The Daily Dividend FMS Blog
The Daily Dividend

News, notes and insights from around the industry

MARCH 24, 2017
Friday Hot Links
By Mark Loehrke, Editor, Financial Managers Society

Spring is here! Here are a few fresh ideas that have bloomed recently around the industry press:

Social status
On the plus side, a fair number of FMS members consider their institutions at least somewhat active on social media. But for those still holding out, Elena Mesropyan’s piece for Bank Director lays out a pretty compelling case for why it’s probably high time to start making social media a bigger priority.     

CECL tips
Taking a cue from a recent Deloitte survey of large banks and their preparations for CECL – a survey you can read more about in next week’s issue of FMS Update – the Journal of Accountancy offers a handful of helpful tips for getting to work on the new standard in your institution. 

Four to fear
Trying to keep up with the myriad cybersecurity threats targeting your institution can be kind of a downer, but the old adage that knowledge is power really does ring true in this ongoing battle. There’s not much new in CUNA Mutual’s list of four threats to keep an eye on, but it does provide credit unions (and everyone else) with a good reminder of the importance of continued vigilance.

MARCH 23, 2017
Fed Eyes Lighter Merger Scrutiny
By Hilary Collins, Assistant, Publications and Research, Financial Managers Society

The Federal Reserve has taken steps to make mergers easier for small banks, Reuters reports

In streamlining the process for smaller institutions, the Fed noted that “[P]roposals involving an acquisition of less than $10 billion in assets, or that result in a firm of less than $100 billion in total assets, are generally not likely to create institutions that pose systemic risks.” 

Prior to these moves, acquisitions of banks worth more than $2 billion or mergers that created firms of more than $25 billion were subject to much more rigorous analysis. That analysis previously took six months to a year – but the longest review took more than three years. Now, institutions can be up to four times larger than before and still avoid such painstaking scrutiny.

MARCH 21, 2017
Happy Meal? The Recipe for a Successful Branch
By Mark Loehrke, Editor, Financial Managers Society
What are customers looking for when they walk into one of your institution’s branches – a full-service, fine dining experience or just a get-in-get-out fast food transaction? 

In reality, you’re probably seeing a combination of these kinds of visits. The challenge, then, is to design and staff branches that are equally welcoming to both types of customers – those looking for an in-depth consultation on a new loan or investment and those looking to simply pick up a cashier’s check and get out in record time. In their recent piece for Banking Strategies, James Geeslin and Lindsay Green from Extracto Consulting lay out the case for fine-tuning your branch strategy to best accommodate a variety of different customer needs. 

For instance, in some cases, it may not make sense to try and make a single branch all things to all people – some locations may be better suited to express-only, grab-and-go transactions, while others can be built and staffed to better serve those looking for the multi-course, sit-down experience. In other places, meanwhile, a design that conveniently and comfortably handles both deep discussions and quick-hit routine items with ease is going to be the winning combination. 

The key is to have a solid understanding of which kinds of customers are coming into your branches for which transactions so that you can design and staff each location appropriately.

MARCH 20, 2017
Early Warning: Five Credit Risk Areas to Watch
By Hilary Collins, Assistant, Publications and Research, Financial Managers Society
With credit risk an ongoing theme in the finance industry, the ABA Banking Journal brings us a reminder of five key areas community institutions should examine and address going forward. 

1. Underwriting standards
With competition for loans increasing, institutions need to resist the pressure to relax their standards for high-growth products. In fact, now may be the time to consider tightening underwriting on some riskier products.

2. Portfolio composition
Community institutions might feel some anxiety about portfolios that are heavy on commercial real estate, oil-and-gas or agricultural loans. Additionally, some institutions are dealing with competition and the pressure to increase loans by stepping outside of their comfort zone to offer loans they usually don’t in these areas. As concentrations continue to increase, institutions may want to redouble their efforts to continually appraise the risks they’re taking on and limit underwriting exceptions.

3. Staffing concerns
Many institutions are running short-staffed, having a hard time finding the talent to fill all necessary positions. Especially in lending, institutions need qualified people to fill the shoes of expert employees who are retiring, as well as newer, more specialized positions being necessitated by the shifting regulatory world.

4. Credit culture
It’s important for community institutions to be unyielding in their credit practices, not bending the rules to ease underwriting. Now is not the time to be deviating from tried-and-true procedures.

5. Data management and reporting
With the new CECL standard in the offing, finding and tracking data will continue to be a major and much-discussed concern for many institutions. Though this concern might seem further in the future than some of the others on this list, resist the impulse to put it off – dig in now.

This is by no means a comprehensive checklist for credit risk, but being aware of these key areas and proactive in addressing them can help avoid major issues in the future.
MARCH 17, 2017
Friday Hot Links: Saint Patty's Edition
By Hilary Collins, Assistant, Publications and Research, Financial Managers Society

Happy Saint Patrick’s Day! Here are some industry reads that pair well with green beer and corned beef and cabbage:

Green Banks?
D.C. mayor Muriel Bowser is pushing legislation for a “green bank”. If approved, it would be make D.C. the first city in the U.S. to offer the program, which is supposed to increase the efficiency of public dollars, create green jobs and reduce utility costs.

Cash and Marijuana – Both Green
Most banks still won’t do business with marijuana dealers – even though legalization is quickly becoming a national reality – and that means sellers and dispensaries have a lot of cash, as well as a higher risk of theft or accusation of money laundering. A new app could heal this rift.

Pot of Gold
There was a rally in gold following the interest rate hike, and this article takes a look at the reason why. So is it time to make like a leprechaun? One of the sources predicts “an extremely bullish environment for gold for some time.”
MARCH 16, 2017
The Road to Vegas, Part I: Fun and Learning in Las Vegas
By Hilary Collins, Assistant, Publications and Research, Financial Managers Society
We’re gearing up for the 2017 FMS Forum in Las Vegas, and it’s going to be a good time! Maybe not a Hunter S. Thompson good time, but the Forum will be a great way to learn more about the issues affecting your institution, network with industry peers and maybe have some fun along the way as well.

The Forum will take place at the beautiful Red Rock Resort, a luxurious destination that offers plenty of downtime activities. Soak up some sun at the amazing three-acre pool complex, relax with a massage in the full-service spa, roll a few frames at the on-site bowling alley or sample from among a variety of fantastic restaurants. As a Forum attendee, you’ll enjoy access to all of this and more at a discounted rate – just mention FMS when booking your reservation by no later than May 25, 2017 (subject to availability).

So what are you waiting for? Now is the perfect time to join us – register for the 2017 FMS Forum by April 15th for a $100 discount!
 

MARCH 14, 2017
A Brief Q&A on M&A
By Hilary Collins, Assistant, Publications and Research, Financial Managers Society

Mergers and acquisitions are a very real possibility for almost half of respondents in a new survey conducted by Bank Director. 

46% of respondents in the 2017 Bank M&A Survey said their institution is likely or very likely to purchase another bank by the end of 2017, while 45% said the environment is more favorable for deals than it was the year before – down 17 points from the 2016 survey, but still strong. Here are some other takeaways from the survey:

Why do institutions consider mergers? 
Banks considering selling are motivated most heavily by rising regulatory costs (with 54% of respondents considering or actively seeking a sale claiming it as a factor) and shareholders actively seeking liquidity (48%). Other major motivating factors include limited growth opportunities (39%) and not being able to find replacements for exiting executives (15%).

What makes an institution attractive to a buyer? 
Both buyers and sellers agree that geographic location and a strong lending team are very desirable traits in an acquisition.

Survey respondents who reported a recent acquisition noted the following traits as highly important:

  • Talented lenders: 41%
  • Geography: 48%
  • An attractive market: 58%

From the sellers’ standpoint, meanwhile, 67% of respondents who indicated they’re open to a sale, considering a sale or actively seeking an acquirer say they think talented lenders make them a more desirable acquisition, and 67% agree that geography is an appealing trait. 

What makes deals fall through? 
The two biggest considerations a buyer faces when considering a merger or acquisition are coming to agreement on the price (38%) and finding the right cultural fit (26%). It was clear – and perhaps not surprising – that price often proves to be the breaking point in many potential deals, with 64% of potential buyers in the survey citing too hefty a price as the main reason for not pursuing a potential target and 72% of potential sellers citing a low-ball offer as the main reason they rebuffed a deal.

However, while price is crucial, it isn’t the whole story – a good cultural match is also very important. Of the respondents from potential buyer banks who say their institution has walked away from a merger in the past three years, 49% said the culture at the target institution was a factor in the deal falling through. On the other side, of potential sellers who walked away from a sale, 32% said the culture at the acquiring institution was a factor.

What does the future look like for mergers and acquisitions?
Survey respondents were fairly evenly divided on the economic forecast, with 31% expecting a recession, 36% confident that the U.S. will avoid a recession or economic downturn this year and 33% unsure of the economic outlook. Regardless of whether they predicted an upcoming downturn, however, 60% said such a downturn, if it came to pass, would result in more consolidation, due to a likely increase in the number of institutions failing or struggling; 26%, meanwhile, said a recession would result in less consolidation as buyers become more cautious and 14% said a recession would not impact M&A activity at all.

You can access the survey in its entirety here.


Contributors


Mark Loehrke
Editor and Director, Publications and Research
Email: mloehrke@FMSinc.org 



Danielle Holland
President/CEO
Email: dholland@FMSinc.org 



Autumn Wolfer
Director, Membership and Marketing
Email: awolfer@FMSinc.org


Hilary Collins
Assistant, Publications and Research
Email: hcollins@FMSinc.org