Banks need to be more agile to face the challenges in today’s marketplace, and boards and management teams need to focus on strategy more frequently. Brian Stephens of KPMG outlines the strategic issues impacting banks and how they should be addressed by bank leaders.
As unregulated competition heats up, bank CEOs and board members continue to seek ways to not just stay relevant but to stand out. In this short video, Ben Plotkin of Keefe, Bruyette & Woods, A Stifel Company, shares his perspective on how banks of all sizes can find success in 2015.
Banks today are facing a historical threat, not unlike what the publishing industry recently experienced, with non-bank competitors quietly nibbling away at their customer base. In this video, Mitchell Orlowsky, chief executive officer of Ignite Sales, Inc., discusses ways that banks can improve sales performance and competitive advantage.
Growth in commercial and industrial (C&I) lending is generating a lot of buzz in the industry. As reported in the fourth quarter banking profile released by the Federal Deposit Insurance Corp. (FDIC), C&I loans rose 12 percent during the last year to $1.5 trillion. A recent phone survey conducted by Bank Director of 142 community bank CEOs and chairmen in the southern United States confirms this growth, with 64 percent revealing plans to grow through C&I lending this year, compared to 29 percent that plan to grow through consumer lending and 7 percent through specialty finance.
Paul Merski, executive vice president, congressional relations and chief economist at the Independent Community Bankers of America (ICBA) explains that while the lending environment as a whole is highly competitive, C&I lending is a growth area where community banks with the right expertise can have an advantage over larger banks. “It’s highly competitive, and it’s really something that the community banks shouldn’t cede to the larger banks,” says Merski, as community banks have the relationships within the local business community to place themselves at a competitive advantage.
Cadence Bank, a $5.4-billion asset privately owned regional bank based in Birmingham, Alabama, with locations across Alabama, Florida, Georgia, Mississippi, Tennessee and Texas, saw the highest growth in C&I loans in the nation for the fourth quarter, as reported by SNL Financial. As the result of three bank acquisitions, Cadence saw overall loan growth, including the bank’s C&I portfolio, which grew 41 percent to $1.79 billion, according to Paul Murphy Jr., CEO of Cadence Bancorp and chairman of Cadence Bank. Additionally, Cadence “hired 65 people with extensive lending experience,” Murphy says. “That would be the formula for more growth than normal.”
According to Merski, C&I loans can offer a higher rate of return than standardized loans, like mortgage loans, as these types of loans allow for greater customization and flexibility in the terms and rates offered to the borrower. In turn, this can help increase profitability for banks squeezed by net interest margins. At Cadence, C&I loans generate additional deposits, and the fee income opportunities that these loans provide are a significant benefit. Cadence has also seen advantages in cross-selling other products like treasury management, “which is also good business, and helps fund the bank,” says Murphy.
The focus of bankers on C&I has, naturally, raised the interest of regulators, who question whether terms are growing too flexible and rates are dipping too low. As with any product, having the proper risk management controls in place is key, says Merski, adding that a diverse loan portfolio that includes C&I can benefit a bank. “For community banks, not being overly concentrated in one lending area” can help improve a bank’s risk profile, he says.
Murphy stresses that banks wanting to enter the C&I fray should have lenders with the right skill set. The recent hires at Cadence hold an average of 18 years of C&I lending experience, and Murphy views C&I as the bank’s core business. “We’re not doing it because it’s en vogue,” he says. “We’re doing it because this is what we’ve always done.”
Bank Director also surveyed bank CEOs about plans to increase spending in branch technology, branch expansion, mobile applications and ATMs. Fifty-two percent do not plan additional spending in any of these areas. Twenty-one percent plan to upgrade branch technology, and 19 percent plan increased investment in mobile apps. “The mobile banking app utilization is just going through the roof,” says Murphy. “People love it.”
Cadence Bank is building an automated branch using video tellers near its Birmingham, Alabama, headquarters. The branch will feature one video teller, without in-person staff like tellers and loan officers. Murphy explains that video banking will allow Cadence to extend hours as well as save on man power by having one person handle transactions at several branches. “I think we can actually do a better job for customers,” says Murphy.
Thirteen percent of the bankers surveyed plan to open new branches, while just 2 percent plan increased investment in ATMs.
ABOUT THE SURVEY Bank Director conducted a brief survey by phone in February and March, polling 142 community bank CEOs and chairmen in Alabama, Arkansas, Florida, Louisiana, Mississippi, Oklahoma, Tennessee and Texas. The survey focused on growth in that region in advance of Bank Director’s Growth Conference to be held in New Orleans, Louisiana, on April 30 and May 1. Ninety-nine percent of the respondents were bank CEOs; most of the respondents represented the states of Texas (29 percent), Oklahoma (25 percent) and Alabama (15 percent).
Raymond P. Davis, president & CEO of Umpqua Holdings Corp. and keynote presenter at Bank Director’s 2013 Acquire or Be Acquired Conference in Scottsdale, Arizona, shares his insight on how community banks can remain competitive during this challenging economic environment.
Video Length: 45 minutes
Creating a meaningful value proposition
Differentiating yourself from the competition
What does a strong culture look like?
Advice and warnings about valuations
About the Speaker
Ray Davis is the president and CEO of Umpqua Holdings Corporation. Mr. Davis pioneered a new approach to the delivery of financial products and services built on the development of innovative store designs that engage and excite customers. Mr. Davis joined Umpqua Bank in 1994 and has grown the bank from six banking locations and $140 million in assets to nearly 200 stores and $12 billion assets today.
Are you using the data you have to understand and target your marketplace and each customer need? The truth is that most banks today generate more data than they are capable of exploiting.
But does the instant availability of data, combined with less expensive and faster computing capability, make big data a competitive silver bullet or is it just the next shiny object that will distract us from the real business at hand? Bottom line… is more data actually better?
Being saddled with legacy siloed technology platforms, lacking analytical expertise and structured only to support traditional approaches to data usage, many financial institutions are finding they’re woefully unprepared for the challenges of working with big data (usually defined as data inside and outside the organization that is both structured and unstructured).
A better starting place for most banks is to start small, using a building-block approach to data management. This would address the most immediate hurdles facing banks today including: 1) improving the integrity of current data, 2) integrating multiple data silos, 3) leveraging real-time data, 4) improving accessibility of data, and 5) better analyzing data sets.
Improving Data Integrity Before we expand our data inputs, we must make sure our existing database is complete and accurate. While names and addresses may be up to date, the same can’t usually be said for phone numbers, email addresses and preferred communication channels. >In addition, important information such as mobile phone numbers and services held at other institutions is usually not collected.
To move forward in the world of big data, we should first build a plan to update and backfill outdated and incomplete data files. This process starts on the front line, in our call centers and through customer surveys.
Integrating Data Silos Most banks still have individual data silos for the retail consumer, small businesses, commercial accounts, the mortgage portfolio and possibly other credit services such as credit cards. Without an integrated platform, a fully functioning 360-degree view of our customers is impossible.
A common scenario occurs when banks don’t recognize small business or commercial relationships of retail customers. Breaking down silos between product lines and integrating the data should be done before any overarching big data initiative is considered.
Leveraging Real-Time Data As more customers are using online and mobile channels, there is a need to leverage real-time data from both the bank and customer perspective. Yesterday’s data, while important for trend analysis, is much less valuable for risk analysis and marketing optimization.
Today’s customer expects all transactions to be reflected immediately as they use their cards, transfer funds online, and increasingly use their mobile devices to transact. Other industries have also made them accustomed to relevant offers, communicated using the right channel at the optimal time. To accomplish this in banking, we need to collect (and act on) real-time data.
Expanding Data Accessibility Integrating accurate and complete real-time data is powerful only if it can be easily accessed and effectively analyzed across the organization. This will require a new operating model and approach to data management.
Since many banks are already dealing with data overload, the odds are not in our favor that more data will automatically improve results. But until all areas are seeing the same view of the customer, and can make business decisions based on insight available, the potential of big data will be lost.
Analyzing Data Remember, more data doesn’t fix bad analysis. Progressive banks in the future will be engaging with customers in ways that were unforeseen only a few years ago. Retail banking will be operating faster as described in a recent blog post written by Scott Bales from Movenbank entitled, “Finding Serendipity in Big Data.”
Competitive advantage is achievable through the better analysis and use of customer data and big data definitely deserves to be part of our planning and strategy process. But banks should start small as opposed to boiling an ocean. Some starting steps include:
Use account level and transaction data to build life-stage trigger communication programs (new movers, retention, onboarding)
Leverage transaction data to improve risk and fraud monitoring
Review channel and transaction data to determine optimal branch reconfiguration (size, structure, support)
Use funds movement data to determine price elasticity of products and customer segments
Now is the time to improve the accuracy of data already stored, build real-time capabilities, break down existing data solos and improve the accessibility and analysis of data to ensure that the concept of big data doesn’t move towards the trough of disillusionment and lost opportunities.