The Daily Dividend: Industry News

News, notes and insights from around the industry

FEBRUARY 22, 2019
A Quarter for Your Thoughts
By Hilary Collins, Specialist, Publications and Research, Financial Managers Society

A Quarter for Your ThoughtsIt may be a winter of massive storms and polar vortexes, but things are looking mostly sunny for the nation’s federally insured banks. As reported in the FDIC’s Quarterly Banking Profile for the fourth quarter, net income and deposits were up while problem banks and charge-offs were down as we wrapped up 2018. Here are some of the major takeaways from the report:

Net income rose $33.8 billion from the fourth quarter of 2017, a year-over-year jump of 133% (when, adjusted for changes to the effective tax rate, would be more in the neighborhood of a less eye-popping but still impressive gain of 18.5%). Full-year net income for 2018 grew to $236.7 billion (up 7%), driven by growth in net operating revenue and lower income tax expenses. 

Net interest income was also up, with growth in interest-bearing assets and wider net interest margins boosting this number by $140.2 billion (8.1%) from the fourth quarter of 2017, as 82.6% of banks reported year-over-year increases.

Total deposits increased by $292.6 billion (2.2%) from the third quarter of 2018, the largest quarterly dollar increase since the fourth quarter of 2012.

The number of banks in the doghouse is down, with the “Problem Bank List” shedding 11 institutions for the period. There were no bank failures in the fourth quarter, and loan-loss reserves and equity capital rose from the third quarter of 2018.

Net charge-offs were down 4.6% from the fourth quarter of 2017, declining by $605.9 million – the first time in three years for a year-over-year drop. Noncurrent loans have dropped below 1% for the first time since 2007.

Community banks also performed well for the quarter, posting a gain in net income of $6.8 billion – a growth of 65.1% (11.2% when adjusted for tax changes). Small loans to businesses were on the rise as well, growing 3.1% over the same period in 2017, while net interest margin climbed to 3.78%. However, noninterest expenses continued to rise, driven largely by salary expenses.
 

FEBRUARY 20, 2019
Master the Disaster
By Hilary Collins, Specialist, Publications and Research, Financial Managers Society

Master the DisasterThe past two years have brought record-smashing hurricanes and wildfires to the U.S., and mounting natural-hazard losses can end up testing the CFO of any business impacted by these types of events. For executives at financial institutions, managing the ways in which disasters can impact daily operations – from company reputation to potential growth opportunities to shareholder confidence – is part of the job description. Kevin Ingram offers advice on how senior financial executives can weather the storm.

Prepare for interrogation
When business takes a hit from a natural disaster, it’s the CFO – not Mother Nature – who ends up having to answer for the damage. But for many organizations, the resources allocated for disaster preparedness and risk management will prove insufficient when a storm actually strikes. The unpredictable nature of natural disasters may put CFOs in the hot seat to explain why such losses weren’t preventable.

Prepare for the unpredictable
Knowing that he or she will be the one left to provide an explanation when a storm impacts earnings, the CFO should invest in protection against the potential damages from hurricanes, wind storms or floods. For example, research suggests that every dollar spent on hurricane protection prevents $105 in business disruption and property loss. Now that’s a bang for your buck.

Prepare through a valuation perspective
CFOs should reevaluate operations and risk through a valuation-based model, which offers a clearer picture of the total financial impact of a natural disaster, minus any insurance recoveries. Since CFOs are in a better place than risk managers to analyze gaps in a resilience strategy, they should take the lead in protecting the institution’s profitability.
 

FEBRUARY 18, 2019
Out on a Limb
By Hilary Collins, Specialist, Publications and Research, Financial Managers Society

Out on a LimbFinancial institutions are investing plenty to build better digital faces, but comparatively few are putting the same time, effort and resources into their branches – even as data shows that many customers still prefer face-to-face interactions for some transactions, especially opening new accounts. What should financial institutions do when customers demand both a seamless digital experience and a personalized physical experience?

Move away from a transactional mindset
Branches can’t focus on the simple deposit-withdrawal model of yore. Customers coming into a brick-and-mortar building should be met with a teller who operates as a concierge and advisor, rather than a larger, talking version of mobile deposit.

Use the physical space differently
Branches can be used as community outreach. One expert mentions throwing a viewing party for a local sporting event as just one suggestion for how to make the branch an inviting place where people feel connected.

Building in-person trust enables digital innovation
Using the branch to advise and connect helps build the kind of relationships with customers that allow major digital changes to unfold seamlessly. Digital transformation requires using data in new ways that can be worrying to skeptical customers, but when institutions make the effort to build strong trust-based relationships, customers will be more willing to roll with even major changes.
 

FEBRUARY 15, 2019
Lemons to Lemonade
By Mark Loehrke, Editor, Financial Managers Society

Lemons to LemonadeFrom surveys to pundits to simple gut feelings, there’s a general consensus from a number of corners that the remarkable economic expansion of the past decade is winding down, and that 2019 may present challenges that banks and credit unions haven’t had to deal with in quite some time. While those predictions (and certainly the gut feelings, which as Dickens once noted “may be more of gravy than of grave”) may not come to pass, the growing chorus of mild pessimism can nevertheless serve as a timely reminder that the good times don’t last forever.

And whether that end comes next week, next quarter or next year, it certainly can’t hurt to be prepared for the day when it inevitably arrives. Jim Trautwein from Cornerstone believes that now, in fact, is a great time for institutions to be reviewing various aspects of their technology to make sure they’re ready for when a downturn does, in fact, materialize. Here are four things he recommends doing now:

Head to the clouds
Those institutions that haven’t already done so may want to start looking to move some of their in-house technology infrastructure to cloud applications to take advantage of potential cost savings and other efficiencies.

Hit refresh
Once a slowdown hits, tech updates are likely to take a backseat to seemingly more pressing matters. But keeping an institution’s systems up to date is vital to both ongoing competitiveness and security, so it may make sense to take care of those updates now before the purse strings tighten.

Mind the minimums

Many technology contracts have minimum revenue commitments and cost of living increases owed to vendors – now is the time to review and recession-proof all contracts and agreements to ensure that the institution is getting a fair shake in these arrangements.

Maximize your leverage

If any major tech contracts are up for renewal – especially auto-renewal – be proactive in seeking out the most favorable terms and adjustments for the next agreement. Nothing will be more refreshing amid a coming downturn than knowing your bank or credit union is paying a little bit less or maybe getting a little better treatment thanks to the foresight of working out a solid negotiating strategy well before things went south.
 

FEBRUARY 13, 2019
The Downside of Efficiency?
By Mark Loehrke, Editor, Financial Managers Society

What leader wouldn’t want to be more efficient? 

Efficiency, after all, is certainly a trait a leader would prize among his or her staff members, so it stands to reason that efficiency at the top would be a great example to set as well, right? But being able to fly through a list of tasks and be highly productive, while certainly admirable qualities for any employee, may not necessarily translate quite as neatly to the leader of an organization.

The argument goes that a highly efficient leader may have the tendency to promote a workplace culture that prioritizes getting things done quickly over a more thoughtful and measured climate – ultimately leading to employee burnout. In other words, there exists the potential for efficiency to trump effectiveness, which doesn’t tend to hold up in the long run. It’s not that companies aren’t interested in efficiency, of course, but when a leader fosters an environment where task focus continually outweighs people focus, the results usually aren’t going to be sustainable.          

So what steps can a leader who is overly geared toward efficiency take to bring his or her style more into balance? From soliciting feedback from key stakeholders to developing high-value ways to acknowledge and reward people to practicing more mindful self-management, there are a variety of ways to retain an efficiency mindset without letting it get in the way of fully managing a team of actual people.
 

FEBRUARY 12, 2019
Properly Prioritizing Risk Management
By Hilary Collins, Specialist, Publications and Research, Financial Managers Society

Properly Prioritizing Risk ManagementRisk management is often viewed purely as a way to avoid or neutralize threats to an organization, but it can (and should) be more. When properly prioritized, Kevin Dancey says leaders can turn risks into competitive advantages, arguing that CFOs who make risk management a higher priority often reap major benefits.

For example, recent research shows that many organizations have not successfully integrated enterprise risk management (ERM) with strategic and business plans. Most organizations are also failing to anticipate risks, and thus still experience “operational surprises.” This inability to integrate risk management into the fabric of an organization is even more dangerous in a market that is changing rapidly. In the foreseeable future, blockchain, AI and the internet of things (IoT) could further revolutionize business – and business risk – leaving organizations that haven’t caught up in the dust.

The solution, Dancey says, is for organizations to fundamentally change how they view risk, with CFOs leading the shift of perspective by championing integrated ERM functions. “The modern enterprise badly needs a leader with an overview of the business, who understands data modeling, risk and how they relate to business strategy and performance,” he says. “In most companies, the person best placed – by virtue of experience and the range of skills in his or her team – is the CFO.”

With the CFO at the head of this shift, the organization can become adept at not only managing risk, but looking far enough ahead to use transform those risks into competitive advantages.
 

FEBRUARY 8, 2019
A Matter of Trust
By Hilary Collins, Specialist, Publications and Research, Financial Managers Society

A Matter of TrustIn a time of corporate scandals, major data breaches and plummeting faith in the government, it may be time for organizations to revisit the value of trust. A Gallup poll from last summer found that trust in banks is on the decline (even if they’re still doing better on this front than public schools and the criminal justice system – yikes), and financial institutions have a number of compelling reasons to start building that trust back up.

The most trustworthy public companies, as ranked by the group Trust Across America, regularly outperform the S&P 500.

Similarly, companies that appear in the Great Place to Work Institute’s annual list outperform the S&P 500. Why does this matter in a discussion about trust? The institute has found that the single biggest factor in making an organization a great place to work is trust between managers and employees.

Other research shows that trustworthy, transparent organizations are better perceived in a crisis. These organizations also have customers who are more satisfied, and who are willing to pay more for their goods and services.

With trust having such major impacts on the biggest challenges facing financial institutions — reputation, profitability, talent recruitment and retention — perhaps now is the time to revisit and re-prioritize concepts like ethical decision-making and transparency.
 



Contributors


Mark Loehrke
Writer/Editor
Email: markl@fmsinc.org 



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




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