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.

Five Lessons You Can Learn from Tech-Savvy Banks


technology-9-20-18.pngFew directors and executives responding to Bank Director’s 2018 Technology Survey believe their bank to be industry-leading when it comes to how they strategically approach technology—just five percent, compared to 70 percent who identify their bank as a fast follower, and 25 percent who say their bank is slow to implement or struggles to adopt new technology.

While most banks understand the need to enhance their technological capabilities and digital offerings, the leaders of more tech-savvy banks reveal they’re seeking outside help, as well as focusing greater internal resources and more board attention to the technological conundrum faced by the industry; that is, how to make their banks more efficient, and better serve customers so they don’t take their deposit dollars or loan business to another competitor—whether that’s the local credit union, one of the big banks or a digital challenger.

Based on the survey, we uncovered five lessons from these banks that you should consider adopting in your own institution. At the very least, you should be discussing these issues at your next board meeting.

1. Tech-savvy banks see a primarily digital future for their organizations.
While innovation leaders and laggards are equally as likely to cite the improvement of the digital user experience as a top goal over the next two years, respondents from tech-savvy banks are less likely to focus on the branch channel. Just 14 percent plan to upgrade their branch technology in the next two years, and 14 percent plan to add new technology in their branches, compared to roughly half of respondents from fast follower or technologically struggling banks.

Goals-chart.png

Tech-savvy banks are also more likely to indicate that they plan to close branches—29 percent, compared to 8 percent of their peers—and they’re slightly more likely add branches that are smaller—57 percent, compared to 45 percent.

With branch traffic down but customers still expecting great service from their financial provider—in a digital format—many banks will need to rethink branch strategies. “There is a newer branch model that, to me, more resembles an office environment that you would go to get advice, to sit down and meet with people, but it’s really not a place where transactions are going to be taking place,” says Frank Sorrentino, the chief executive of $5.3 billion asset ConnectOne Bancorp, based in Englewood Cliffs, New Jersey. The branch still has a place in the banking ecosystem, but “people want a high level of accessibility, and the highest form of accessibility is going to be through the digital channel.”

2. Industry-leading banks are more likely to seek newer technology startups to work with, rather than established providers.
Seventy-one percent of tech-savvy banks have a board and management team who are open to working with newer technology providers that were founded within the past five years, to help implement new products and services, or create efficiencies within the organization. In contrast, 31 percent of their peers haven’t considered working with a startup, and 10 percent aren’t open to the idea.

“We in the smaller end of the banking space find ourselves constrained in how much investment we can make in technology,” says Scott Blake, the chief information officer at $4.3 billion asset Bangor Savings Bank, in Bangor, Maine. “So, we have to find creative ways to leverage the investments that we are able to make, and one of the ways that we’re able to do that is in looking at some of these earlier-stage companies that are on the right track and trying to find strategic ways that we can connect with them.”

Working with newer providers could require extra due diligence, and banks leading the field when it comes to technological adoption indicate they’re willing to take a little more time to get to know the companies with which they plan to work. This means meeting with the vendor’s executive team (100 percent of respondents from tech-savvy organizations, versus 62 percent of their peers) and visiting the vendor’s headquarters to meet its staff and understand its culture (71 percent, compared to 51 percent of peers).

“I’m a pretty big believer in trying to have these relationships be partnerships whenever possible, and that doesn’t happen if we don’t have a company-to-company relationship, and a person-to-person relationship,” says Blake. By partnership, he means the bank actively works with the startup to produce a better product or service, which benefits Bangor Savings and its customers, as well as the bank’s technology partner and its clients.

3. Tech-savvy banks dedicate a high-level executive to technology and innovation.
Eighty-three percent of respondents from tech-savvy banks say a high-level executive focuses on innovation, compared to 53 percent of their peers. They’re also more likely to report that their bank has developed an innovation lab or team, and are more likely to participate in hackathons and startup accelerators.

Strategy-chart.png

But Blake doesn’t believe that establishing an innovation unit that functions separately from the bank is culturally healthy for his organization, though it can be effective tool to attack select projects or problems. Instead, Bangor Savings has invested in additional training and education for staff who have the interest and the aptitude for innovation. “We want everyone, to some extent, to think about, ‘how can I do this task that I have to do better,’ and that will hopefully yield longer-term benefits for us,” he says.

4. The board discusses technology at every meeting.
Eighty-three percent of respondents from tech-savvy banks say directors discuss technology at every board meeting, compared to 57 percent of fast followers and one-quarter of respondents whose banks are slow or struggle to adopt technology. They’re also more likely to have a board-level technology committee that regularly presents to the board—50 percent, compared to 28 percent of their peers.

Larry Sterrs, the chairman of the board at $4.2 billion asset Camden National Corp. in Camden, Maine, says with technology driving so many changes, a committee was needed to address the issue to ensure significant items were reviewed and discussed. The committee focuses on items related to the bank’s budget around technology, including status updates on key projects, and stays on top of enhancing products, services and delivery channels, as well as back-office improvements and cybersecurity. It’s a lot to discuss, he says.

The board receives minutes and other information from the committee in advance of every board meeting, and technology is a regular line item on the agenda.

Technology committees have yet to be widely adopted by the industry: Bank Director’s 2018 Compensation Survey, published earlier this year, found 20 percent of boards have a technology committee. Bank boards also struggle to add technology expertise, with 44 percent citing the recruitment of tech-savvy directors as a top governance challenge.

5. Tech-savvy banks still recognize the need to enhance board expertise on the issue.
Individual directors of tech-savvy banks are no more likely to be early adopters of technology in their personal lives when compared to their peers, so education on the topic is still needed.

Not every director on the board can—or should—be a technology expert, but boards still need a baseline understanding of the issue. Camden National provides one or two technology-focused educational opportunities a year, in addition to written materials and videos from outside sources. If a specific technology will be addressed on the agenda, educational materials will be provided, for example. This impacts the quality of board discussion. “We always get a good dialogue and conversation going, [and] we always get a lot of really good questions,” says Sterrs.

Bank Director’s 2018 Technology Survey is sponsored by CDW. Click here to view the full results.

The “But” in the Conversation Among Bank Boards, CEOs


strategy-9-13-18.pngJamie 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.

What Your Bank Needs to Know About Data


board-9-12-18.pngBanks executives and directors of all sizes are or should be continually discussing and crafting strategic initiatives for the future of the institution. Today’s competitive ecosystem that’s rooted in continually evolving technological developments and uses of data has made it essential for bank leaders to continually adapt.

From the top of the company to the most basic product and talent level, banks are building strategies to maintain competitive positions using these different kinds of data assets. But with any new or developing strategy, there is a potential for added cost and risk that could negatively affect the bank.


efficiency-7-18-18-tb.pngThinking Beyond The Efficiency Ratio
The ratio of operating expenses to operating revenue has long been a metric by which banks track performance. But there’s much more to accurately and effectively evaluating the performance of your bank and improving efficiency, and management should be exploring further to truly assess opportunities to improve.

agenda-9-12-18-tb.pngWhy Data Should Be On Your Board’s Agenda
More and more executives have come to realize that data management needs to be a priority and not a back-office function for a select group within the organization. Almost everything in the company can be tracked or monitored with data, and it can lead to long term efficiencies.

strategy-9-12-18-tb.pngFive Steps to a Data-Driven Competitive Strategy
There’s no mistaking that leveraging the right data the right way should be a key component of any bank’s strategic planning. Assessing and evaluating your bank’s practices with data can enable you to deliver improvements and advantages for both the bank and its customers.

survey-9-12-18-tb.png2018 Branch Benchmarking Survey
As traffic in branches continues to decrease and as possible changes to the Community Reinvestment Act are discussed by regulators, bankers are continually trying to craft optimal branch strategies. In Crowe’s latest research, we review data from 457 branches around the country to find trends in branch operations and performance.

consumer-9-12-18-tb.pngFive Ways to Measure Success in Consumer Channels
Amazon is able to not only monitor consumer preferences, but deliver aligned products to deepen and extend the relationship with those consumers. If retailers like Amazon can achieve that with its data, banks should be able to deliver a similar experience for consumers as well. Banks must take an objective look at performance across their consumer channels to prepare to compete.

2018 Technology Survey: Enhancing Board Know-How


tech-survey-8-27-18.pngTechnology and strategy are inextricably linked in today’s evolving digital economy. Unfortunately, bank boards—tasked with the oversight of the bank, including its long-term performance in a changing competitive environment—continue to struggle to wrap their hands around technological change and its implications. Seventy-nine percent of directors and executives say their board needs to enhance its level of technological expertise, according to the 2018 Technology Survey, sponsored by CDW.

Sixty-three percent indicate the board should better understand how to tie technology to bank strategy, and 60 percent say the board should better understand how the bank should invest in technology—a key concern, given rising budgets and an increasing number of technology vendors working with banks.

But the survey also indicates that directors have made strides in their focus on technology, both personally and as a board. Half say the board focuses on technology at every board meeting, up from 42 percent two years ago.

And the directors and executives participating in the survey indicate that they’re better users of their bank’s technology. More than three-quarters say they personally use their bank’s mobile and online channels, compared to 51 percent three years ago. With the onus on banks to enhance customers’ digital experience in the age of Amazon, a better understanding of digital through personal experience can only serve to improve these banks’ strategic direction.

The 2018 Technology Survey is comprised of the responses of 161 directors, chief executive officers, high-level technology executives and other senior executives at banks above $250 million in assets.

Additional Findings:

  • Sixty-five percent believe their bank has the products, services and delivery methods to meet the needs and demands of today’s customers.
  • Eighty-three percent say improving the user experience on digital channels is a goal for their bank over the next two years, followed by improving account onboarding (73 percent) and adding more features to the bank’s mobile app (71 percent).
  • Despite the buzz around Amazon’s Alexa, just 21 percent say integrating with that or a similar external platform is a near-term goal.
  • Forty-five percent say they plan to add more branches that will be smaller in size. Thirty-seven percent plan no changes to their bank’s branch footprint. More than half plan to update technology used in branches over the next two years, and 47 percent plan to add more technology in the branch. One-third plan to upgrade ATMs.
  • At least half of respondents indicate a need for significant improvement in their bank’s use of data analytics and business process automation.
  • Sixty percent indicate their bank has been increasing the number of staff focused on technology and innovation, and 55 percent have a high-level executive focused on innovation.
  • Sixty percent say their management team and board are open to working with newer technology startups. The typical bank, according to the survey, works with a median of seven technology vendors, including its core processor.
  • Sixty-one percent say their board has brought in relevant bank staff to better educate itself about technology. Twenty-nine percent have a board-level technology committee that regularly presents to the board.
  • Cybersecurity remains the top issue focused on by the board, at 93 percent.

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

The Three C’s of Compliance



Compliance doesn’t have to be the department of ‘no:’ It can be a benefit, rather than a burden. Barbara Boccia of Wolters Kluwer explains the three C’s that drive a culture of compliance and describes how to integrate these factors within the organization.

  • Turning Compliance Into a Competitive Advantage
  • Key Factors That Drive Compliance Culture
  • Elevating Compliance as a Strategic Asset

Considering Fintech Partnerships? Don’t Forget the Fundamentals


fintech-4-30-18.pngAs the benefits of partnerships between banks and financial technology (fintech) organizations have become more evident, bankers’ fears of being displaced by the wave of fintech startups have cooled.

Increasingly, bankers see that taking on a fintech partner can enable them to offer new products and services, develop new delivery models, and enhance the efficiency and effectiveness of back-office functions.

And yet, despite the growing awareness of the value of these partnerships, dispositional mismatches between banks and fintech companies have caused banks to struggle to make these partnerships work.

One of the most common sources of discord is in the area of risk management. Bank risk and compliance professionals are wired to mitigate risk rather than to manage it. The urge to shelter banks from risk through traditional risk and compliance practices, however, can dampen the innovation that is at the core of fintech’s appeal.

Banks aiming to get more out of these partnerships should review and hone their operations, aligning business goals and risk management goals across strategy, culture and information sharing.

Strategy Trumps Granular Problem-solving
Fintech companies and banks entering into partnership agreements often fail to effectively think through and communicate about their individual corporate strategies and how the partnership fits in.

Banks might approach a partnership with a problem they would like the fintech company to solve, without clearly defining how the partnership fits into their overall business strategy.

An important first step for banks is to think of a fintech engagement as a true partnership, rather than a vendor relationship.

The two organizations should sit down together to collectively identify the objectives and goals of each organization and how the partnership can advance those goals.

Going further, both organizations should establish boundaries around what they are willing to do to achieve their objectives, what resources will be made available to deal with challenges, and what will trigger the escalation of an issue to executives’ attention.

Ultimately, the purpose of the partnership must be clearly tied to the broader strategy of each organization, and at the outset, the partners should establish a process to ensure that purpose and strategy will remain aligned.

Meet at Cultural Crossroads
Fintech companies and banks often experience a culture clash at the outset of a partnership. The more traditional culture of a bank can seem starkly different from that of an innovative and fast-moving fintech company, particularly in the area of risk tolerance. While banks often view any loss adversely, fintech companies are much more comfortable with the idea of taking a small loss in the spirit of innovation and learning.

This question of culture fit rarely is considered in the traditional vendor management process. But finding a way to align the two, often disparate, cultures is critical in forging a successful partnership.

Both parties should evaluate prospective partners’ values at the outset. Once a partnership is formed, the parties should establish a set of principles that define practices and policies that are deemed acceptable on both sides. This set of principles should be viewed not as rules per se, but as broad guidelines.

Another important aspect of culture is how both organizations treat failure. Rather than taking a punitive approach to all failures, banks should be open to the idea that some failures can be positive if they advance innovation.

Information Sharing
Fintech companies sometimes are hesitant to share their data, either because they consider it proprietary or because they simply do not know what data banks want. On the other hand, banks, particularly in light of privacy regulations, might be hesitant to share information that does not directly affect the partner relationship.

Both parties should work to overcome barriers to information sharing, as the degree of transparency in a partnership is directly related to its success. With more data, partners can better assess performance and identify unforeseen compliance risks that emerge.

As in the case of strategy and culture considerations, expectations defining the process and extent of data sharing should be set up front. Banks should consider what information they can provide to fintech partners that might not be directly related to the product – but which might help grow the strategy or solution.

Competitive Advantage Through Thoughtful Partnerships
By establishing some basic principles around strategy, culture, and information sharing, bank executives can make better decisions as they enter into partnerships with fintech companies. Poor execution on fundamentals should not be allowed to hamper the successful execution and growth of these partnerships.

Does Your Bank Have a Deposit Strategy?


strategy-1-22-18.pngMany banks lack a clear, written deposit strategy and funding plan. For the last several years, that’s been somewhat understandable. After all, deposits flowed into banks and have now reached historic highs, even though banks on average pay little or nothing in interest on the vast majority of those deposits.

Now that’s changing. Deposits are an increasingly important topic for bank boards. We are on the front end of an environment bankers have not seen in almost a decade. The Federal Reserve raised the fed funds target rate by 75 basis points last year, and three more rate increases are expected this year.

Banks already are seeing deposit competition heat up. Close to 64 percent of bankers said that deposit competition had increased in the last year, and 77 percent expected it to increase during the subsequent 12 months, according to Promontory Interfinancial Network’s Bank Executive Business Outlook Survey in the third quarter of 2017. Although in the past banks have had to compete in rising rate environments, we’ve never seen a point in history quite like this one, and it would be wise to assume rising rates will impact deposits, as well as your bank’s funding mix and profit margins.

There are a couple of reasons why the environment has changed. Historically, big banks ignored the rate wars for deposits, a game that was left to community banks. But this time, the new liquidity coverage ratio requirement that came out of the Basel III accords could encourage big banks to get more competitive on deposit rates. The ratio, finalized in the U.S. in 2014, requires banks with more than $250 billion in assets to keep a ratio of 100 percent high-quality liquid assets, such as Treasury bonds, relative to potentially volatile funds. Banks that move toward more retail deposits will have a lower expected level of volatile funds.

Also, banks have a majority of their deposits in liquid accounts while term deposits, such as CDs, are at historic lows. There’s no hard-and-fast rule to know how much of those non-term deposits will leave your bank as rates rise.

As the economy has improved, surging loan growth has put more pressure on the need to grow deposits. Loan-to-deposit ratios are rising, and as banks need to fund further growth, demand for deposits will rise. What this will do to competition for deposits and, therefore, deposit rates, is unclear. We have found that many banks aren’t raising rates on their loans, and the best borrowers can easily shop around to get the best rates. This will put pressure on margins if banks don’t raise rates on loans as interest rates rise.

Still another factor is that people have had a decade since the financial crisis to get comfortable with the benefits of online and mobile banking. Online banks, not incurring costs associated with physical branches, often offer higher interest rates on deposits than traditional banks.

One of the best ways to prepare for the changing environment is to make sure your bank has a written, well-prepared deposit strategy. We’re not talking about a 100-page document. In fact, the asset/liability committee (ALCO) of the bank may need a five- to 10-page report highlighting the rate environment, the bank’s deposit strategy, and alternative funding plans and projections. The bank’s full board may just need a three- to four-page summary of the bank’s deposit strategy, making sure that management is able to address key questions:

  1. Who are your bank’s top 10 competitors, and what are they doing with rates? What new products are they offering?
  2. How will the Federal Reserve’s expected moves in the coming year impact our rates, our margins and our annual net income?
  3. What is our bank’s strategy for contacting our largest depositors and determining their needs?
  4. What new deposit products do we plan to offer, and how will we offer them only to our best customers? Not all customers or deposits have equal value to the bank.
  5. What is our funding plan? In other words, what are our alternatives if we need deposits to grow, and what will they cost? This is perhaps the most difficult question to answer.

While it’s important not to be caught off guard in a rising-rate environment, rising rates can be a good thing for a bank with a solid deposit strategy in place. For the first time in a long time, the wind will be in the sails of bankers. They just need a plan for navigating the changing environment ahead.

Seven Secrets of Succession Success


succession-1-19-18.pngOne of a bank board’s most vital responsibilities is overseeing the plan of succession for the CEO. Whether driven by a looming retirement or change in the incumbent’s personal timeline, a well-orchestrated plan of succession and leadership continuity reassures employees, investors and communities. Unfortunately, too many bank boards still take a passive approach to CEO succession, rather than acknowledging that as directors, they are responsible for the selection and ongoing evaluation of CEO performance.

Good succession planning for any executive role starts with understanding the potential succession timeline and the bank’s strategy. These seven steps will help to guide the board and incumbent CEO in developing a solid succession plan.

  1. Understand the succession timeline. What is the intended horizon for the incumbent leader to remain at the helm? This timeline is often fluid, which can create a challenge for the board. It is natural for many healthy CEOs to struggle with stepping out of a role that has been so closely tied to their personal identity. Yet, boards must insist on some understanding of the timing in order to maximize the development of potential internal contenders and to avoid frustrating executives who are waiting in the wings.
  2. Strategy informs profile. One of the most critical elements of planning for CEO succession is the bank’s strategic plan. The direction of the bank going forward should help to clarify the skills and attributes required in the bank’s next leader. Given the massive transformation of the industry over the past decade, the old maxim—what got you here may not get you there—may truly apply. Directors need to align around the bank’s strategy to develop a profile for the bank’s next CEO.
  3. Identify key skills. There are countless technical and industry skills needed in a bank leader today—so many, in fact, that it is virtually impossible to find an executive with all of the ideal requisite experiences. So, prioritize the specific banking skills that the bank must have versus those the board would like to have. Key experiences such as commercial credit skills, regulatory experience, balance sheet management, board experience and risk management are often considered critical to success as a bank CEO today.
  4. Determine critical attributes. What are the most important elements of a potential leader’s personal style and leadership philosophy that are necessary at this time for the institution? For example, most community banks see a CEO’s community presence and visibility as critical for success, as well as creating and achieving a strategic vision. Strong communication skills, cultural agility and the ability to attract top talent also rank high these days.
  5. Develop a process. Successful succession at the CEO and other executive levels involves a robust and thoughtful process, not just putting together a list of who the board knows or who the incumbent leader suggests. Boards today not only need to select a superior executive as their next leader, but are often called upon to defend their decision—and how they made it—to investors, customers and their communities. This does not mean that an external or formal search is always warranted, but it does mean that there needs to be a genuine effort to source, screen, assess and validate serious contenders, which ultimately adds credibility to the board and the selected leader.
  6. Make your bank attractive to star talent. Despite the declining number of banks in the country today, the crop of qualified bankers available to fill the growing ranks of retiring CEOs is not deep enough. Thus, the market is competitive for top bankers, and relocating someone to a new and potentially smaller market remains a challenge. Star bankers will ask tough questions of the board and will want to understand the bank’s strategy, as well as the level of support, engagement and strategic value they can expect from the bank’s directors.
  7. Prepare for an emergency. As most boards know, the bank should plan for the best and prepare for the worst. Reviewing and updating the bank’s emergency succession plan on a regular basis is a must for good governance and regulatory satisfaction. There have been too many instances where this backup plan has been called into action. Having a scenario ready to keep the train on the tracks during an unexpected situation is critical to keeping the institution moving forward.

There is no greater responsibility for a bank’s board of directors than ensuring that the organization has the right leader in place. While there are many important elements to successful CEO succession, the most important point is to maintain the topic of leadership succession as a regular and ongoing board-level discussion.