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© 2017 – FinPro, Inc. 0158 Route 206 North Gladstone, NJ 07934 P: (908) 234-9398 [email protected] www.finpro.us
New Jersey BankersDo not get complacent – Change is coming!
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© 2017 – FinPro, Inc. 1
In a world full of change, Directors and Senior Officers, need to focus on these key things.
1. Change: Stay abreast of change2. Regulatory: Assess risk and manage accordingly3. Economics: Plan under multiple environments, define trigger points!4. Demographics: Know how demographic shifts will change your market5. Technology: Stay current with technology, avoid oligarchy traps6. Customers: Market to customer segments7. Employees: Select and retain top talent8. Corporate Governance: Improve corporate governance9. Planning: Identify Trigger Points and Incorporate into Strategic Plan
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© 2017 – FinPro, Inc.
Change: Stay abreast of change. Change is impacting every industry, not just banking.
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Then Now To Come
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© 2017 – FinPro, Inc.
Traditional brick and mortar branches will follow the path of blockbuster video stores . . .
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Human Delivery
Digital Delivery
Call Center Delivery
Mini Branch Delivery
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© 2017 – FinPro, Inc.
Can this Administration, Senate and House get ANYTHING DONE? Are they CAUSING change or STIFLING change?
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Then Now To Come
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© 2017 – FinPro, Inc.
2015 2016 2017
Regulation: Assess risk and manage accordingly. Based on recent exam report findings, regulators are focusing more on risk management, strategic, and information technology (IT) risks.
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Capital
Asset Quality
Management
Earnings
LiquidityLegal &Regulatory
ReputationITValuation
CorpGovernance
BSA
Strategic
RiskManagement
Compliance
Operational
Sensitivity
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© 2017 – FinPro, Inc.
Beware of Pending Regulatory issues and change.
Key concepts Credible challenge Presumptive knowledge Documentation Reality
Pending changes Curry – term expires 4/2017 Gruenberg – term expires 11/2017 Cordray – term expires 7/2018 FRB – 2 Openings + Tarullo and Lacker resignations
Agencies will follow their leaders – look for regulatory easing!
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What regulatory issues should keep us up at night?
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Wholesale Funding Brokered, Listing, Borrowing, Internet Volatile?? Core??
Concentrations MHC Structure – Do we need affiliate agreements? Bank Holding Company Thresholds BASEL and Capital Consumer Advocacy – CFPB UDAAP, Disparate Impact and other subjective governance Accounting Issue: CECL Dodd Frank
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© 2017 – FinPro, Inc.
Economics: What economic issues should keep us up at night?
Rising Rates Fed Funds 10 Year
Tax Rates and Policy Corporate Individual Loss of Deductions? “S” vs “C”?
Repatriation of foreign $ Scenarios
Trump Successful Continued Schizophrenia Recession
Impact on banking services Mortgage banking and refinance market Commercial Real Estate Tax Structure
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Historical Yield Curve
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
3 Month 6 Month 1 Year 2 Year 3 Year 5 Year 7 Year 10 Year 20 YearMarch‐16 June‐16 September‐16 December‐16 February‐17
Trump Success
What might the rate scenarios look like?
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Continued SchizophreniaGridlock Recession
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© 2017 – FinPro, Inc.
Demographics: What demographic trends should keep us up at night?
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Aging Boomers will utilize accumulated wealth so will see a decline in AUM New Millennials are not motivated like Boomers If immigration levels decline, where does entry level workforce come from? How much will rural areas decline? What will happen to McMansions? Will we need as many offices as flex time skyrockets? What will happen to malls? Strip centers?
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Technological: What technological advancements should keep us up at night?
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Regulators are giving mixed signals on FinTech OCC wants to issue FinTech charters, but they CAN NOT give FDIC Insurance. NY now suing OCC over FinTech charters, other States to follow! FDIC will apply the same standards and assessment criteria to FinTech applications as it
does to any other denovo. As such, it appears that Banks will preserve their Competitive advantages of:
FDIC Insurance Leverage
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We are already seeing this shift in the Fintech arena as many start up companies are listening to the needs of the customer and have already launched products that have been disruptive to the financial services industry . . .
Disruptive Lenders Peer to Peer Payments Deposit Alternatives
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What should we do?
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Eliminate concentrated power of Oligarchs Shorten duration of contracts Eliminate of minimize prepayment penalties – know State law
Give customers what they want Digital banking Clean and easy use
Focus on new technology
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Customers: Transaction volumes are falling. Todays customer wants relationships . . .
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People do not come to branches anymore
They want information and advice
And will be your best salesperson, or your worst!
Find the Spheres of Influence for each
segment you want to serve.
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Market to specific Customer Segments . . .
Understand your
customer
Break down silos
Improve customer
experience
Process Improvement
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We must rethink our current product, transactional and functional centric approach, where we don’t listen to our customers but rather provide them what we think they want . . .
Products / Services Delivery Channels Customers
• Deposit Products
• Loan products
• Retail banking services
• Commercial banking services
• Other financial services
• Branch
• ATM
• Internet
• Mobil
• Remote Capture
• In person
? ?
?
??
??
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To a customer centric approach where are products are delivered to customers based on their needs . . .
Products / Services Delivery Channels Customers
• Deposit Products
• Loan products
• Retail banking services
• Commercial banking services
• Other financial services
• Branch
• ATM
• Internet
• Mobil
• Remote Capture
• In person
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How To Attract Top Talent: Competitive Compensation and Benefits:
Provide a strong base salary, bonus and other benefits to top hiring prospects
Working Environment: Provide indication on structure of promotion
and upward mobility Provide options for lateral mobility if another
department fits their interest and or skill sets better
Culture: Display positive culture attributes of the
Company to top prospects Make them feel welcome on all levels
during process
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How to Retain Top Talent: Competitive Compensation and Benefits:
Continually stay competitive on compensation
Review salaries and benefits at least annually and have market compensation studies done to verify outside competitiveness
Working Environment: Consistently track and monitor
accomplishments of employees for timely promotion within the organization (goal based)
Constantly ask for and provide feedback on improvement areas before larger issues arise
Culture: Be inclusive and make them feel as an
integral part of the team Praise accomplishments Encourage questions and collaboration
Employees: Select and retain top management. Good people are hard to find, great people are even harder to keep!
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Key attributes to look for in talent.
Intellectual curiosity Motivated Willing to take on additional responsibility and roles Hard working Quick learner Efficient and accurate Takes accountability for work Willing to take the lead, but also willing to take the backseat when needed Forward looking individual Ability to adapt Communication Passion
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Can we find Millennials with many of these attributes?
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How do we retain great people, we motivate them by showing them we are invested in them . . .
4. Strong Technician 2. Strong Performer 1. Outstanding
7. Adequate Performer 5. Solid Performer 3. Future Star
9. Poor Performer 8. Under Performer 6. Raw Talent
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Per
form
ance
Leadership, Sales, and Client Relationship Competencies
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Corporate Governance: Improve Corporate Governance.
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Central Hub
Vendor Management
Talent Management
LONOS33 More Modules
to Come . . .
Sample Policies
Valuation
Shareholder Services
Compensation Surveys
Document RepositoryProcess ManagementMeetings Management
Due DiligencePermissions & Security
Some Coming Modules:• Loan Participation Network• Liquidity• ALLL• ALCO Assumption Review• ERM• Insurance Management• Customer Segmentation• Delivery Channel Profitability• CDI and MTM Model• Market Ranking Analysis
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Board and Senior Officer Training is paramount.
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Must be aligned to bank’s risk assessment Train of high risk elements first Training should include mitigation efforts
Must be comprehensive and repetitive Use Global webinar package Use regulatory training materials and events Utilize experts where appropriate
Should use bank specific data ALCO Risk All Compliance
Best if spread into manageable segments Must be documented – “If it is not in writing, it did not happen”
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What are some of the high risk elements that require enhanced training?
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The Trump “Bump” and economy Liquidity
Core vs wholesale funding Betas and Decays Deposit Loyalty
Capital Based on internal risk assessments Where and how to get it
Consumer Compliance (unfortunately!)
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© 2017 – FinPro, Inc. 24
Good Corporate Governance includes:
Identify potential strategic opportunities for the institution Exercise
Credible challenge Presumptive Knowledge Document Reality Individual Judgment – not all board votes should be unanimous
Take steps to identify, measure, monitor and control risks Serve as a spokesperson in representing the Company and its positions Evaluate the Bank’s performance Set expectations and communicate them completely Promote open and honest discussion Attend all meetings well prepared for discussion Disclose any potential conflicts of interest
Always ask: How would the outside world perceive this?
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Planning: Identify Trigger Points and Incorporate into Strategic Plan . . .
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1. Remain Independent
Grow into infrastructure- Limited
branching- Lead with
Loans
Increase Cash dividends and repurchases
2. Sale
Organic Growth Only
Bank
Organic Growth and
Acquire
Trigger:Takeout Price>$20 per share
Trigger:Takeout Price<$20 per share
Trigger:Good fitting targets available & TBVS Dilution<10% & Workback<5 years & EPS accretion>0%
Trigger:No good fitting targets available and or TBVS Dilution>10% and or Workback>5 years and or EPS accretion<0%
Trigger:Abundance of attainable deposits and loans available in market (market feasibility analysis) for continued growth
Trigger:Less abundance of attainable deposits and loans available in market or undervalued stock price or shareholder need for liquidity
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© 2017 – FinPro, Inc. 26
Good Planning requires multiple scenarios with numerous variable stress testing.
ROAE
Definition
Significance
Historical Projections
This ratio is a second measure of overall profitability. It is the primary measure for banks and public thrifts, and measures the return being generated for each $1 of equity.
Net income as a percentage of average total equity.
9.90
10.95
10.45 9.04
9.01
10.33
9.71
9.74
10.67
11.47 10.54
6.32
10.92
11.02
11.41
11.04
5.74
7.63
8.92
6.61
7.47
7.32
7.46
7.89
7.47 7.48
8.87 8.758.29 8.45
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18
Moderate Low High Moderate HighPeer Group 1 Median Peer Group 2 Median Bank Base Case 20% ProvisionFed Forecast Robust Economic Growth Market Recession 10% Loan and Deposit Growth 90% Loans and 120% DepositsNIE +5% -$1 Mil Expenses Combination Trigger Point
Trump Platform Execution
Flat Environment
Market Recession
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© 2017 – FinPro, Inc.
“Traditional” Model
Historical Perspective
Asset Growth
Transactions
Products
Advertising
Brick and Mortar
SILO’ s
Single Scenario Plans
Regulatory Constraints
Departmental Risk Assessments
Board Confusion
Job Training
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FinPro 2020 Model
Forward Looking
Value Creation
Relationships
Customers
Targeted Marketing
Targeted Delivery
Integrated Organizations
Multiple Stress Tested Scenarios
Market Opportunities
Integrated ERM
Effective Corporate Governance
Talent Management
In Conclusion: The “traditional” community banking model is dead! Those organizations with strong leadership will recognize the new paradigm and enact change accordingly . . .
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© 2017 – FinPro, Inc. 28
We must change from the traditional model to ensure future success . . .
Changing Demographics
Changing Technology
Continued Regulatory /
Compliance Burden
Unstable Economic Rate
Environment
New Under Regulated Non‐
bank Competition
Under Educated and
Under Trained Staff
Single Analysis Engine
Individual Variable and
Total Scenario Stress
Testing
Corporate Governance
Board Training
Customer Segmentation
Talent Management
New Delivery Channels
Risk Management
Regulatory Expertise
Improve Delivery
• Human Branches
• Digital Branches
• Brick & Mortar
Focus on customers (not
products)
Relationship – not
transactions
Talent Management
• Few employees
• More expensive
• Better Educated
Creating the right brand in a
highly commoditized world
The Face of Community Banking is Changing . . .
Each Bank will Need the Following Tools . . .
So, To Create Value . . .
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For more information, please contact
Donald MussoPresident, FinPro, Inc.
908‐234‐[email protected]
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