regulator Looks Back

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Julie Stackhouse has witnessed a lot of turmoil in the industry since she started her career in 1980 at the Federal Reserve Bank of Kansas City.

An oil-fueled recession made for an interesting start to what became a four-decade career, lastly as executive vice president handling supervision of banks. In the early 1980s, she spent a lot of time in Oklahoma at a bank that failed as a result of the excesses of the time, Penn Square Bank. The Oklahoma City-based bank made a lot of bad energy loans, selling loan participations to big banks like Chase Manhattan Bank, later JPMorgan Chase & Co., and Chicago’s Continental Illinois National Bank & Trust Co. — which failed as a result in 1984, the largest bank to fail at that time.

Banks were overloaded with deposits; Penn Square had to put that money to work somewhere. Shoddy underwriting got deals done faster, and the bank grew rapidly before a run on deposits in the summer of 1982 resulted in its insolvency. Sound familiar?

“There [were] some real cowboys in Oklahoma back in those days,” she recalls. “And you pretty much had to figure out when you were being told what was happening with candor, and maybe when it was just a little bit embellished. And so I learned a lot from that.”

She’s learned a lot through the series of crises that hit the industry and retired on the cusp of another one, the Covid pandemic that hit the U.S. in early 2020. So, she swore she’d never join a bank board — until George Makris Jr. of Simmons First National Corp. persuaded her to join his. Makris, now executive chairman of the $28 billion, Pine Bluff, Arkansas-based bank, served as CEO until his retirement last year. She kept saying ‘no,’ she says. “I will give George credit. He is persistent when he has something in mind.”

But as much as she’s learned from a career regulating banks, it’s the five years she spent as an active stay-at-home mom — where she became deeply involved in improving her local community — that taught her about engagement and leadership.

“Just because I was not getting paid doesn’t mean I was choosing to do nothing,” she recalls. She joined the planning commission in Egan, Minnesota, and volunteered locally. She worked with great leaders, learning lessons she says she never would have learned at the Fed. “To be a great leader, you have to not only have a vision of what you want to accomplish, you have to have the energy and commitment to carry that vision along.”

She takes the same active approach to retirement as she took to motherhood, serving on the planning commission in Fort Collins, Colorado. Stackhouse shares lessons learned from her career as a regulator and weighs in on the industry’s current challenges in this edition of The Slant podcast.

This episode, and all past episodes of The Slant Podcast, are available on Bank Director.com, Spotify and Apple Podcasts. Governance issues like these will be covered during Bank Director’s Bank Board Training Forum in Nashville Sept. 11-12, 2023.

Building Optimism in Times of Uncertainty

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It is no secret that the past few years have lacked certainty or stability. It only takes a few seconds of searching the internet, watching the news or looking at social media to be reminded of some aspect of doom and gloom going on in the world. It can be easy for us to get focused on the negative, and it certainly does not help when headlines highlight this angle.

As a manager or leader within your organization, it has become increasingly important to home in on your abilities to find and bring optimism to your culture and team. Optimism is hopefulness and confidence about the future or the successful outcome of something.

For some people, this outlook may come more naturally; for many of us, this will take active effort.

“Some people are optimistic by nature, but many of us learn optimism as well. Anyone can learn to be optimistic. The trick is to find purpose in work and life,” says Dr. Leah Weiss, a professor at the Stanford Graduate School of Business who specializing in mindfulness in the workplace and was quoted in an NBC News article about optimism.

With the New Year upon us, here are seven steps that bank executives and directors can take to proactively move to a more-optimistic orientation in 2022.

  1. Reflect on 2021 and write down some things that you are grateful for. Try not to let your immediate thoughts or mood of the day drive your reflections.
  2. Evaluate who you spend your time with. Plan to spend more time around people that you consider positive.
  3. Communicate goals and what success looks like for your organization this year.
  4. Create a plan to celebrate the small wins that you will encounter in the year ahead. It will be easier to celebrate personally and with your team if you have a tentative plan ahead of time.
  5. Take time to acknowledge small things you appreciate about your employees and coworkers. If you are in a remote environment this may just be a quick text, team’s message or email.
  6. Everyone had their own version of 2021, and giving them an opportunity and outlet to express their experience and decompress could create more space for being optimistic about the future.
  7. Watch less news and read fewer headlines.

We may not know what this next year will bring exactly but certainly there will be a mix of good and bad to come. “Positive thinking does not mean that you ignore life’s stressors. You just approach hardship in a more productive way,” says Kimberly Hershenson, a licensed master social worker, in the same article.

With some small steps of proactiveness, hopefully we can help shift our own mindset and those around us to identify, appreciate and rally around the positive. If we can do this, we can inspire more unity and alignment within our organizations, drive more loyalty from our teams and in turn produce more positive results for our organizations.

Disney’s Lesson for Banks

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When Robert Iger became The Walt Disney Co. CEO in 2005, the company’s storied history of animation had floundered for a decade.

So Iger turned to a competitor whose animation outpaced Disney’s own and proposed a deal.

The relationship between Pixar Animation Studios and Disney had been strained, and Iger was nervous when he called Pixar’s CEO at the time, Steve Jobs. The two sat down in front of a white board at Pixar’s headquarters and began listing the pros and cons of the deal. The pros had three items. The cons had 20, as the now-retired Iger tells it in his Masterclass online.

“I said ‘This probably isn’t going to happen,’’’ Iger remembers. “He said, ‘Why do you say that?’”

Jobs could see that the pros had greater weight to them, despite the long list of the cons. Ultimately, Disney did buy Pixar for more than $7 billion in 2006, improving its standing, animation and financial success. In the end, Iger says he “didn’t think it was anything but a risk worth taking.”

I read Iger’s memoir, “The Ride of a Lifetime,’’ in 2021, just as I began planning the agenda for our annual Acquire or Be Acquired Conference in Phoenix, which is widely regarded as the premier M&A conference for financial industry CEOs, boards and leadership teams.

His story resonated, and not just because of the Disney/Pixar transaction.

I thought about risks worth taking, and was reminded of the leadership traits Iger prizes — specifically, optimism, courage and curiosity. Moreover, many of this year’s registered attendees wrestle with the same issues Iger confronted at Disney: They represent important brands in their markets that must respond to the monumental changes in customer expectations. They must attract and retain talent and to grow in the face of challenges.

While some look to 2022 with a sense of apprehension — thanks to Covid variant uncertainty, inflation, supply chain bottlenecks and potential regulatory changes — I feel quite the pep in my step this January. I celebrate the opportunity with our team to return, in-person, to the JW Marriott Desert Ridge. With over 1,350 registered to join us Jan. 30 through Feb. 1, I know I am not alone in my excitement to be again with people in real life.

So what’s in store for those joining us? We will have conversations about:

  • Examining capital allocation.
  • Balancing short-term profitability versus long term value creation.
  • Managing excess liquidity and shrinking margins.
  • Re-thinking hiring models and succession planning.
  • Becoming more competitive and efficient.

Naturally, we discuss the various growth opportunities available to participants. We talk about recent merger transactions, market reactions and integration hurdles. We hear about the importance of marrying bank strategy with technology investment. We explore what’s going on in Washington with respect to regulation and we acknowledge the pressure to grow earnings and the need to diversify the business.

As the convergence of traditional banking and fintech continues to accelerate, we again offer FinXTech sessions dedicated to delivering growth. We unpack concepts like banking as a service, stablecoins, Web3, embedded finance and open banking.

Acquire or Be Acquired has long been a meeting ground for those that take the creation of franchise value very seriously — a topic even more nuanced in today’s increasingly digital world. The risk takers will be there.

“There’s no way you can achieve great gains without taking great chances,’’ Iger says. “Success is boundless.”

How Lead Independent Directors Drive Effective Boards

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Want to make your board more effective? Look for a lead independent director with the fortitude and skillset to constructively navigate the relationship with bank management.

While the role is still evolving, bankers have identified some attributes of successful, effective and productive lead directors. These include undisputable independence, forthrightness and an ability to facilitate productive conversations, both in and outside the board room.

As the board’s representative with management, undisputable independence is crucial to a lead director’s ability to be an effective counterweight. It can empower the lead director to act as a conduit of constructive conversations for management and have direct, and sometimes uncomfortable, conversations on behalf of fellow board members.

When speaking with management, lead directors should include an accurate and timely summary of what is discussed in any executive sessions. These sessions allow directors to express concerns and articulate expectations for management in a transparent manner — something they may not be comfortable discussing directly with the CEO. An effective lead independent director can transform these discussions into palatable and productive feedback for executives.

During board meetings, directors — not management — should guide the conversation and focus on key issues. Lead directors can help facilitate consensus and alignment between the board and management, enabling both groups to have candid conversations and ultimately share the same strategic focus.

Building consensus also includes working to making board meetings more effective. A concise, timely meeting agenda representing key board matters can lead to strategic discussions and allow directors to thoughtfully prepare for a productive meeting. Start by surveying fellow directors about matters of importance and sharing discussion points and summaries with management. This can give the board time and space to focus on critical matters during a meeting and help avoid rushing through important topics.

A board of directors is filled with a variety of personalities, so a lead independent director’s demeanor and communication style can impact its success. Effective lead independent directors must be comfortable addressing awkward or sensitive topics and have the ability to lead discussions without becoming a dominant presence in the board room. Facilitating and eliciting perspectives from other directors can coalesce key information, so all the directors feel they have been heard and management understands what is expected of them.

The specificities of the role — and the tasks the lead independent director governs — caution against frequent rotation of this role, which could be viewed as lack of strength on the board, ineffective leadership, or even a lack of commitment to governance. Rotating this role too frequently could also lead to a reduction in the board’s overall productivity.

Assess current and potential board members for candidates who could effectively serve as lead independent director, and weigh the possibility of bringing in a new board member to provide the necessary skills.

For more information on the role of lead independent director, contact Susan Sabo at [email protected] or 704-816-8452 or Todd Sprang at [email protected] or 630-954-8175.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, investment, or tax advice or opinion provided by CliftonLarsonAllen LLP (CliftonLarsonAllen) to the reader. For more information, visit CLAconnect.com.

CLA exists to create opportunities for our clients, our people, and our communities through our industry-focused wealth advisory, outsourcing, audit, tax, and consulting services. Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor.

Building a ‘Truly Great Place to Work and Bank’

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FS Bancorp’s cultural revolution kicked off about a decade ago. It’s a journey that’s still ongoing for the holding company of 1st Security Bank of Washington, according to CEO Joseph Adams.

The predecessor of Mountlake Terrace, Washington-based FS Bancorp was a credit union from its founding in 1936 until 2004, when it converted to a mutual state savings bank. In 2012, upon converting from a mutual to stock ownership structure, Adams and his team began to reconsider the bank’s business lines and culture.

“We had to figure out what we wanted to be when we grew up,” says Adams. “We had difficulty attracting top talent in our market.” The bank posted a 0.5% return on assets as of December 2011, according to S&P’s Capital IQ database.

But that has changed. “If you look at the financials of this organization, for the last 10 years, you will see a hockey stick,” says Adams. “You will just see it growing and growing.” FS Bancorp reported a return on assets of 2.1% at the end of 2020. Overall performance drove FS Bancorp to place No. 1 among the Best Community Banks in the 2022 RankingBanking study, based on a variety of metrics including profitability, growth and total shareholder return, which totaled 125% over five years (2015 to 2020). Executive leadership, board oversight, innovation and growth were also examined, with FS Bancorp topping the Best Leadership Teams subcategory.

The $2.2 billion bank focuses on five areas: deposits, home lending, indirect consumer lending, commercial & industrial (C&I) and commercial real estate. But its business lines aren’t the sole driver of the bank’s success. Adams points to a cultural shift that started around a decade ago, when Adams promoted Vickie Jarman — previously part of the consumer lending group — to lead a team focused on transforming the bank. They proposed a new set of core values, along with a mission and vision for the company. It’s pretty simple: FS Bancorp wanted to create a “truly great place to work and bank,” says Adams. “We believe if you build a great place to work, it will be a great place to bank. We intentionally put those words in that order.”

What’s developed is a culture that values collaboration and humility, according to three FS Bancorp executives I spoke with in October: Adams, Chief Financial Officer Matt Mullet and Jarman, the bank’s chief human resources officer. Self promoters often don’t feel at home there, explains Mullet.

FS Bancorp wants “smart, driven, nice” people, says Adams. “Jerks” need not apply. “We all have to work someplace. Why not work someplace where we have each other’s back, where you wake up every morning excited to go see the people you get to work with?” he says. Getting all three qualities isn’t easy, so the bank makes prospective hires go through hoops to join the organization — the more senior, the more hoops. “Our head of retail, she joined us about four years ago, and she had 16 interviews,” says Adams. “But she kept coming. And she’s here, she does a great job.”

By all appearances, the lengthy hiring process isn’t keeping FS Bancorp from adding the talent it needs to drive growth. The company had 78 employees when its transformation began, says Jarman; now it employs more than 500.

Building a strong culture requires constant work and attention. FS Bancorp has worked with a corporate coach for more than a decade; Adams is also an avid reader of books on leadership and organizational development, including Jim Collins’ “Good to Great” and Simon Sinek’s “Leaders Eat Last.” Combined, the books shine a light on leaders that put their organizations ahead of their egos. Adams wants to adapt those concepts to FS Bancorp, and he’s working with their corporate coach to do it. That will include building a training process to help FS further develop its leaders so they get the culture, too. “It’ll probably take us a year or two, as we move into the future, to get it to a point where we believe we’ve really nailed it,” says Adams.

And they’re putting practices in place that take care of employees, including raising the starting wage to $20 an hour in July — in line with rates paid by big banks such as Bank of America Corp. and First Republic Bank. It was Mullet’s idea, says Adams. “He was concerned — with how expensive things are in the Seattle area — that we have a livable wage,” says Adams.

Adams was an attorney before becoming a banker but says he’s truly passionate about organizational development — getting the right people in the right positions to excel. “We work really hard to get people in roles that play to their strengths, not their weaknesses,” he says. “If you get somebody in a role that plays to their strengths, they do wake up every morning excited to do that role.”

That passion for people comes through in how Adams leads the organization, according to Jarman. “Joe isn’t someone who comes in and says, ‘OK, what do you have on your plate today?’ … He says, ‘Hey, how can I help you? What are you working on?’ It’s from a different angle. It’s not at you. It’s with you, and it’s supportive.”

“Playing to different strengths, and creating a collaborative environment where people are encouraged to think differently, builds a stronger bank,” Jarman continues. “We’ve created a space where people do feel safe saying, ‘I don’t agree with you’ or, ‘Can we try it this way?’” she says. Providing employees with the culture to foster those types of questions builds future leaders, and it comes from the top. “That’s what Joe does,” says Jarman. “He gives us the opportunity to grow.”

FS Bancorp CEO Joseph Adams will be part of a panel discussion at Bank Director’s Acquire or Be Acquired event in Phoenix, Jan. 30 – Feb. 1, 2022. Click here to access the agenda or learn more about the conference.

Exploring Banking’s What Ifs

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What if the ball didn’t sneak through Bill Buckner’s legs in 1986?

What if you answered the call to deliver two pizzas for 10,000 bitcoins in 2010?

What if Hillary Clinton lost the popular vote but won the electoral college in 2016?

Thought exercises like these can take you down the rabbit holes that many opt to avoid. But how about asking “what if” type questions as a way to embrace change or welcome a challenge?

Mentally strong leaders do this every day.

In past years, such forward-facing deliberations took place throughout Bank Director’s annual Acquire or Be Acquired conference. This year, hosting an incredibly influential audience in Phoenix simply wasn’t in the cards.

So, we posed our own “what ifs” in order to keep sharing timely and relevant ideas.

To start, we acknowledged our collective virtual conference fatigue. We debated how to communicate key concepts, to key decision makers, at a key moment in time. Ultimately, we borrowed from the best, following Steve Jobs’ design principle by working backward from our user’s experience.

This mindset resulted in the development of a new BankDirector.com platform, which we designed to best respect our community’s time and interests.

Now, as we prepare to roll out this novel, board-level business intelligence package called Inspired By Acquire or Be Acquired, here’s an early look at what to expect.

This new offering consists of short-form videos, original content and peer-inspired research — all to provide insight from exceptionally experienced investment bankers, attorneys, consultants, accountants, fintech executives and bank CEOs. Within this new intelligence package, we spotlight leadership issues that are strategic in nature, involve real risk and bring a potential expense that attracts the board’s attention. For instance, we asked:

WHAT IF… WE MODERNIZE OUR ENTERPRISE

The largest U.S. banks continue to pour billions of dollars into technology. In addition, newer, digital-only banks boast low fees, sleek and easy-to-use digital interfaces and attractive loan and deposit rates. So I talked with Greg Carmichael, the chairman and CEO of Cincinnati-based Fifth Third Bancorp, about staying relevant and competitive in a rapidly evolving business environment. With our industry undergoing significant technological transformation, I found his views on legacy system modernization particularly compelling.

 

WHAT IF… WE TRANSFORM OUR DELIVERY EXPECTATIONS

Bank M&A was understandably slow in 2020. Many, however, anticipate merger activity to return in a meaningful way this year. For those considering acquisitions to advance their digital strategies, listen to Rodger Levenson, the chairman and CEO of Wilmington, Delaware-based WSFS Financial Corp. We talked about prioritizing digital and technology investments, the role of fintech partnerships and how branches buoy their delivery strategy. What WSFS does is in the name of delivering products and services to customers in creative ways.

 

WHAT IF… WE DELIGHT IN OTHER’S SUCCESSES

The former chairman and CEO of U.S. Bancorp now leads the Make-A-Wish Foundation of America. From our home offices, I spent time with Richard Davis to explore leading with purpose. As we talked about culture and values, Richard provided valuable insight into sharing your intelligence to build others up. He also explained how to position your successor for immediate and sustained success.

These are just three examples — and digital excerpts — from a number of the conversations filmed over the past few weeks. The full length, fifteen to twenty minute, video conversations anchor the Inspired By Acquire or Be Acquired.

Starting February 4, insight like this lives exclusively on BankDirector.com through February 19.  Accordingly, I invite you to learn more about Inspired By Acquire or Be Acquired by clicking here or downloading the online content package.

Level 5 Banking

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Over the past six months, nCino has partnered with the team at Bank Director on a unique and immersive study of banking. It was originally intended to peer into the future of the industry, but the more we looked ahead, the more we realized that the future of banking is not a revolution, but an evolution. 

Banking is undergoing a vast and vital transformation. The distribution channels of today may soon be obsolete, and technology and innovation are moving ever faster. But this doesn’t mean that the traditional tenets of prudent and profitable banking are outdated. If anything, we found that technology accentuates their importance.

Leadership. Leadership is the most important tenet in banking, but what is leadership? Interviews with dozens of bankers across the country suggest that one keystone character trait is more important than any other: an insatiable curiosity and indomitable will to never stop learning. Best-selling business author Jim Collins refers to this in his book “Good to Great: Why Some Companies Make the Leap and Others Don’t” as Level 5 leadership.

One industry leader who displays this trait is Brian Moynihan, chairman and CEO of Bank of America Corp. “Brian has a deep knowledge because he wants to learn about different things, not just about banking,” says Dean Athanasia, president of consumer and small business at Bank of America. “He looks across every single industry. He’s looking at Amazon, Walmart, the brokerage firms. He’s looking at all these companies and breaking them down.”

Growth. The second tenet we examined is growth. Mergers and acquisitions have been the principal vehicle for growth in the banking industry since the mid-1980s. But as the consolidation cycle has seasoned and digital distribution channels offer alternative ways to acquire new customers and enter new markets organically, we must accept that there are many avenues to growth. 

We’ve seen this firsthand at nCino, as institutions of all sizes successfully leverage our technology in the pursuit of growth and efficiency. But the day has not yet arrived that technology alone can help a bank grow. This is why the majority of banks view it as a way to supplement, not replace, their existing growth strategies.

Risk management. Another tenet we examined is risk management, a core pillar of prudent and profitable banking. Robust risk management is necessary for banks to avoid insolvency, but an equally important byproduct is consistent performance. The banks that have created the most value through the years haven’t made the most money in good times; their real strength has been avoiding losses in tough times.

Technology can help by improving credit decisions and making it easier to proactively pinpoint credit problems. But it must be paired with a culture that balances risk management and revenue generation.

“There are always going to be cycles in banking, and we think the down cycles give us an opportunity to propel ourselves forward,” says Joe Turner, CEO of Great Southern Bancorp, a Springfield, Missouri-based bank that ranks near the top of the industry in terms of total shareholder return over the past 40 years.

Culture. Culture and communication go hand-in-hand, and those financial institutions that are most successful are the ones that empower their employees with information, technology and autonomy. We learned this lesson the hard way during the financial crisis, when the banks that got into the most trouble were the ones that stifled the flow of information about unsavory business practices and questionable credit quality.

Since then, we’ve also seen a clear connection between a bank’s culture and its performance. “We’ve actually done a correlation analysis between employee engagement and client satisfaction scores in different departments,” says Kevin Riley, CEO of Billings, Montana-based First Interstate BancSystem. “It’s amazing the correlation between engaged employees and happy clients.”

Capital allocation. In an industry as competitive as banking, there aren’t many ways to produce extraordinary results. Running a prudent and efficient operation is table stakes. True differentiation comes from capital allocation — distributing an organization’s resources in a way that catalyzes operating earnings. The best capital allocators don’t view it as a mechanical process. They see it instead as a mindset that informs every decision they make, including how many employees they hire, how much capital they return or which third-party technology they choose to implement, among others.

Ultimately, navigating a bank through such a dynamic time is no easy feat. Leaders must embrace change and technology. That isn’t an option. But this doesn’t mean that the timeless tenets of banking should be discarded. The institutions that thrive in the future will be those that blend the best of the old with the new.