The Daily Dividend: Industry News

News, notes and insights from around the industry

OCTOBER 16, 2019
Innovation Roadblocks
By Hilary Collins, Assistant Editor, Financial Managers Society

Innovation RoadblocksIn 2019, 76% of the leaders at community financial institutions FMS surveyed said that technological innovation was important to their organization’s growth. But will they be able to actually implement their grand plans? New research from the Digital Banking Report offers insights into some of the common roadblocks to becoming an innovative organization.

When the present state of an organization seems acceptable, it can be difficult to focus on building a better future. For many institutions, customers may appear satisfied, shareholders aren’t raising a fuss and the revenue is still coming in strong. But feeling comfortable with the status quo can lead to an ugly surprise when the competitive environment inevitably heats up.

Being a follower instead of a leader
Only 14% of the 350 organizations in the Digital Banking Report survey considered themselves to be innovation pioneers – the smallest group. Meanwhile, 19% characterized themselves as laggards, 32% said they were mainstream players and the largest group, 35%, said they were fast followers. But fast followers may find the tried-and-true strategy of following in the wake of competitors less successful as more fintech businesses enter the industry, making them look slow and unresponsive.

Not focusing on the customer

88% of those innovation pioneers said they had used digital transformation to improve their customer experience, compared to only 51% of fast followers, and 74% of pioneers measured the customer experience of their organization, compared to 46% of followers. It’s obvious that innovation leaders are far more customer-focused than their slower-moving peers, and followers who have been content to lag behind these forward-thinking competitors may begin to see more of their customers abandoning ship.

OCTOBER 15, 2019
The Coming Storm?
By Mark Loehrke, Editor, Financial Managers Society

Despite the impressive job growth and herky-jerky stock market rally of 2019, most economists, CFOs and other experts tend to believe that a recession is almost certainly heading our way by the end of 2020. Now, with trade wars raging and global growth slowing, a new survey shows that a growing number of regular Americans are sensing the same impending setback just around the corner as well. 

Some of the key findings from the Allianz Quarterly Market Perceptions study include:      

50% of Americans see a major recession coming soon, continuing a steady upward trend from 48% in the second quarter of 2019 and 46% in the first quarter 

While 40% of respondents thought it was a good time to invest at the beginning of 2019, that number is now down to 35%

Millennials seem to be the most concerned about the coming downturn, with 56% expressing apprehension about a recession, compared to 51% of Generation X respondents and 46% of Baby Boomers

OCTOBER 11, 2019
So You're a New CFO
By Hilary Collins, Assistant Editor, Financial Managers Society

So You're a New CFOIt’s your first day in the CFO chair. First of all, congrats! Second of all, get ready for a lot of bad advice.

Some of the common advice new leaders receive is misguided, serving as a time-waster at best and a reputation-destroyer at worst. So what should new CFOs actually be doing in their first days? Thankfully, research and experienced CFOs offer proven strategies to help you start off on the right foot.

Focus on the hard tasks
Knowing what critical tasks are the most difficult will allow you to prepare accordingly. Research shows that new CFOs have common struggles: at the top of the list are building a working relationship with the leadership team, getting up to speed on business operations, and communicating with external stakeholders.

Learn more about the CEO
The CEO-CFO relationship is a critical one. You'll want to learn your CEO’s strengths, weaknesses, operational style, and risk biases while building a solid, trusting relationship. Keep in mind that if you and the CEO are truly incapable of finding common ground, you may have to start job-hunting ASAP.

Find the underlying truth
No matter how much research you’ve done, the job looks different from the inside. Getting data and information and double-checking it against other sources should be a big part of your first months in the C-suite. You should also be careful of trusting first impressions — a new executive is likely to get a sunny picture of the organization. You should find someone trustworthy who can give you a more honest, in-depth perspective.

OCTOBER 9, 2019
Managing Vendor Relationships
By Hilary Collins, Assistant Editor, Financial Managers Society

With technology becoming more and more ubiquitous throughout financial institutions, many banks and credit unions are finding that employing the help of third-party vendors is the most efficient way to provide the services customers want and the technological innovations needed to streamline operations. As institutions increasingly rely on these third-party relationships, however, regulators are becoming more vigilant about the potential risks that come with them. Scott Sargent offers some tips on how to keep your institution safe and compliant:

Perform risk assessments

When evaluating vendors, institutions should consider operational, reputational, compliance, concentration, strategic, legal, financial and credit risks. Also, don’t overlook country risk analysis – while your bank or credit union may not do business outside the country, your vendor might.

Perform due diligence
After analyzing the potential risk landscape, it’s time to turn an appraising eye on the vendor itself. Investigate the firm’s strategies, legal and regulatory compliance, financial condition, reputation, operational capability, fee structures and more. While you may never know enough to completely neutralize risk, the investigation should be thorough enough to convince leadership and regulators that the institution did its homework.

Sign the contract

Once a vendor has been selected, the contract used to forge the relationship requires discipline as well. “The final contract should represent the business terms both parties expect, mitigation of the risks identified in the risk assessment and tools to maintain due diligence and monitor ongoing performance,” Sargent says.

Monitor the relationship
Monitoring vendor relationships should flow naturally out of the previous three steps. Knowing the risks for both the institution and the vendor and having a solid contract should provide the tools to make sure the relationship is successful.

These steps, of course, are just the beginning. But starting things on the right foot is a good step toward building the kind of symbiotic relationship that can ultimately provide a strategic boost for a bank or credit union – and keep the regulators happy as well.

OCTOBER 8, 2019
Regulatory Roundup
By Mark Loehrke, Editor, Financial Managers Society

Regulatory RoundupOur regulatory proposals page is of course a great place to check out the latest pending items affecting banks and credit unions, but it pays to check in from time to time on those proposals that have wound their way through the system to become final rules. Here are three recent developments worth noting:   

OCC – Stress Testing
The agency’s final rule amending its stress testing rule addresses three key areas:
It revises the minimum threshold for national banks and federal savings associations to conduct stress tests from $10 billion to $250 billion
It revises the frequency with which certain banks are required to conduct stress tests
It reduces the number of required stress testing scenarios from three to two

The final rule will become effective on November 24, 2019.

FDIC, OCC, Fed – Real Estate Appraisals
The appraisal threshold for real estate transactions secured by a 1-to-4 family residential property will rise from $250,000 to $400,000 under a final rule issued jointly by the three federal banking agencies.

The rule will become effective October 9, 2019.

NCUA – Audits and Verifications 
The nation’s credit union regulator, meanwhile, has published a final rule amending its regulations governing the responsibilities of an institution to obtain an annual supervisory committee audit, replacing the Supervisory Committee Guide with a simplified appendix, eliminating two audit types that credit unions seldom use and eliminating a specific deadline for outside, compensated persons to deliver written audit reports. 

These amendments will be effective on January 6, 2020.

OCTOBER 2, 2019
The Risks of M&A, Part II
By Mark Loehrke, Editor, Financial Managers Society

A few weeks back, we highlighted a story about some of the less-heralded risks of M&A, such as cyber diligence and cultural integration between the merging institutions. As it turns out, those hidden risks are but a few of the issues that can create significant problems for potential deals, which may explain in part why the industry has seen a marked slowdown in M&A transactions over the past year.

For those banks and credit unions looking to buck that trend and bravely venture down the M&A road anyway, then, here are a few more important boxes to add to the due diligence checklist:

Executive compensation 
Executive compensation arrangements can be tricky when it comes to an M&A deal. On the one hand, it can be crucial to keep certain key members of the team in place for the new institution; on the other, a variety of existing deferred compensation, supplemental executive retirement plans or equity incentives fuel funding and tax uncertainty amid the pending deal. 

IT contracts
Core processing contracts are among the largest that any bank or credit union will have, which is why digging into the fine print of early termination and de-conversion fees in the contract of a target institution is an absolute must so that everyone is clear on the potential IT price tag that comes with a pending deal. 


Many buyers will struggle to incorporate significant participations into their risk and pricing model. If a target institution tended to sell participations, a potential buyer will be interested in how quickly it can pull them back. If, however, the target tended to buy participations, the acquiring institution will need to consider how many of those participations will remain after the deal commences, since there are no real relationships in place with the borrower.

SEPTEMBER 30, 2019
Four Paths to Digital Transformation
By Mark Loehrke, Editor, Financial Managers Society

Just as no two financial institutions are exactly alike, neither are their potential journeys to digital transformation. From asset size to technological capability to member/customer readiness, every bank and credit union needs to assess its own situation and determine its best digital path forward. Here are four possible paths to consider, depending on where the institution is starting and where it would like to go. 

On this generally slow and complex path designed to shift the focus of the institution from products to customers, the thrust is on improving efficiency first and foremost – by building API-enabled business services and getting rid of legacy systems – before moving on to improving the customer experience. 

Customer Experience
Taking the reverse approach would be to focus first on improving the customer experience across the entire organization before improving efficiency by developing new products, improving contact centers and updating apps to provide better customer satisfaction. As this customer focus improves, the concentration then shifts to building a new operating platform that will improve efficiency. 

Stair-step Approach
Moving to a future-ready state by alternating the focus from customer experience to improving operations, this option is enabled by the ability to replace components of a legacy platform versus the entire back office. The focus here is on a structured approach where the entire organization is aware of the projects underway, and the impact of each component to the overall strategy. 

Create a New Organization
A tough act to pull off, this option focuses on building a completely new subsidiary organization that is future-ready, separating the new organization from the existing entity to try and eliminate many of the challenges around legacy systems and creating a customer focus. The concern here, however, is dividing the institution and pitting old against new in a competition where both sides end up losing.

Of course, these are not the only possible paths to a digital transformation. Some institutions may find success with a combination of several of these strategies, while others may opt for another direction altogether. But what is most important is that the institution knows exactly where it stands before going down any transformation road, and that it takes action in some direction sooner rather than later.


Mark Loehrke

Danielle Holland

Hilary Collins
Specialist, Publications and Research