Transcript
Coming up, some end-of-summer fun on Plugged In. This one is with Nitin Mhatre, the CEO of Berkshire Bank. With my fellow American Airlines frequent flyer and Cornerstone Advisors partner Steve Williams, I’m your host, Al Dominick, and we’re back together to continue our discussion around the ever-evolving landscape of banking and leadership in what are, unquestionably, some really uncertain and unprecedented times.
When I say uncertain and unprecedented, we’re recording this on the heels of some pretty awesome announcements, like Liam and Noel Gallagher reconciling their differences to make some money on an upcoming Oasis tour that we’re sure will dwarf what Taylor Swift has grossed. Steve, do you want to take an over-under on what those two...?
There are already Vegas odds on whether the brothers will break up during the tour. That shows you the fragility of things out there in the financial system and in rock and roll. But I’m excited because you and I have known Nitin for quite some time, and when we’ve talked on our podcast, there’s banking the balance sheet, credit risk, EPS, and then there’s banking technology, innovation, talent, new products, reaching new generations. I think we’ve got someone who really gets jazzed on that stuff like we do. So, Nitin, it’s terrific to have you today.
Steve and Al, great to be with you guys, and thank you for your partnership with us and just the amount of information that you’re able to share with the entire sector, which I think is incredibly powerful.
It’s very cool and rewarding to be able to spend a little bit of time with you both. There’s so much going on, not just in our industry but really in our great country. We’re sitting here getting ready for the run-up to the November election, which we all know was shaken up when President Biden announced he was dropping out. We have uncertainty there, which impacts regulatory conversations, some compliance things, and obviously puts some of the M&A conversation into a bit of a blender.
On the business of banking front, it’s hard to overlook the continued slump in loan growth, which persisted during the second quarter and really into the third quarter so far, although we’ve got an anticipated rate-cutting cycle by the Federal Reserve that could boost some credit demand. There are a lot of things we could talk about and cover, but Steve and I really want to invite you into this conversation, Nitin, because we want to talk a little bit about these twin towers of transformation that impact the tech side of your business and really the talent side.
For listeners out there, Nitin is the CEO of a really incredible bank up in New England and New York. I think you have, what, 96 financial centers across the Northeast at this point?
Yep.
Am I right? And doing that type of math, about $12 billion in asset size?
That is correct.
So you’re not talking to somebody who just fakes it till he makes it. He’s doing some really cool things. Steve and I probably do some cool things together as well. We try, on occasion, to listen to some music. Some of the songs picked today might be more in my wheelhouse than Steve’s and Nitin’s, but we’ll see. We’ve got five tracks to lay down and figure out if we can build off of them to talk about the business of banking.
Just to give you a preview, we’ve got the Marshall Tucker Band, Ice Cube, REO Speedwagon, somebody you probably haven’t heard of in a while, Terence Trent D’Arby, and then, as I mentioned, our friends across the pond. We’ve got to finish with Oasis. Those are five musicians waiting in the wings so we can go against some lyrics to get into this conversation. You guys good with that playlist?
Oh, good with that. I’m happy to be hanging out with a good crowd, it looks like.
All right, Steve, you good with that?
I’m good. Let’s jump in. But I disclose I will whistle on question number four to Terence Trent. Just be ready.
Okay, you can whistle when we’re there. The first one, I want to pull from the Marshall Tucker Band and “Heard It in a Love Song,” because where you bank matters, and finding solutions to your next adventure really matters. Those are really two of the digital welcome signs that Nitin and his bank put out. When we think about who’s doing some really interesting things across the industry, we look at Berkshire being recognized as one of the most trusted banks in America. We’re just curious, how do these messages reflect your culture and tie into creating trust both online and in person?
Happy to. Al, I think you introduced the bank really well. We’re about a $12.5 billion asset-sized company, but I think it’s also important to remember it’s a 177-year-old institution that has always been a purpose-driven, values-guided, community-dedicated institution and has built trust in the community over that period of time.
When we talk about “where you bank matters,” it’s about creating that exceptional client experience that I think every bank is trying to build, but also continuing to earn the trust of our clients. You’ve got to do that across every conceivable channel that the clients want to operate out of. So I think the notion of where you bank matters, and how we’re getting recognized, including being recognized as one of the top 10 most trusted banks in the country, is a reflection of the culture that the institution has had for decades.
What we’ve done is also talk about how we need to evolve as an institution because consumer expectations have evolved rapidly, not just now but over the last five, 10, 15 years. The pace of change is remarkable. How technology has evolved, how technology has gotten democratized, and now with the new elements of AI and what that does to that part of the equation is going to be incredible.
What we’re saying is, while we need to adapt to that and remain tech-forward, we also need to make sure the core of who we are doesn’t change, and that our vision to be a high-performing, relationship-driven, community-focused bank will not change. It will evolve with the technology. It will evolve with client expectations. But the core does not change, and the core of how we build that relationship-driven model is to earn the trust, and continue to earn the trust, of our clients.
I believe, and this is more philosophical, relationships are based on trust. Trust is based on communication. That communication is going to be constantly reminding ourselves and our clients that we will continue to provide exceptional service, we’ll give you personalized advice, and you have access to us not just digitally, but also through our bankers and through management. That is where a midsize bank differentiates better than a large bank, where I could go to a client or a prospect and say, “Hey, listen, we would love to earn your business. And guess what? Anytime you need any help, you can just call me, and here’s my cell phone number.” I think that makes a difference.
Nitin and Al, I think you and I talk about this, but I’d encourage our listeners to check out how Berkshire is branding these days. You’ve got the Berkshire ONE strategy going on, which really has a fintech flavor to it. You’ve got, hey, I open an account and I get streaming on Spotify. I can impact my green priorities out there. I think it’s really cool that you’re doing that, Nitin.
I think you get something that’s very important to me. We have to have a retail strategy to be that community bank. In order to fund the business banking and the real estate, we have to have both, and we have to stay current with some of the fintech trends because that’s how we preserve liquidity.
I was just going to add, the other element of this, which sometimes doesn’t get as much prominence, is how the banker experience is evolving and how you make that better. If the bankers have a great experience, that reflects in the client experience, that reflects in performance and shareholder value. We’re fortunate because we’re getting recognized not just as a most-trusted bank, but Newsweek, TIME and Forbes have also listed us among great workplaces and great midsize companies. It’s all coming together really well.
You actually just took the words out of my mouth, because so much of the conversation around building trust seems to be externally focused. But if you start and take care of your own, they’re your best brand ambassadors. It’s the folks who are doing this every single day, who really care about the communities that they’re a part of. They’re the ones who model the behavior of a strong regional player like you all are.
You don’t want a Gen Zer who works in a bank and goes, “I can’t believe these antiquated tools, and I can’t believe the horrible digital experience I’m supposed to give my customers.” So I think that point about staying current in the workplace experience is something I’m hearing a lot, but I’m glad to hear you prioritizing that.
And Steve, as you say that, there’s a little crossover. If you wanted to hop on to Mary Wisniewski’s podcast that we have, Money Isn’t Everything, she just did a really interesting conversation with some folks who were looking at the Gen Z space and bringing some data to the opportunities to really engage differently.
But if we think about engaging differently, I’ve got to give big-time props to my man out in Arizona, Steve. You’re a West Coast boy, right? Southern California, SoCal. So your Ice Cube knowledge is probably as good as mine. You know how we do it here at Cornerstone, right? We’re going to roll with some Ice Cube on this next question.
Nitin, because it’s been said that being a CEO today is kind of like living on the tip of a knife. It’s a really delicate balancing act where you’re struggling to stay relevant and to perform while, at the same time, seeking some of these new avenues for growth and change so you can stay competitive in the future.
I’ve been looking at some of your recent earnings reports. I’ve seen you and your CFO emphasizing the bank’s focus on growing loans, maintaining solid asset quality, and preserving capital strength. But there’s a lot tugging against that. Can we talk a little bit about how you have an eye on the expected hurdle rate for return on capital, which, Steve, we look at as being around 12%, and then we find banks like Berkshire probably closer to 8%? How do you see banks being able to meet those financial expectations without shortchanging the future investments that you just said are so important?
That’s so crucial. I think you said it well. How do you balance the short term versus the long term? That’s the question. As Warren Buffett once said, in the short term it’s a voting machine, and in the long term it’s a weighing machine.
The important part about this is, even when we launched our own transformation plan about three and a half years ago, and you guys played an important role in helping us with some of the benchmarking work there, we did talk about how we would optimize ourselves in order to invest into the future.
The optimization components included: How do we optimize our channels? How do we optimize our processes? How do we optimize our geography? How do we optimize our businesses? How do we optimize our organizational structure? All of that does create a significant amount of efficiencies that we chose to reinvest into the future.
That reinvesting in the future was digitizing the cloud experience, the client experience, enhancing the value proposition and the tech stack. My team and I share the pride in saying we truly have probably a top-quartile, if not top-decile, tech stack among midsize banks.
The reason we were able to do that was because we invested in roughly five key components of the tech stack. We integrated into a centralized data warehouse through Snowflake. We completed our cloud migration. We brought in middleware and API enablement platforms like MuleSoft. We built the CRM platform through Salesforce. And then we entered into a partnership with fintech Narmi to build a digital experience.
All of those components have been brought together, and I think that helped us invest into the future. That’s part of the reason why we’re seeing the momentum that we’ve seen over the last three years, and hopefully some of that investment continues to pay forward.
That’s not to say it’s done, because you have to constantly innovate and find efficiencies. The newer elements of AI will also create opportunities for efficiency, but it’s a constant balance. Like you said, investing into the future, but you can only do it if you’re able to find efficiencies along the way.
You know the industry is progressing when you have a CEO say Snowflake, cloud, API, CRM and Narmi all in one answer. It shows tech coming to this industry in a different way.
Exactly. Again, we were talking about the twin towers of transformation, tech and talent. You just naturally led us into this next one. The song I’m going to reference is by REO Speedwagon, “Take It on the Run,” because they’ve got a line in there that says talk is cheap when the story is good. We also had Cornerstone and the tales grow taller on down the line. Would you like to continue humming and singing with me? Because we can go karaoke if we need to.
Again, talk is cheap when the story is good, and at Cornerstone we’ve been talking a lot about a smarter bank and what the components of a smarter bank are. One of them is being opportunistic. Both Steve and I really admire how you’ve been opportunistic on the talent front because, despite your EPS being flat year over year at the bank, you’ve had a lot of really great press releases bringing in new senior-level talent.
My math is probably out of date because I’ve seen at least 11 seasoned bankers that you’ve grabbed in recent investor decks. I’m sure there’s more. Steve, don’t check my math because that’s never been my true strength. Nitin, what gives you and the existing team so much confidence to add senior staff right now to your business?
One, I think we like the momentum that we have. And two, just as you asked previously about how you continue to invest into the future, technology is a large part of it. But at the same time, we recognize that ultimately it’s still a people business, and the talent matters and the relationships that they bring with them matter.
What also happened is there’s been a significant amount of market disruption in the New England market. There have been multiple M&As and mergers happening here that have created market disruption, which has been beneficial to a bank like us. What’s happened in many cases is those banks have gotten larger, so the bankers have felt their clients getting somewhat disenfranchised. They want their clients to be treated the same way and serviced the same way, with the same amount of connectivity, so they’ve gravitated toward banks like us.
We’ve been beneficiaries of that. The dozen-plus new hires that you referenced, which we’ve been able to make over the last couple of years, are effectively bringing us the ability to bring in new clients and supplement the outstanding bankers that we’ve had for many, many years.
I think it is an investment into the future and connects back to talent and technology. Technology will continue to be invested in as a differentiator and also as the enabler for these bankers to deepen their relationships with clients.
I get jazzed up about technology because, to me, almost every CEO needs to be on the leading edge of technology, because that’s ultimately going to help you build a better client experience. Technology has gotten democratized. The largest bank in the country is talking about a particular platform that a $1 or $2 billion asset-sized bank is also using. Access to technology has become really easy for those who want to adapt.
Yep. Music to Steve Williams’ ears, right, Steve?
Well, yeah. If you can be progressive on technology, but Al, you and I were recently at a bank board meeting and two of the things Nitin said came up. One was access to decision-makers. Talk about our size. One thing we can turn to our advantage as a midsize or regional commercial bank is that access.
The other one that kind of goes with your point about why talent would want to come is the partnership between the credit group and the frontline lenders. They feel they can engage each other, they can get quick decisions. It’s not this antagonistic black hole they have to work through to get credit approved. We’re seeing those entrepreneurial banks really spend time to make sure the credit-sales partnership is functional and they know the role that each of them plays.
Steve, you mentioned some of the strategic planning that we’ve worked on together for various banks. I’m thinking also about some of our conversations around board retreats we’ve helped facilitate. We’ve come up with, I don’t want to say it’s a novel concept, but internally we talk about return on tech as a really strategic conversation.
It’s expensive. It’s got risk, reputational and operational, tied in with it. There’s expense that makes board members say, “Are we getting what we really expect to from our relationships and partnerships?” So, Steve, I promised Terence Trent D’Arby, and the song “Wishing Well.”
Okay, there you go. We told you things would be a little funny here.
It’s not working, but yeah, I’m just dry. Can’t get water. We’re on camera. It’s too late.
Probably hot out in Arizona right now.
It’s so hot. So hot.
We’ve got to bring this back in because I want to talk about this concept of return on tech. Let’s pretend for a second that Steve and I are on your board and we say, “Hey, love what you’re doing, but are we getting the real return on what we’ve already spent? Keep us moving forward.” How do you substantively answer that question?
What we do, and what we have been doing, and I think it’s gathered more momentum going forward, is break it into the areas where it is making an impact.
I’ll start with the macro view. We used to look at what portion of our technology dollar is getting spent running the bank, or keeping the lights on, versus what portion is going into changing the bank. That used to be, using rough numbers, about 80% keep-the-lights-on and 20% innovation or change-the-bank.
I’m proud to say, as of the last update we did, we’re almost 75% change-the-bank and 25% run-the-bank. That is fantastic, and that’s been a conscious decision. Those five components of investment that we talked about have enabled us to make the keep-the-lights-on component smaller.
Now, on the change-the-bank component, how do you track it and how do you measure it? We continue to break it into two components. First, how is the banker experience changing and improving as a result of investments in technology? That has two elements to it.
One is, are the frontline bankers bringing more revenue per client? Are the relationships per client getting deeper, longer and broader? There is a way to compute the revenue per client that’s coming through bankers who are getting support through the technology.
For the non-client-facing bankers, you track it through efficiency. How many files or widgets are we able to process per client, per banker? Those are relatively easy to track and measure, and that’s a function of the investment.
The other side is the clients themselves. How is the investment in technology helping us improve revenue per client? How is it helping us have more products and services per client? How do you track that and continue to track that? Then the other side is also how you reduce expenses, cost per account, cost per acquisition.
The traditional components still exist, but how do you bring it all and roll it up together into that return on technology? Some of the benchmarking work that you guys did for us was helpful as well because we were able to break it into some of these individual components, and that has helped us look at it with a fresh set of eyes.
I like that. That was not a self-serving question, but I appreciate the nod to the Cornerstone team. In the old days, it was like you just kind of tossed a quarter into the wishing well and hoped you got something good.
Even as you’re talking about reporting structure, you think about tech in the old days, it would report to the CFO and be considered more of a cost to be contained. Now you’re looking at it as an investment, so you can start again at the board level to show certain trend lines that give you confidence that you’re making the progress that you need.
Yeah, and bringing that transparency to the boardroom. The old W. Edwards Deming, “You can’t manage what you can’t measure.” That sounded like Jeff Bezos talking, quoting about cost per account and revenue per banker. We geek out on that stuff, but I think bringing that up to the board, to your point, to give them that confidence is really important.
I was going to ask you, we’ve got Tom Brown’s Second Curve CEO Conference coming up. I remember one time you talking, Nitin, there about another measure, just what is my pull-through and my volume on digital account opening, and how are we driving that new market? So that’s another example of: Are we really opening the digital front door?
Now, Steve, as you’re saying all this, I’ve got to walk it back. I didn’t know that you were on a first-name basis with Dr. Deming. That’s pretty cool.
Oh, I was part of rebuilding Japan after World War II. I didn’t know if you knew that.
Yes, absolutely. You learn something new on Plugged In every time.
All right, we’ve got to wrap this up because we’re starting to get a little feisty here. But I said we’re going to give a nod to the lads up in Manchester, so Oasis is going to take us home with “Live Forever” echoing, at least in my mind, as we talk about getting smarter with data, being nimble and opportunistic. We talk also about one of Ron Shevlin’s favorite terms, being hyper-efficient. One of mine is being differentiated.
Nitin, I just want to ask broadly, given your view, regional and community banks need to work with a greater sense of purpose and they’ve got to become faster making decisions. But the risk is you get sideways with regulatory expectations and, even worse, compliance requirements. Again, it’s the balancing act. How do you talk to your team about working with that pace without accidentally getting sideways with anyone?
That’s a great question, and you touched upon something that I feel I should expand on a little bit. You used the word purpose, and I think that’s important to us as an institution. We believe that purpose and performance can coexist and actually be complementary, and that amplifies shareholder value.
We’ve been driven by that. Even as part of the transformation, when we talked about financial performance transformation, we also talked about client experience transformation and our ESG performance, which we’re now literally in the 17th percentile nationally of all institutions that Bloomberg, MSCI, Sustainalytics and ISS track. We’re proud of it.
Coming back to your question about how you truly become a smart bank that leverages technology without getting tangled in the regulatory elements, I think there are relatively clean use cases that we’re looking to embrace.
When it comes to client-facing activities, we are looking to use technology for next-likely-product and how you develop the platforms to support that. We’ve been able to do marketing A/B testing using some of the technology, and those things are not really in the crosshairs of regulatory issues. That just makes us smarter in terms of client acquisition and client experience.
There are components within underwriting where, if you try to be too cute about it, you could get tangled in regulatory stuff. You could get into adverse impact and all of that, so we’re being careful in that space.
But we are certainly looking at opportunities, especially within the small business and business banking area, where we believe there is a significant amount of opportunity to streamline processes on underwriting and client onboarding more effectively.
The third one, which I think is broadly being looked at by the industry, is the space of BSA/AML. Those areas have certainly been tested in different ways and with different platforms, whether it’s good old RPA or the new AI elements. I think all banks are trying to do that. We’re also looking to explore it, and we’ve launched a couple of pilots and MVPs and are hoping to get that to a place where it would be effective.
The fourth one, which sometimes gets lost in the background but I think is crucial if you’re trying to be efficient, is procurement. Most banks our size have a very large number of suppliers that you manage. How do you bring that centrally and manage it?
Again, I don’t want to necessarily be the brand ambassador for anybody, but we use ServiceNow, and I think that has helped us bring it all together into a centralized place where now we can track every supplier and partner and when the contracts come up for renewal. So you’re able to negotiate well before you have to sign the renewal next week. Those things are helpful, and most of these, outside of the underwriting elements, are not where you could trip yourself with regulators.
Al, when I hear ServiceNow, I wrote recently about the systems of smarter banks, that you’ve got to create repeatable, data-driven processes. One thing regulators don’t like is when they can’t see a consistent pattern of data or a repeatable process.
I think the opportunity you’re bringing up is, if I mature my systems, my data and my consistency, I can be transparent to my regulator a lot more easily, and I can apply new use-case tools that keep me compliant for BSA and other things. That’s the hard work, to build those systems that can produce data for the business but also produce data for risk and regulation.
It is. And since we’re talking about the regulatory component, to me, we talked about relationships, and I treat our regulators as our partners as well. We engage with the regulators and talk about what we’re thinking about well ahead of time. I get on a call every month with our primary regulators and talk about everything, not just what we’re doing or have done, but also what we’re thinking about. In many cases, we get really good quality feedback that has been helpful in building some of these programs and platforms.
I think that’s awesome, that you’re socializing ideas and encouraging people to think more broadly than just in their existing way of doing business.
Steve was whistling to work. I could try to whistle, but I’m afraid that we might really embarrass both of ourselves here.
Okay, the mic is working, but I think we should probably call it a day and thank Nitin Mhatre for joining Steve Williams and myself, Al Dominick, on this episode of Plugged In. It’s always a treat to talk to a great bank CEO, especially one who’s as comfortable talking tech as he is about talent. Nitin, from all of us, thanks so much for your time.
Thank you for your time. Thank you for everything that you do and, I think, the impact you’re making for partners like us and the broader sector.
I would just close by saying you can’t sit with Nitin and not know the sincerity that bleeds through when he talks about purpose. It’s really fabulous, and I can see your organization responding to that, Nitin. So congratulations on that. It’s a really special thing.
Thank you very much, Steve.
Have a good one. See you, Al.
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