A collection of observations, ruminations, predictions and random thoughts from Cornerstone Advisors.

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February 25, 2015 by Scott Hodgins Scott Hodgins

VendorDirt: The Big 4 in 2015

In January a lifelong friend of mine married a super cool woman he met on a blind date. No Tinder, FarmersOnly, eHarmony, or ChristianMingle – just a good, old-fashioned love match arranged by a mutual friend. Ah… love. Makes you think of your core vendor, no?

Core vendors are kinda like a blind date. You envision a gorgeous, funny and smart mystery person, but really you just hope your date’s visible scabies scarring is minimal and that you don’t end up hog-tied in the back of a creepy panel van. We all have high hopes for our blind dates, but we have to be realistic, too.

So let’s take a look at what the Big 4 core vendors (FIS, Fiserv, Jack Henry and D+H) are doing and have to bring to the table in 2015 (other than a sweetheart deal).


Banks: With the triad of Premier, Signature and DNA, Fiserv has maybe the most well-rounded suite of core products out there for mid-size banks of varying delivery preferences and strategies. Premier registered a great win in Bank of the Ozarks in 2014.

Credit Unions: Fiserv has delivered when it comes to improving the DNA product’s stability and sales. They are flat-out selling the crap out of DNA to credit unions and also holding their own with banks. The only “Yeah, but…” is that so many of the new DNA sales have been to existing Fiserv core clients. In 2015 will Fiserv be able to continue DNA’s strong market momentum outside of its own core base?

General: Pundits, consultants and other industry hangers-on go blue in the face talking about the Big 4 vendors’ need to be more… uh… cooperative when it comes to third party system integration. But here’s the elephant in the room. What we really mean is that Fiserv in particular has a strong need to improve in this area. Most, including myself, have just been too weak to call it out. While all vendors stand to improve, by far the angriest and most vociferous integration complaints come from Fiserv core clients. And there is not even a close second.

Fiserv has become the poster child for struggling to execute on a loan origination system story, though FIS and JHA wrestle with LOS, too. Take a look at the two headlines below from the Fiserv web site.

Would you think Fiserv just:

  1. Developed a brand new product?, or
  2. Renamed a product it unveiled almost seven years ago and still struggles to capture significant market share?

Free shot of Jäger for those who answered “b”!


Banks: With IBS, FIS has a strong commercial banking platform with solid momentum, a great customer base of $1 billion+ banks, and a contender on the short list at just about any mid-size bank seeking an outsourced solution. And winning media darling Umpqua’s business last year certainly didn’t hurt.

IBS has also, by most accounts from Cornerstone’s client base, grown its implementation staff fast enough to keep its acquisition-happy banks satisfied. Stories of prolonged wait times to integrate acquired banks have all but ceased, and to FIS’s great credit, it seems to have grown without sacrificing quality.

Outside of IBS, however, FIS is struggling to establish an identity with its core banking products, including Horizon, BancPac and Bankway. If you’re a $2 billion bank that wants an outsourced core, everyone knows FIS will bring IBS. But what if you’re a $500 million community bank that wants to operate core in-house? There’s no easy answer there, and that can hurt FIS’s ability to win deals in that sector. The market is looking for a more concise, thoughtful message from FIS on its products other than IBS.

Credit Unions: The FIS credit union story is nowhere. Despite multiple attempts to assure the market that the Miser core is here to stay in Credit Union Land, the market is not buying it. With minimal market awareness, slow sales momentum and a message that is doing nothing to help, FIS’s tenuous position in the credit union market is on the precipice. It is time for FIS to come out loud, bold and earth-shattering to resurrect its name with credit unions. Or just buy a competitor.

Frank Martire

Frank Martire

General:  We were sorry to hear about the retirement of former CEO Frank Martire, though he is succeeded by long-time FIS hotshot, Gary Norcross. FIS’s challenge here is to convince clients that Norcross will be just as much of a customer advocacy guru as Martire was.

Jack Henry

Banks: Silverlake remains a stalwart of the mid-size bank market. The new Experience UI for front-end applications is well received by prospects and is a much needed modernization shot in the arm, but the real home run will be when Experience is ready for back office applications as well.
JHA is struggling with its channel delivery story, though. While JHA has been hard at work on them, its NetTeller online banking and goDough mobile products remain a noticeable step behind the competition, especially when it comes to all-important look and feel. And when it comes to a credible story for online cash management for businesses, JHA is…

Credit Unions: I hate to be a broken record, but the real need for Symitar is to spin a convincing, consistent tale about what the hell it’s going to do with its proprietary database and/or a new, third party database. Are you going to support both forever? Are you eventually migrating away from the proprietary model? Are you going to feed a third party database with your proprietary database? The story changes depending on who and when you ask.

General: JHA continues to grow without losing its service edge, a mind-bending rarity in any industry. There are exceptions, but JHA remains a leader when it comes to service.

It’s troubling, however, that JHA has sheepishly punted by leaving loan and deposit origination development to a partner – albeit a strong partner in MeridianLink. We get partnering when it makes sense, but man, account origination is such an integral part of JHA’s client base that anything other than a nicely self-developed product is selling customers short.


 D+H has the unique claim of being a vendor much better known for its ancillary systems (LaserPro, CreditQuest, DecisionPro, uOpen, etc.) than for its core products – namely Phoenix in Cornerstone’s market. D+H truly is the only Big 4 vendor that doesn’t have to blush or stutter when discussing its LOS strategy.

Though the Phoenix product could use some improvement in functionality and integration for credit unions, it tends to show pretty well to our bank and credit union clients alike. So, what’s stopping Phoenix from duking it out with Symitar and DNA in the CU world and Premier and IBS with banks?

Almost no one has ever heard of it.

Cornerstone consistently has to introduce – not just discuss, but introduce – Phoenix to most of our clients, banks and credit unions alike. Phoenix needs market awareness and name recognition more than just about anything else.

OK, I’m retreating to my reinforced bunker in Estonia after dishing the VendorDirt this week.

Clients… you know how to reach me!

-Hodgins glasses

follow me on twitter: @VendorDirt

 Top 3 Reasons Banks Avoid System Selections

  • A shortage of information about vendors and their products
  • Lack of a clear methodology
  • Minimal time to manage such an important project

If any of these sound familiar, we should talk. Cornerstone Advisors has been helping banks and credit unions make educated decisions about their systems vendors for more than a decade.

We’ve done it hundreds of times, and we have a long list of satisfied clients to prove it.

Visit our site or contact us today to learn more.



Filed under: Core Processing, Loan Ops & Collections, Vendor Buzz

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February 18, 2015 by Scott Sommer Scott Sommer

My Maiden Voyage to the ‘Acquire or Be Acquired’ Conference

I think ever since GonzoBanker’s mother ship, Cornerstone Advisors, was founded over 13 years ago, Bank Director  has hosted its “Acquire or Be Acquired” conference (or, as all the regulars call it, “AOBA”) in our back yard here in sunny Scottsdale or Phoenix, Ariz. Well, my partner Steve Williams and I finally broke down and attended. Here is a recap of the flurry of activity at this year’s event.

The Venue: The Phoenician, Scottsdale, Arizona. With the miserable winter most of the country has been experiencing, what could be better than a conference in Scottsdale in January. ’Nuf said.

The Schedule: The two-and-a-half day conference felt about right length-wise, but I gotta say the 8:00 a.m. kickoff on a Sunday morning was a bit of a fog after my prior night’s festivities. Really?! Sunday?! Aren’t we supposed to be deep in prayer or reflective thought on the “day of rest?”

The Garb: Despite the exhortations in the conference guide that attendees should be in resort casual, it never ceases to amaze me that bankers still take themselves so seriously. Seventy-seven degrees at one of the most gorgeous resorts in the Southwest and I would estimate more than half the male attendees (female attendees were hard to come by overall) were in suits. In fact, it was almost impossible to find someone not in a suit or sport jacket. I can understand wearing a suit to project an air of importance to a customer, but to each other? Spoiler Alert: All the attendees are in on the game. What we do is really not that self-important; we borrow money from businesses and consumers and lend it back to them.

Attendees: Not to overgeneralize, but there must have been a 3-for-1 coupon for doughy white males (that own suits). There were a handful of female executives, but they were few and far between and most I encountered were directors, not bank management. While poking fun at attendee diversity, I have to admit I am guessing that for worse (not “for better or worse”), the attendee list is a snapshot that is fairly reflective of who sits in bank board rooms and holds the CEO or CFO spot at most community and mid-size banks. Bankers, it’s time to think about a bit more diversity, with the board room being a good place to start.

Food: I have come to the firm conclusion that attending conferences leads to the aforementioned “doughiness” that afflicts many bank execs. Breakfast. Post-breakfast break with snack. Lunch. Post-lunch break with snack. Cocktail party with hors d’oeuvres. Dinner on your own. How is one to get by eating only six times a day?

Where’s Waldo? While the conference is called “Acquire or be Acquired,” my suggestion to the good folks at Bank Director would be to shorten the name to “Acquire.” While the cool AOBA acronym would be lost, the new name would more accurately reflect the mindset of the attendees. In all the years Cornerstone Advisors has been doing merger integration work, for every acquire-er, there has been a corresponding acquire-ee. In my wanderings for the two and a half days, the “ee’s” were harder to find than a Hindu linebacker.

Sound Bites and Cornerstone’s Take

Bigger is better. While this was a bank conference and not a Tupperware party, this theme rang loud and clear for the better part of three days. Granted, many of the presenters are i-bankers who make their living by doing deals so they have vested interest in encouraging the attendees to merge their banks. I do wish, however, that some presenter had pined that there is still a place for mid-size banks that grow organically and have deep roots in the communities they serve.

$5 billion is the new floor. Presenters stated that the high costs of just keeping the doors open (regulatory compliance, technology investments, branches, etc.) were going to continue to drive consolidation in the market and that the threshold to be competitive is quickly creeping up to the $5 billion in assets mark. The $5 – $50 billion banks will have the best currency and will be the most active acquirers. Frankly, this is one where I think the prognosticators were spot on. Between banks and credit unions, we certainly don’t need 13,000+ institutions to serve our basic banking needs. And I do think the most active deals will be in the $5 – $50 billion space. There are so few banks with more than $50 billion in assets that the mega banks at the top of the asset heap don’t have any targets to go after that would make a material difference.

If you are in the Midwest, pack it up and call it a day. Outside of some bright spots in Chicago and certain Texas markets, all of the growth is occurring on the coasts, and that’s where most of the larger deals are happening. Rural markets are in a freefall, and banking in the Midwest was portrayed as a zero-sum game of house-to-house combat. Having quite a few Midwest clients, Cornerstone does see our banks looking at the demographic shift of people and businesses to the metro markets and the coasts. Bank CEOs are gleeful that the big banks are pulling out of their rural markets at the same time they scratch their heads and wonder why.

The most profitable franchises in the industry are $2.5 to $5 billion. Because of the exhortations that bigger is better and $5B is the new $1B, I was surprised to see this, but the data bore it out.

Pricing expectations are coming down to earth. Boards and management have a more realistic expectation than in earlier cycles (e.g., two times book is a multiple practically all banks would take). Investors want a three-year break even to tangible book value dilution, but interestingly about 40% of deals hit this target. I would agree that price expectations are finally rightsizing and there was LOTS of data showing how many deals get done at or below book. Of course, that’s not to say I don’t sit in front of plenty of boards/management teams at strategic planning sessions that don’t think they are as deserving as City National of the 2.6x tangible book that RBC is paying.

All deals are good deals. I really liked the frank advice Frank Sorrentino, chairman and CEO of ConnectOne Bank, gave to the audience: “All models bankers put together say it’s a great deal… and it might be for someone… but not necessarily your bank.” He then went on to add, “The most important deal you do is the one you don’t.” Jack Kopnisky, president and CEO of Sterling National Bank, followed this with a gem: “A good deal dies three times.” Their points are good ones. The investment banks make money when a deal is done, so approach each overture, each model, and each projection with a healthy degree of skepticism.

Technology and payments contracts can have a major impact on a merger and potentially squirrel a deal. Banks that are positioning themselves to be sold need to pay particular attention to the big dollar contracts they sign with technology and payments providers. I can’t tell you how many stories I have heard from i-bankers of deals heading south because of punitive liquidated damage/early termination clauses. These fees can quickly climb to seven figures. On the flip side, on sizeable mergers the combined volumes can easily lead to seven figures of savings with the vendors. The problem: i-bankers don’t understand this world and what a bank should be paying.

Many mergers of equals never meet expectations. At the end of the day, too many senior managers stick around, and discipline is poor in attacking efficiencies. As one of the presenters put it: “You can’t do an MOE and keep all the employees.”

Being a mid-size bank is the best place to be! Okay, I admit it. This was my takeaway after attending the conference. But I truly believe it. Banks in that $1 – $50 billion sweet spot have the best of both worlds. They are the best places to work, so they should be attracting the best bankers. No big bank politics BS and no little bank “I wear 10 hats and can’t get anything done.” The mid-size banks can offer practically all of the products and services of big banks but still retain their customer intimacy and community involvement. Relationships actually mean something. And, most importantly, they are big enough to stick around for the next 20 years without being a Goliath.

All in all I am a conference naysayer, but I have to admit that Bank Director does a really nice job with this one. The attendees are all directors or very senior people at their banks. The content overall is quite good with some limited exceptions (the closing all-attendee session called “The Butterfly Effect of Technology on Banks Today” had people headed for their box lunches by 10:50 a.m.). And the folks at Bank Director are super personable and great hosts – good southern roots is my guess. Maybe I’ll see y’all there next year.

All for now.

A special thanks to Steve Williams for his contributions to this article.

Is there an early termination clause in your closet?

Seven figures is a big number. Why wait until the moment of truth to discover whether you are carrying numbers like that in the “plus” or “minus” column?

Cornerstone Advisors negotiates vendor contracts for a living. We know what a bank should be paying.

Whether you are considering a merger or just wondering if you’re getting the best price and terms from your vendors, we should talk.

Visit our site or contact us today to learn more.

Cornerstone Advisors


Filed under: Commercial Banking, Mortgage Banking, Retail Banking, Strategy

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February 11, 2015 by Terence Roche Terence Roche

Profitability Systems Take Center Stage

“The profit was five, split evenly between the two of us, which meant that my fair share was three (2.5 rounded off).” -Jarod Kintz, A Zebra is the Piano of the Animal Kingdom

Gonzo denizens, all of us like nothing better than a little test to start the day. As always, we are here to help. Here’s today’s question: Which of the following is the correct definition of a profitability system at a bank?

  • A program that resides somewhere in the financial group from which we have to look at reports every six months or so that allows the CFO to make any line of business or office profitable or unprofitable based on how he/she does transfer pricing.
  • The system we put in where we all went to endless meetings and argued about activity-based cost allocations and why we were being charged too much, which led to us saying things about each other’s moms at the water cooler, after which we just gave up and went along with whatever got decided.
  • A tool that will be a factual basis for some hard conversations we all need to have in the next few years.

GonzoBankers are the perfect mix of cynic and pragmatist, so the most common answer would probably be “all of the above.” And you know what? There is some truth to that answer. A great deal of time and money has gone into the development of profitability reports at banks. There have been a fair amount of arguments about the answers and the factors that went into them. And, we have heard two common criticisms of the output and the effort.  First, we got to learn things we already pretty much knew (big branches are more profitable than small ones. Dude! ). Second, nobody trusted the data enough to take hard action like eliminating a business or closing an office.

Maybe so. But let’s put those criticisms to the side and talk about some of the issues banks must face in the next few years that require the discipline and information these systems provide.

First, banks are going to have fewer physical locations. No amount of omnichannel deployment, improved sales capabilities or marketing campaigns is going to change this fact. We all know it. And, those that remain are going to have to be of a size and design that makes money in new ways. That means we have to make hard, objective decisions about which ones get closed, sold or downsized. The only real basis for deciding this is the profitability numbers.

Second, successful banks will need to focus on profitable businesses and get out of ones that are marginal. We see too many banks with anemic investment sales, or credit card sales, or insurance referrals. These are examples of businesses where focused banks need to get big or get out. Banking is too tough a business to tolerate half-baked success in any area. Where do we go to agree on what is big enough and what we get out of? Profitability systems.

150211bThird, there are two mongo areas where we will need to understand profitability – both the revenue drivers and the expense drivers – way better. One is channels. We need to get clear about how we decide how profitable a channel like online is. No small question. That channel might be really profitable because it produces business at a lower cost. At the same time, it might be making the branch channel less profitable because it took business from a channel that is mostly fixed cost (see note on fewer locations above). This is not an academic exercise. Important technology and marketing dollars will be invested based on these answers.

The other area is payments. Debit, credit, non-sufficient funds and other payments sources are throwing off huge revenue, but too few of our clients have a good grasp on how profitable they are, how much they contribute to product profitability, and what the impact would be if this payments revenue declines. (Note to self: It’s very likely to be challenged in the next few years.)

The thing about understanding and discussing channel and payments profitability is that these are not topics that tie to traditional cost centers or product lines. They are very “horizontal” in that the revenue they produce and costs they incur cross cost centers, regions, products and customers/members. Yet, even if they are not discreet products or cost centers, analyzing how to maximize their contribution to the bottom lines requires the same discipline of measuring key revenue drivers, expense drivers and bottom-line profit. At this point, I bet we all can guess the best tool to do this. Come on. You know.

It’s time for both the data and the discipline profitability systems provide to get front and center into planning and answering hard questions. That said, so that we avoid future fisticuffs and name calling, some Gonzo rules of engagement:

  • No digging for facts then deciding and debating what to do with them. Know the questions you are trying to answer and the decisions you need to make – then aim the effort at them.
  • No killing ourselves overbaking the analysis to get from 90% right to 100% right. At 90% right, you know what you need to know.
  • Line of business/product line managers: You get to argue about how to make the numbers right. For a while. Then you work with them. No saying they’re wrong for eternity.
  • Finance: Those managers have some good points. Listen and adjust. Then, when rules of transfer pricing, intercorporate allocations and activity based costing are set, don’t meddle with them.
  • Use profitability information to empower businesses, not drive them.

“If your conduct is determined solely by considerations of profit you will arouse great resentment.” -Confucius

It’s important to get this discipline right. Big questions need answering.

Ready to Tackle the Hard Conversations?

Cornerstone Advisors can show your bank how to get the most out of your profitability system and build a lasting discipline into your strategic plan.

Contact us today to learn more.

Cornerstone Advisors

Filed under: Tags: , ,
Accounting & Finance, Branch Sales & Service, Call Center, Cards & Payments, Commercial Banking, Commercial Lending, Consumer Lending, Deposit Ops & Item Processing, HR & Training, Information Technology, Investment & Insurance, Loan Ops & Collections, Marketing, Mortgage Banking, Operations, Retail Banking, Risk Management, Small Business Banking, Strategy, Treasury Management, Wealth Management, Web & Mobile Banking

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