How Peoples Bancorp Prevailed Through PPP

“You only learn who has been swimming naked when the tide goes out,” wrote Warren Buffett in his 2004 annual letter.

He was referring to operations that trade derivatives. You don’t really know the value of what you hold in opaque markets, he explained, until it’s tested in hard times.

The same can be said about banking.

Rarely has the industry faced an environment as acute as today.

The scope and speed of this downturn are without modern precedent,” said Federal Reserve Chairman Jerome Powell earlier this week. It’s “significantly worse than any recession since World War II.”

It’s hardly an exaggeration to say that bankers bear much of the burden of saving the economy from oblivion. “If doctors and nurses are first responders to those who are sick,” says Robyn Stevens, chief credit officer at Peoples Bancorp, “bankers are the first responders for businesses, communities and economies.”

Stevens would know.

Within its three-state footprint spanning Ohio, West Virginia and Kentucky, Peoples was the top-performing bank in the first round of the Paycheck Protection Program measured by dollars of PPP loans approved per assets.

“A culture is tested when times get tough,” says Ryan Kirkham, general counsel at the $4.5 billion bank based in Marietta, Ohio. “You find out whether it is real or just lip service. We passed the test.”

The success of Peoples in the first round of PPP reveals a flaw in one of the principal narratives that has emerged from the unfolding crisis — that banks with the most advanced technology were the ones best positioned to manage the onslaught of loan applications.

It’s not that Peoples Bank hasn’t invested in technology in recent years, because it has. But the secret to its success in the first round of PPP was simple elbow grease.

Personnel from the top of the bank to the bottom volunteered to enter data into the Small Business Administration portal to process customer loan applications.

“Banks had to decide whether they were going to do it automated or whether they were going to do it manually,” says CEO Chuck Sulerzyski. “Peoples tried an automated approach but then opted for manual.”

“Many of our most senior executives have done data entry until 8, 9, 10, 11, 12 at night,” he adds. “We did over 100 of these loans on Easter Sunday. And when they shut banks over $1 billion out from 6 p.m. to midnight one evening, we had a couple dozen people volunteer to work midnight to 4 a.m. putting in the entries.”

This success reflects a culmination of a decade’s worth of effort, spearheaded by Sulerzyski, who joined the bank from KeyCorp in 2011.

The 62-year-old CEO spent the previous four decades working up the corporate ladder at multiple prominent banks. He worked at Citibank during the Walter Wriston era. He was at Chemical Bank when Walter Shipley was CEO. And he spent eight years at Bank One, working closely with President Don McWhorter and CEO John B. McCoy.

Sulerzyski has been there and done that, in other words. One lesson he’s learned along the way has been the importance of culture and customer relationships. It’s a lesson that has paid off in spades over the past three months.

“From a competitive standpoint, a lot of the large banks struggled with PPP,” Sulerzyski says. “One of the large regionals couldn’t do any loans the first few days. Another one started, but then had to shut down. Each of the bigger banks we compete against had their own degree of difficulties with this. Because our customers were well taken care of, CPAs and attorneys started referring business to us and it kind of snowballed on itself.”

Sulerzyski’s team speaks in single voice on this.

Our commitment to our communities and the importance that plays resonates with our employees,” says Thomas Frawley, senior vice president, consumer lending. “They start the call as a banker and end the call as a counselor, listening to the fears of our customers while assuring them that we are going to do our best to help them.”

“We have several associates who are working day and night,” says Ann Helmick, director of enterprise risk management. “They are doing this for the good of the client. For most, there will not be a personal gain.”

“It is easy to come up with a mission, vision and values. And when times are good, it can be easy to live by those values,” says Jason Phipps, regional president. “It is when a company or person faces adversity that you find out who a person or who an organization really is.”

One can argue all day long about the importance of scale and technology, and how it could soon be a principle competitive differentiator in banking. But technology is only a tool to help bankers ply their trade. The soul of any organization, and the true source of performance, lies instead in the people who run it.

“Bankers may have got a bad rap during the last crisis,” says Stevens, “but ours have been heroes during this one!”

Six Timeless Tenets of Extraordinary Banks

flywheel-image-v4.pngIf you want to understand innovation and success, a good person to ask is Jeff Bezos, the chairman and CEO of Amazon.com.

“I very frequently get the question: ‘What’s going to change in the next 10 years?’ And that is a very interesting question,” Bezos said in 2012. “I almost never get the question: ‘What’s not going to change in the next 10 years?’ And I submit to you that that second question is actually the more important of the two, because you can build a business strategy around the things that are stable in time.”

In few industries is this truer than banking.

Much of the conversation in banking in recent years has focused on the ever-evolving technological, regulatory and operational landscapes. The vast majority of deposit transactions at large banks nowadays are made over digital channels, we’re told, as are a growing share of loan originations. As a result, banks that don’t change could soon go the way of the dinosaurs.

This argument has merit. But it also needs to be kept in perspective. Technology is not an end in itself for banks, it’s a means to an end — the end being to help people better manage their financial lives. Doing this in a sustainable way calls for a marriage of technology with the timeless tenets of banking.

It’s with this in mind that Bank Director and nCino, a provider of cloud-based services to banks, collaborated on a new report, The Flywheel of Banking: Six Timeless Tenets of Extraordinary Banks.

The report is based on interviews of more than a dozen CEOs from top-performing financial institutions, including Brian Moynihan at Bank of America Corp., Rene Jones at M&T Bank Corp. and Greg Carmichael at Fifth Third Bancorp. It offers unique and invaluable insights on leadership, growth, risk management, culture, stakeholder prioritization and capital allocation.

The future of banking is hard to predict. There is no roadmap to reveal the way. But a mastery of these tenets will help banks charge ahead with confidence and, in Bezos’ words, build business strategies around things that are stable in time.

 

The Six Tenets of Extraordinary Banks

Jonathan Rowe of nCino describes the traits that set exceptional banks — and their leaders — apart from the industry.

To download the free report, simply click here now.

How the Covid-19 Crisis Turned One CEO Into Counselor in Chief

Since taking over as CEO of Amalgamated Bank in 2014, Keith Mestrich has demonstrated his management chops by reengineering the $5.3 billion institution’s balance sheet and improving its profitability.

But that experience pales in comparison to the challenge of running a company headquartered in New York City, which is ground zero for the Covid-19 pandemic. Most of Amalgamated’s 400 employees have been working from home since mid-March, including Mestrich. “I never thought that I’d be in the sixth week of running a bank from the basement of my house, by myself,” he says.

The pandemic has had a devastating impact on the U.S. economy; the likelihood of a severe recession requires management teams to carefully monitor their banks’ vital signs, including loan losses, liquidity and regulatory capital levels. But most bankers are experienced at this, most recently during the Great Recession in 2008. They know how to manage balance sheets through an economic downturn.

Managing employees through a crisis of this magnitude is another matter entirely.

One obvious way in which the current situation is starkly different from the last recession is the incredible personal stress the pandemic has placed on employees. Social distancing and sheltering orders have forced most employees to work remotely, either isolating them or requiring them to juggle work and parenting if young children are in the home.

These stresses are layered on top of the fear of infection. In New York City, where most of Amalgamated’s employees work, there were more than 138,000 confirmed cases of Covid-19, with nearly 10,000 confirmed deaths and more than 5,000 probable deaths through April 22, according to the New York City Department of Health and Mental Hygiene. And of course, the news has been full of stories about the city’s overcrowded hospital emergency rooms and the desperate, daily search for ventilators and protective gear.

People are frightened, including many Amalgamated employees. One of Mestrich’s jobs now is to be counselor in chief.

“I spend a huge amount of my time just checking in with people at all levels of the bank,” Mestrich says. “People who have to come in and work have different levels of fear and … and that is calibrated by their own family situation. I talked to one woman who works in one of our branches, who has three kids, and she’s a single mom, and knows that if anything were to happen to her, [it] could be really devastating, so her fear level is very different than somebody who’s a single person and relatively young and healthy.”

He has also heard positive stories from his employees. “I got a great message from one guy – the only member of our staff who I know was actually hospitalized – [that] he was going back to work,” Mestrich says. “He’s recovered and doing well.”

The fear that some Amalgamated employees experience could magnify when they’re asked to return to their old work environment. “I think coming back is going to be really challenging, especially for organizations that are in hot spots,” he says.

Will companies be required to test their employees and verify the results, and will social distancing requirements remain in place in the office? Amalgamated will rely on guidance from the government in repatriating employees, although Mestrich notes that “guidance right now, as of today … is very all over the place.”

No matter how this normalization process is executed, Mestrich says it will have to be done with great sensitivity. “I think we’re going to have to be unbelievably empathetic to people who have any number of situations, whether they’re a little bit older worker or they have underlying medical conditions or they still have kids at home and don’t have any other childcare arrangements or they’re just fearful,” he says.

Amalgamated has its roots in the U.S. labor movement. The bank was founded in 1923 by the Amalgamated Clothing Workers of America to provide banking services to its members and is still 40% owned by the union’s modern day successor, Workers United. Mestrich says many of the private sector unions that bank with Amalgamated have “seen significant layoffs and a lot of stress, both in terms of trying to figure out how to service their members, but also concerned about revenue dropping from dues income.”

And of course, many union members lave been laid off as well. In early April, Amalgamated launched the Frontline Workers Fund to provide financial support to workers impacted by the pandemic, including health care, grocery, cleaning service, food service, domestic and retail workers. It contributed $50,000 to stand up the fund and will donate 10 cents whenever a customer opens a new account or spends over $10 using the bank’s debit card. Amalgamated will donate proceeds from the fund to other union organizations for distribution.

The Amalgamated Foundation has also joined several other large foundations to establish the Families and Workers Fund. This fund will also focus on workers, families and communities that have been impacted by the pandemic. It has an initial commitment of $7.1 million, with a goal of raising $20 million. Amalgamated will also manage the fund’s operations.

In one sense, these two initiatives are just larger examples of the empathy that Mestrich has for his own employees. After all, what is philanthropy but empathy in action.

A Bank Board’s Role During a Pandemic

Don’t just sit there — do  something!

This is probably the normal emotional reaction of many bank directors as the COVID-19 pandemic consumes large chunks of the U.S. economy, possibly putting their institutions at risk if the crisis leads to a deep and enduring recession.

The role of the board, even in a crisis of this magnitude, is still to provide oversight rather than manage. The board’s role doesn’t change during a crisis, but certainly the governance process must become more focused and strategic, the pace of deliberations must quicken and communication becomes even more important.

Bank boards are ultimately responsible for the safety and soundness of their institutions. While senior management devotes their full attention to running the bank during a time of unprecedented economic turmoil, the board should be looking ahead to anticipate what might come next.

“I think the challenge for [directors] is to gauge the creeping impact on their bank over the next few months,” says James McAlpin, who heads up the banking practice at Bryan Cave Leighton Paisner in Atlanta. “The board’s role is oversight … but I believe that in certain times — and I think this is one of them — the oversight role takes on a heightened importance and the board needs to focus on it even more.”

Many economists expect the U.S. economy to tip into a recession, so every board needs to be looking at the key indicia of the health of their bank in relation to its loan portfolio. “I’ve spoken to a few CEOs and board members over the past couple of weeks where there are active conversations going on about benchmarks over the next few months,” says McAlpin. “‘If by, say, the end of April, certain events have occurred or certain challenges have emerged, this is what we’ll do.’ In other words, there’s pre-planning along the lines of, ‘If things worsen, what should be our response be?’”

This is not the first banking crisis that David Porteous, the lead director at Huntington Bancshares, a $109 billion regional bank in Columbus, Ohio, has lived through. Porteous served on the Huntington board during the previous banking crisis, recruiting a new executive management team and writing off hundreds of millions of dollars in bad loans. That experience was instructive for what the bank faces now.

Porteous says one of the board’s first steps during the current crisis should be to take an inventory of the available “assets” among its own members. Are there directors whose professional or business experience could be helpful to the board and management team as they work through the crisis together?

Communication is also crucial during a crisis. Porteous says that boards should be communicating more frequently and on a regular schedule so directors and senior executives can organize their own work flow efficiently. Given the social distancing restrictions that are in effect throughout most of the country, these meetings will have to occur over the phone or video conferencing.

“You may have meetings normally on a quarterly or monthly basis, but that simply is not enough,” Porteous says. “You need to have meetings in between those. What we have found at Huntington that served us very well in 2008 and 2009 and is serving us well now, we have set a time — the same day of the week, the same time of the day, every other week — where there’s a board call. So board members can begin to build their plans around that call.”

Porteous says the purpose of these calls is for select members of the management team to provide the board with updates on important developments, and the calls should be “very concise, very succinct” and take “an hour or less.”

Porteous also suggests that either the board’s executive committee or a special committee of the board should be prepared to convene on short notice, either virtually or over the phone, if a quick decision is required on an important matter.

C. Dallas Kayser, the non-executive chairman at City Holding Co., a $5 billion regional bank headquartered in Charleston, West Virginia, says that when the pandemic began to manifest itself in force, the board requested reports from all major divisions within the bank. “The focus was to have everybody drill down and tell us exactly how they’re responding to customers and employees,” he says. Like Porteous at Huntington, Kayser has asked the board’s executive committee to be available to meet on short notice. The full board, which normally meets once a month, is also preparing to meet telephonically more often.

As board chair, Kayser says he feels a special responsibility to support the bank’s chief executive officer, Charles “Skip” Hageboeck. “I’ve been in constant conversations with Skip,” he says. “I know that he’s stressed. Everyone is, in this situation.” Being a CEO during a crisis can be a lonely experience.  “I recognize that, and I’ve made myself available for discussions with Skip 24/7, whenever he needs to bounce anything off of me,” Kayser says.

One of the things that every board will learn during a crisis is the strength of its culture. “The challenges that we all face in the banking industry are unprecedented, and it really becomes critical now for all directors, as well as the senior leadership of the organizations that they oversee, to work together,” says Porteous. One sign of a healthy board culture is transparency, where neither side holds back information from the other. “You should have that all the time, but it’s even more critical during a crisis. Management and the board have got to have a completely open and transparent relationship.”

Crafting a Last-Minute Telecommuting Policy

As the COVID-19 pandemic evolves, more banks are asking their employees to stay home and work.

Capital One Financial Corp. asked employees who could do so to begin working remotely effective March 12. JPMorgan Chase & Co. asked its managers around the world to allow employees to work from home, where possible, less than a week later.

“We understand that this may be a disruptive decision, but we believe that is in the best interests of our associates and our communities,” said Capital One Chairman and CEO Richard Fairbank in an internal memo. “And it will create more space and distance for those who still need to come into work.”

Some employees — those in customer-facing positions, for example — can’t work from home. But remote work can keep others safe and enable in-branch workers to better practice so-called social distancing, helping to prevent the spread of the novel coronavirus while still keeping the business running.

The pandemic promises to disrupt all workplaces, at least temporarily. Yet, few banks are prepared for this mode of work. Directors and executives responding to Bank Director’s 2018 Compensation Survey indicated less than one-third offered telecommuting options to at least some of their employees.

So, what do banks need to know about putting a remote-work plan in place? To find out, Bank Director reached out to a few banks to see how their telecommuting program has evolved.

Ensure a secure workplace
Memphis, Tennessee-based Triumph Bank limited telecommuting to its mortgage division before the pandemic hit, and it was a natural place to start when the $837 million bank began implementing social-distancing measures.

Triumph doesn’t have a set policy in place for remote work, but it has established guidelines — starting with ensuring that the employee’s workplace is safe from a data security perspective. The bank doesn’t want sensitive information easily accessed by an employee’s spouse, child, roommate or anyone visiting that person’s home.

With that in mind, the bank asked loan officers and some loan processors to work from home in response to the pandemic — a decision made, for the processors, based on each employee’s at-home environment. “You evaluate each situation: Does [the employee] have an area that they can work from at home that is a secure spot, where you don’t have to worry about customer information, [and] they won’t be distracted by young children or a spouse,” says Catherine Duncan, the bank’s vice president of human resources. Those factors are taken into consideration. “We were able to send those [employees] home, and we separated everybody else.”

Port Angeles, Washington-based First Northwest Bancorp is allowed to examine employees’ at-home workspaces to ensure data security, if needed. The $1.3 billion bank’s remote-work policy also outlines equipment usage, and what to do if something goes wrong — if the internet goes down, for example. “Whatever that is, expectations of you as an employee, what you’re expected to do at that moment,” says Chief Human Resources and Marketing Officer Derek Brown. 

Get the technology in order
TAB Bank Holdings was able to shift to remote work quickly — from about 10% of staff roughly three weeks ago to 96% as of March 18. The $827 million digital bank unit operates out of one location: its Ogden, Utah headquarters.

The fact that the bank has digital onboarding in place for loans and deposits, and moved from paper-based processes five years ago, enabled it to move rapidly.

It was really just a matter of setting up VPNs and machines, because the workloads are the same no matter where you sit,” says President Curt Queyrouze. A VPN is a virtual private network, which allows the user to send and receive data as if their computer were operating on a private network.

Following the bank’s disaster recovery meeting about the pandemic almost a month ago, staff identified where they needed more VPN licenses, and which employees lacked a personal computer or access to the internet at their home. This gap wasn’t limited to older employees; younger workers tend to rely on smartphones when they’re not in the office.

In response, TAB Bank ordered $400 laptops to distribute to select employees and granted stipends so staff could access the internet at home. That early move was critical — Queyrouze says a later trip to purchase a few more laptops came up empty, as stores wrestled with demand.

Banks need to consider all the technology required by the employee. For example, Duncan says Triumph Bank updated its payroll system so employees can now clock in remotely. That’s necessary for those that are eligible for overtime pay.

Enable communication between employees and teams
Technology facilitates communication and collaboration. Both TAB Bank and First Northwest use Microsoft Teams, a communication and collaboration platform tied to Office 365.

“To the extent that [employees] have video capabilities on their laptop or desktop [computer], we’re really encouraging them to use those so that we can see each other and feel more connected,” says Queyrouze. “We’re finding that it actually makes a difference.” He regularly emails staff, and they’re clearly communicating tasks that need to be accomplished as the situation evolves. “We have some employees whose actual work activity is going down because of reduced activity in some of our areas; for instance, loan demand’s down,” he says. “We’re trying to be purposeful about getting them engaged in other projects.”

Enabling communication is particularly critical for employees at this uncertain time.

“It’s been so fast moving that I’ve been just working to create communications and a sense of security for our employees,” says Brown. The situation is evolving rapidly, as new guidance comes from government agencies, legislative and executive bodies pass new rules, and banks work to digest it all and react appropriately for their employees, customers and communities. “We’re meeting every day to assess the situation.”

Teresa Tschida, a senior practice expert at Gallup, recommends setting clear expectations for staff, communicating frequently and gaining feedback along the way. Great managers “help people know what’s expected,” she says. And in a period of intense uncertainty — as schools and businesses close, and people are asked to isolate themselves in their homes — the daily grind of work can be a source of comfort.

“If done right, management and the company itself can be a respite from some of the stuff that we’re facing in our inboxes, or with our families and whatnot,” she says. “At least with our companies, we feel well taken care of.”

How One Bank Puts Agile Management Techniques Into Action

When David Mansfield took the reins as CEO of Provident Bancorp six years ago, he could see that a change was needed, and that required new thinking.

“We were a typical community bank trying to be everything to everybody,” says Mansfield. He transformed the $1.1 billion bank based in Amesbury, Massachusetts, into a “true commercial bank” to the small and mid-sized companies that form the “backbone” of the community.

We’re trying to offer products and services that are not commodities, where we can differentiate ourselves, add value and get paid for it,” says Mansfield. “The customer’s appreciative, because they’re getting a product or service that really isn’t available to [small and mid-sized companies]” — like specialty services usually offered by large regional and money-center banks to their corporate clients.

To accomplish that, he needed employees who weren’t afraid to shake things up. He also needed to develop a culture and tools that facilitated collaboration within the organization. To do this, he borrowed managerial techniques from the technology sector by adopting Lean and Agile techniques.

Teams within the bank using these methods identify how to improve processes and workflows. “We have had some really amazing success stories,” says Mansfield.

Lean management aims for continual, incremental improvement. Quick “daily huddles” in the bank help staff focus on the day. In these 15-minute standup meetings, employees provide a quick update about progress on key projects and share any obstacles they’re facing so these issues can be addressed.

Mansfield credits Lean methods for improving interdepartmental dynamics. “One of the major premises of Lean [is that] it’s all about the customer experience, and we truly believe within this organization that everybody has a customer,” he says. Loan officers and branch staff directly interact with the customer, but support staff have a customer, too: their colleagues serving the customer. “What I love about our IT group is, they believe that wouldn’t happen unless they serve their customer, which is that group of people.”

Provident Bancorp still incorporates Lean thinking, but started shifting to Agile techniques late last year, upon hiring Joy Curth as senior information officer. Curth’s experience includes a stint in application development at Intuit, and she understands Agile methods. The principles of Lean and Agile are similar; both seek to create workflow efficiencies and promote iterative development.

Curth doesn’t have a banking background, which appealed to Mansfield. “We’re trying to do some different things, really leverage technology, and the traditional bank chief information officer just is not what I was looking for,” he says. As the bank weighs partnerships with technology companies, “she’s not only able to speak their language, but she’s able to recruit people to join her team [and] really professionalized our project management team” due to her Agile background.

Adoption of Agile has been project based, and the bank’s first project under the methodology was integrating ResX Warehouse Lending, a warehousing lending division that it acquired in January from $58.6 billion People’s United Financial, based in Bridgeport, Connecticut.

“Dave came to us and announced we were going to do an acquisition, and we were able to complete that project in [roughly] 8 weeks,” says Curth. “A whole acquisition of staff, technology, contracts — that was pretty expedited and showed that we were able to do that without a hitch.” The project’s success encouraged bank leaders to roll out the approach for most key projects.

“Even the bank we were doing the acquisition from [was] really impressed with our team,” says Mansfield. “We really drove it; it was an everyday meeting, what’s the status, how to keep things going.”

Agile is an ongoing journey that Mansfield believes represents the “next evolution” for project management at Provident. He’s a big reader, and one of his favorites is “Good to Great: Why Some Companies Make the Leap…And Others Don’t,” by Jim Collins.

“There’s a concept he uses: Shoot bullets first,” says Mansfield. Shooting bullets means pursuing attempts that represent a low risk and require minimal resources. If it works, you recalibrate and then “shoot the cannonball when you’re ready,” he says — using your company’s resources to make a big move based on those earlier, iterative attempts.

Another one that he calls a “gut check” on Lean techniques is “Jumpstart Your Service Revolution: Transform Your Company’s DNA and Thrive in an Age of Disruption,” by Thomas Schlick.

By adopting Lean and Agile techniques, Mansfield is creating a bank that differentiates itself in the market. Curth adds that employees enjoy working there. It’s what drew her to the bank. “When you implement this type of culture, your morale is high, and there really is an energy that is compelling and exciting,” says Curth.

Recommended Reading from David Mansfield, Provident Bancorp

How Umpqua Bank Is Navigating the Digital Transformation

Writers look for interesting paradoxes to explore. That’s what creates tension in a story, which engages readers.

These qualities can be hard to find in banking, a homogenous industry where individuality is often viewed skeptically by regulators.

But there are exceptions. One of them is Umpqua Holdings Co., the biggest bank based in the Pacific Northwest.

What’s unique about Umpqua is the ubiquity of its reputation. Ask just about anyone who has been around banking for a while and they’re likely to have heard of the $29 billion bank based in Portland, Oregon.

This isn’t because of Umpqua’s size or historic performance. It’s a product, instead, of its branch and marketing strategies under former CEO Ray Davis, who grew it over 23 years from a small community bank into a leading regional institution.

Umpqua’s branches were particularly unique. The company viewed them not exclusively as places to conduct banking business, but instead as places for people to congregate more generally.

That strategy may seem naïve nowadays, given the popularity of digital banking. But it’s worth observing that other banks continue to follow its lead.

Here’s how Capital One Financial Corp. describes its cafes: “Our Cafés are inviting places where you can bank, plan your financial journey, engage with your community, and enjoy Peet’s Coffee. You don’t have to be a customer.”

Nevertheless, as digital banking replaces branch visits, Umpqua has had to shift its strategy — you could even say its identity — under Davis’ successor, Cort O’Haver.

The biggest asset at O’Haver’s disposal is Umpqua’s culture, which it has long prioritized. And the key to its culture is the way it balances stakeholders.

For decades, corporations adhered to the doctrine of shareholder primacy — the idea that corporations exist principally to serve shareholders. The doctrine was even formally endorsed in 1997 as a principle of corporate governance by the Business Roundtable, an organization made up of CEOs of major U.S. companies.

Umpqua, on the other hand, has focused over the years on optimizing rewards to all its stakeholders — employees, customers, community and shareholders — as opposed to maximizing the rewards to just one group of them.

“We’re not the most profitable or highest total shareholder return bank in the country,” O’Haver says. “We have to give some of that up because of the things we do. If we’re going to innovate, if we’re going to have programs that give back to our employees and our communities, it costs money to do that. But we think that’s the right thing to do. It attracts customers and great quality associates who bring passion to what they do.”

The downside to this approach, as O’Haver points out, are lower shareholder returns. But the upside, particularly now, is that this philosophy seeded a collaborative culture that can be leveraged to help navigate the digital transformation.

Offering digital distribution channels isn’t hard. Any bank can pay third-party partners to build a mobile application. What’s hard is seamlessly blending these channels into a legacy ecosystem once dominated by branches and in-person service.

“How are you going to get your people to actually embrace new technology and use it? How are they going to sell it if they don’t feel like it’s valuable for them?” O’Haver says. “Yeah, it’s valuable for your shareholders because it’s cheaper. But if you’re not counterbalancing that, how are you going to get your associates to embrace it and sell it to customers? That’s more important than the product itself, even in financial terms. If they don’t embrace it, you will fail.”

This, again, may seem like a trite way to approach business. Yet, Umpqua’s more balanced philosophy towards stakeholders has proven to be prescient.

Last year, the Business Roundtable redefined the purpose of a corporation. No longer is it merely to maximize shareholder value; its purpose now is to fulfill a fundamental commitment to all its stakeholders.

Leading institutional investors are following suit. The CEOs of BlackRock and State Street Global Capital Advisors, the two biggest institutional investors in the country, are mandating that companies jettison shareholder primacy in favor of so-called stakeholder capitalism.

In short, while Umpqua’s decades-long emphasis on branches may seem like a liability in the modern age of banking, the culture underlying that emphasis may prove to be its greatest asset if leveraged, as opposed to lost, in the process of bridging the digital divide.

Conversing with Chief Cultural Officers

Bankers talk about the importance of culture all the time, and a few have created a specific executive-level position to oversee it.

Chief culture officer is an unusual title, even in an industry that promotes culture as essential to performance and customer service. The title was included in a 2016 Bank Director piece by Susan O’Donnell, a partner with Meridian Compensation Partners, as an emerging new title, citing the fact that personnel remain a critical asset for banks.

“As more millennials enter the workforce, traditional banking environments may need to change,” she wrote. “Talent development, succession planning and even culture will be differentiators and expand the traditional role of human resources.”

Yet a recent unscientific internet search of banks with chief culture officers yielded less than a dozen executives who carry the title, concentrated mostly at community banks.

One bank with a chief culture officer is Adams Community Bank, which has $618 million in assets and is based in Adams, Massachusetts. Head of Retail Amy Giroux was awarded the title because of her work in shifting the retail branches and staff from transaction-based to relationship-oriented banking, which began in 2005. Before the shift, each branch tended to operate as its own bank, with the manager overseeing the workplace environment and culture. That contributed to stagnation in financial performance and growth.

“We decided that we wanted to grow but to do that, we really needed to invest in our workplace culture,” she says. “When you think of a bank’s assets and liabilities, which represents net worth and capital, cultural capital becomes equally important.”

The bank’s reinvention was led by senior leadership and leveraged a training program from transformation consultancy The Emmerich Group to retrain and reorient employees. The program incorporated Adams’ vision and core values, as well as accountability through measurable metrics. Branch staff moved away from acting as “order-takers” for customers and are now trained to build and foster relationships.

“It’s worked for us,” says CEO Charles O’Brien. “We’re the go-to community bank for our customers, and they rave about how different we are. We’ve grown significantly over the last five years.”

As CCO, Giroux works closely with the bank’s human relations team on fulfilling the bank’s strategic initiatives, aligning operations with its vision and goals, creating a framework of visibility and deliverability for goals and holding employees accountable for performance. She reports to O’Brien, but says her efforts are supported by the whole executive team.

“A lot of times, people think that culture is invisible. They’ll sometimes say, ‘Well, how do I do these things on top of my job?’” she says. “Culture isn’t something you’re doing on top of your job. It’s how you do your job.”

At Fargo, North Dakota-based Bell Bank, the chief culture position is held by Julie Peterson Klein and is nestled within the human resources group, where about 20 employees are split between HR and culture. She says she has a “people first, workload second” orientation and has focused on culture within HR throughout her career; like Giroux, the title came as recognition for work she was already doing.

She says her job is really about empowering employees at the State Bankshares’ unit to see themselves as chief culture officers. Bell’s culture team supports employees by engaging the $5.7 billion bank’s 200 leaders in engagement and training, and works with HR to handle onboarding, transfers, promotion and exits. The group also leads events celebrating employees or giving back to the community, using storytelling as a way to keep the bank’s culture in front of employees.

“We focus on creating culture first, and we hire for that on the HR side,” she says.

Culture is important for any organization, but Giroux sees special significance for banks because of the large role they play in customers’ financial wellness. Focusing on culture has helped demonstrate Adams’ commitment of giving customers “extraordinary service.”

“Prior to having the collaboration and the infrastructure for culture, everybody kind of did their own thing,” Giroux says. “This really solidifies the vision and the mission. And it really is, I believe, the glue that holds us together.”

Industry Perspectives at Acquire or Be Acquired 2020

People, Products & Performance – In this interview with Bank Director CEO Al Dominick, John Eggemeyer shares his thoughts on what drives performance.
Super-Connected Customers – Data, payments and other technology-related issues were top of mind for bankers at the 2020 Acquire or Be Acquired conference.
Who Gets the Dog? – On the heels of the CenterState Bank Corp./South State Corp. merger, Al Dominick evaluates a core cultural issue around these deals.
Spotlight on M&A – Drivers of M&A, balancing organic growth with acquisitions, and nonbank deals were key topics discussed from the stage at Acquire or Be Acquired.
Exploring Opportunities – Bank Director CEO Al Dominick shares three important takeaways from the first day of the 2020 Acquire or Be Acquired conference.
Technology’s Impact – Hear how banking industry leaders view today’s quickly evolving technology landscape.
Focus on Consolidation – Big mergers of equals and tech deals defined the banking market in 2019.

Three Things You Missed at Experience FinXTech


technology-9-11-19.pngThe rapid and ongoing digital evolution of banking has made partnerships between banks and fintech companies more important than ever. But cultivating fruitful, not frustrating, relationships is a central challenge faced by companies on both sides of the relationship.

The 2019 Experience FinXTech event, hosted by Bank Director and its FinXTech division this week at the JW Marriott in Chicago, was designed to help address this challenge and award solutions that work for today’s banks. Over the course of two days, I observed three key emerging trends.

Deposit displacement
The competition for deposits has been a central, ongoing theme for the banking industry, and it was a hot topic of conversation at this year’s Experience FinXTech event.

In a presentation on Monday, Ron Shevlin, director of research at Cornerstone Advisors, talked about a phenomenon he calls “deposit displacement.” Consumers keep billions of dollars in health savings accounts. They also keep billions of dollars in balances on Starbucks gift cards and within Venmo accounts. These aren’t technically considered deposits, but they do act as an alternative to them.

Shevlin’s point is that the competition for funding in the banking industry doesn’t come exclusively from traditional financial institutions — and particularly, the biggest institutions with multibillion-dollar technology budgets. It also comes from the cumulative impact of these products offered by nondepository institutions.

Interestingly, not all banks struggle with funding. One banker from a smaller, rural community bank talked about how his institution has more funding than it knows what to do with. Another institution in a similar situation is offloading them using Promontory Interfinancial Network’s reciprocal deposit platform.

Capital allocation versus expenses
A lot of things that seem academic and inconsequential can have major implications for the short- and long-term prospects of financial institutions. One example is whether banks perceive investments in new technologies to be simply expenses with no residual long-term benefit, or whether they view these investments as capital allocation.

Fairly or unfairly, there’s a sense among technology providers that many banks see investments in digital banking enhancements merely as expenses. This mindset matters in a highly commoditized industry like banking, in which one of the primary sources of competitive advantage is to be a low-cost producer.

The industry’s justifiable focus on the efficiency ratio — the percent of a bank’s net revenue that’s spent on noninterest expenses — reflects this. A bank that views investments in new technologies as an expense, which may have a detrimental impact on efficiency, will be less inclined to stay atop of the digital wave washing over the industry.

But banks that adopt a more-philosophical approach to technology investments, and see them as an exercise in capital allocation, seem less inclined to fall into this trap. Their focus is on the long-term return on investment, not the short-term impact on efficiency.

Of course, in the real world, things are never this simple. Banks that approach this decision in a way that keeps the short-term implications on efficiency in mind, with an eye on the long-term implications of remaining competitive in an increasingly digitized world, are likely to be the ones that perform best over the long run.

Cultural impacts
One of the most challenging aspects of banking’s ongoing digital transformation also happens to be its least tangible: tailoring bank cultures to incorporate new ways of doing old things. At the event, conversations about cultural evolution proceeded along multiple lines.

In the first case, banks are almost uniformly focused on recruiting members of younger generations who are, by habit, more digitally inclined.

On the flipside, banks have to make hard decisions about the friction that stems from existing employees who have worked for them for years, sometimes decades, and are proving to be resistant to change. For instance, several bankers talked about implementing new technologies, like Salesforce.com’s customer relationship management solutions, yet their employees continue to use spreadsheets and word-processing documents to track customer engagements.

But there’s a legitimate question about how far this should go, and some banks take it to the logical extreme. They talk about transitioning their cultures from traditional banking cultures to something more akin to the culture of a technology company. Other banks are adopting a more-tempered approach, thinking about technology as less of an end in itself, and rather as a means to an end — the end being the enhanced delivery of traditional banking products.