The Daily Dividend: FMS Education

News, notes and insights from around the industry

JUNE 13, 2019
2019 FMS Forum: Funding for the Times
By Hilary Collins, Specialist, Publications and Research, Financial Managers Society

The 2019 FMS Forum is almost here and Shawn O’Brien from QwickRate was happy to check in ahead of the happenings in Boston to share a sneak peak of his breakout session, “Funding for the Times: All Options on the Table.” 

FMS: What are some of the unique funding pressures that financial institutions are facing in 2019?

O’Brien: For most of the last decade, every financial institution experienced continuing increases in deposits – often to the point of not wanting more. However, that situation began to change over the last year or two. In 2018 and certainly into 2019, institutions have seen the availability of funding diminish, while the cost of funding has increased. 

Further compounding the problem is the fact that over the same 24 months or so, many institutions also experienced an erosion of their net margins. Now, as deposit prices continue to climb, it’s very difficult for these institutions to pass along increases in loan rates to their customer base – a base, it should be noted, that’s being threatened by a growing number of highly competitive fintech companies and neo-banks. 

So most of today’s community institutions are being squeezed. On one side sit the larger banks that are heavily investing in technology, and therefore not offering customers better deposit rates. On the other side are fintech companies offering higher rates (and often better technology, too), but with no regard for personal relationships. Occupying the space in between are the community institutions dealing with customers asking for both higher deposit returns and costly improvements in technology.  

FMS: How do examiner expectations play into these pressures?

O’Brien: Examiner expectations are always important. If asked, examiners would say that currently most banks (more than 80%) merit either a 1 or 2 liquidity rating, meaning that the institution has satisfactory liquidity levels and funds management practices, has access to enough sources of funds with acceptable terms and has only modest weaknesses (if any) in its management of funds. As examiners foresee the industry moving from an expansion state to a peak point (perhaps already reached) and then moving closer to a downturn, the regulators begin to become more concerned about banks sliding to a liquidity ranking of 3. This would indicate that an institution’s liquidity levels and funds management practices need improvement, that the institution may lack ready access to funds with reasonable terms and that it may even have significant weakness in its processes for managing funds. 

In that case, the financial institution can expect examiners to scrutinize its liquidity management processes more sharply – making sure the institution is utilizing multiple funding sources, is maintaining ready access to contingency funding, is stress testing its liquidity sources and is strictly monitoring its capital to keep from slipping below well-capitalized status during a possible downturn. 

FMS: What are a few things attendees should take away from your session?

O’Brien: I would like them to leave with a better understanding of their funding sources and how to best utilize them all. I would like for them to know the examiners’ perspective of where we are in the current banking cycle, and how that perspective might affect the evaluation of their institution at exam time. I also want them to understand the different points of pressure that can weaken their institution’s overall liquidity position. 

Be there for this session and all of the other great educational and networking opportunities in Boston – register today!

JUNE 7, 2019
FMS Webinar: Benchmarking the Accounting and Finance Function
By Mark Loehrke, Editor, Financial Managers Society

FMS Webinar: Strategic Implications of CECLThere are few better ways to get a true feel for how your bank or credit union is doing in a particular area than by judging your performance against other institutions. And just as you would regularly compare your product and service offerings to those of your competitors, it helps to occasionally see how your back-office operations stack up as well.

So join FMS on Wednesday, June 12, as Nancy Wu of SkyStem draws on insights from the annual Accounting and Finance Benchmarking report from the Financial Executive Research Foundation and Robert Half International to touch on topics such as workforce management, accounting operations, digital transformation and internal controls in her live webinar session, Keeping Up with the Joneses: Benchmarking the Accounting and Finance Function.

As always, this webinar is complimentary for FMS members. (Not a member? Join today!)

JUNE 6, 2019
2019 FMS Forum: The M&A Marketplace Today
By Hilary Collins, Specialist, Publications and Research, Financial Managers Society

When looking for ways to grow, leaders at financial institutions often consider two options: organic growth or growth by acquisition. Rick Childs of Crowe LLP says there are a few important factors bankers should deliberate when they’re leaning toward the latter option. With the  The 2019 FMS Forum right around the corner, we asked Rick a few questions about his breakout session, What Do You Need to Know About the M&A Marketplace as a Banker?

FMS: The M&A market for banks got a lot of press in 2018 – is it cooling at all in 2019?

Childs: The M&A market for banks has cooled in 2019 from the levels of 2018. Sometimes there can be a little ‘noise’ in the data because of big deals like BB&T and SunTrust. But in general, the number of deals has dramatically fallen and prices have also declined somewhat as the stocks of active acquirers have also declined with the market.

FMS: For institutions looking at growth through acquisition, what kind of response can they expect from potential sellers?

Childs: Sellers’ price expectations have not declined as quickly as those of buyers and, as such, buyers may find potential sellers have locked in on a price that may not be feasible in today’s marketplace. Additionally, many banks have a renewed optimism for their ability to remain independent with higher earnings and a better regulatory environment. In surveys this often shows up in the chasm between those banks that wish to be buyers versus those willing to be sellers.

FMS: What is one actionable takeaway you hope attendees leave your session with?

Childs: I am trying to establish a dialogue over the way in which the attractiveness of a bank deal is measured. Some of the current metrics were developed in 2008 when the industry suffered from low earnings or negative earnings, and traditional measures such as EPS dilution fell out of favor. Because of that, a lot of people make the mistake of trying to tell a story with a single metric. It isn’t effective and I want attendees to understand how to look at the economic returns and not focus so much on ratios.

Be there for this session and all of the other great educational and networking opportunities in Boston – register today!

MAY 30, 2019
2019 FMS Forum: Banking of the Future
By Mark Loehrke, Editor, Financial Managers Society

The educational program for The 2019 FMS Forum is a good mix of not only issues that are likely affecting banks and credit unions in the here and now, but also emerging topics that will come to the fore in the years ahead. Geron Morgan of BKD will be guiding attendees through the latter category in her strategic issues session entitled Banking of the Future: Dynamic Use of Technologies – Distributed Ledger Technology, Blockchain and Artificial Intelligence, as she discusses the possible benefits and challenges institutions are likely to face with these new technologies in the short and long term.

FMS: How will you be covering these emerging technologies in your presentation?

Morgan: I’ll be offering a quick view of how the technology behind blockchain, distributed ledger and artificial intelligence works, with a focus on business cases for financial institutions. There will also be a discussion to debunk many of the myths that are out there, and to provide a risk profile of the technology as it currently exists.  

FMS: Why are these developments so important for institutions to consider right now?

Morgan: The emerging technologies of distributed ledger, blockchain and artificial intelligence will change the way the world does business. Bankers have an opportunity to take advantage of this technology in their credit practices, depositor relationships and customer experiences. But to strategically implement technology, we have to understand the tools and the risks related to organizational integration. The time to start that discussion is now, so that community bankers can determine how they may be able to shape the future as technology leaders. 

FMS: What are you hoping audience members will take away from your session?

Morgan: Hopefully they’ll be able to take this new understanding back to their bank or credit union and put the information about strategic planning, risk assessment and governance discussions to good use. The goal is for them to know what can be done now to prepare for this technology and how their institution’s risk appetite/assessment will be impacted.   

Be there for this session and all of the other great educational and networking opportunities in Boston – register today!

MAY 28, 2019
FMS Webinar: How We Give Our Information to Hackers
By Hilary Collins, Specialist, Publications and Research, Financial Managers Society

FMS Webinar: Strategic Implications of CECLElectronically. Through social media. Over the phone. In person. When it comes to protecting your information, the weakest link is often you.

Join FMS on Wednesday, June 5, as Jeremy Burris of S.R. Snodgrass shares how to best protect your institution’s security from its greatest threat: human weakness. In his webinar, How We Give Our Information to Hackers, Jeremy will cover how hackers are accessing sensitive information and how to prevent such disclosures.

As always, this webinar is complimentary for FMS members. (Not a member? Join today!)

MAY 23, 2019
The 2019 FMS Forum: Understanding Your Balance Sheet Options
By Hilary Collins, Specialist, Publications and Research, Financial Managers Society

With The 2019 FMS Forum just a month away, we sat down with Scott Hildenbrand of Sandler O’Neill to talk about his breakout session, Balance Sheet Strategy: Understanding Your Options in Any Environment

FMS: What are some of the trends that are affecting balance sheet strategy?

Hildenbrand: Community bank managers face multiple challenges late in the cycle, including a flat yield curve, narrowing risk-adjusted returns on new loans, structurally higher funding costs and depleted on-balance sheet liquidity. Also, after years of preparing for higher rates, the prospect of lower rates must now be managed. Managers must know their balance sheet exposure and be well-versed in all on- and off-balance sheet remediation tactics. 

At this stage of the cycle, we are encouraging managers to focus on earnings quality over earnings quantity (ROA over ROE). It’s also important to take a close, honest look at incentive programs to make sure they align with the institution’s objectives and risk tolerance.

FMS: What are some of the signs that these trends might be impacting an institution?

Hildenbrand: Most managers are already seeing lower yields and higher funding costs compress margins. They should also see the impact in their asset-liability modeling. The numbers are the numbers, though we want all institutions to make sure that their asset-liability modeling is realistic. This requires testing multiple yield curve shapes to identify balance sheet exposure and fine-tune key modeling assumptions in real time. Managers must also monitor the competitive landscape obsessively and facilitate cross-functional communication.

FMS: What do you expect audience members to take away from this session?

Hildenbrand: I’d like them to see that although the current macroeconomic backdrop is challenging, there are numerous on- and-off balance sheet remedies available to help an institution differentiate its brand, drive forward earnings and create durable franchise value.

Be there for this session and all of the other great educational and networking opportunities in Boston – register today!

MAY 16, 2019
The 2019 FMS Forum: CECL and Its Implications
By Mark Loehrke, Editor, Financial Managers Society

One of the looming challenges facing banks and credit unions is the continued march toward implementation of the Current Expected Credit Loss (CECL) accounting standard, which is why this major change will figure into several sessions on the program for The 2019 FMS Forum.

Dan Morrill of Wolf & Company and Ryan Henley of Stifel will be hosting one of these presentations, a Monday afternoon session entitled CECL and Its Implications Apart from Simply the Reserve, as they dig into the many ways the new standard will impact institutions in areas ranging from loan pricing models to risk-based capital to broader portfolio management.   

FMS: How will this session differ from other CECL presentations?

Morrill / Henley: We will be covering many issues outside of just calculating the reserve. We will take a look at reserve trends by asset class, how CECL may impact loan pricing and some implications that may result from acquisition accounting – all with an eye toward the impact on the capital stack.  

FMS: Why are the particular aspects of CECL you’re covering so important for institutions to consider?

Morrill / Henley: With so much of the focus on the CECL calculation, some of the issues we’re covering may be things that an institution hasn’t had time to focus on. We’re hoping to bring some of these to light.  

FMS: What are some of the actionable takeaways you expect audience members to leave with?

Morrill / Henley: Hopefully some strategies on managing the balance sheet, including having the appropriate mix of securities and loans based upon capital constraints and thoughts on holding or disposing of certain loan portfolio types based upon the unique risk-adjusted returns under CECL. In addition, audience members may find some practical solutions to managing the capital stack.

Be there for this session and all of the other great educational and networking opportunities in Boston – register today!



Mark Loehrke
Editor and Director, Publications and Research

Danielle Holland

Hilary Collins
Specialist, Publications and Research