Not Your Typical Q1 Outlook

Coming up, a fresh start to the year with a new episode of Plugged In, coming to you from Cornerstone Advisors’ headquarters in rainy Scottsdale, Arizona. This is one of the few days you can come out here and see storm clouds and precipitation.

It’s a strange feeling.

To quote Elton John, “I’m Still Standing.” We’re back for another year.

Happy New Year. We got you out to Scottsdale from the DMV during the first week of the year.

It’s actually warmer in D.C. today than I think it is here in Arizona, so I’m not sure who won that one. But I’m here with Steve, and we’re going to talk a little shop as we get the year started.

We thought we’d do something slightly different from the way we wrapped up 2025. Listeners may remember that we had a number of exceptional bank CEOs join us to talk about what was going to move their businesses and communities in new directions. They were leading institutions ranging from roughly $10 billion to $30 billion in assets.

Asset size isn’t an indicator of ambition, but it can create opportunities to do some interesting things. So we thought we’d start 2026 by talking about what the year could look like for banks in that range, as well as institutions from $1 billion to $5 billion, $5 billion to $10 billion and beyond.

I brought some notes because my brain is still coming out of the holiday fog. At the end of 2025, there were roughly 731 U.S. banks between $1 billion and $5 billion in assets, 124 between $5 billion and $10 billion, about 80 between $10 billion and $30 billion, and only around 73 above $30 billion.

Those numbers get interesting when you think about how the industry is evolving. Banks in the $10 billion to $50 billion range get a lot of attention, but we shouldn’t sleep on the $5 billion to $10 billion group or even the $1 billion to $5 billion banks that may become the next generation of larger institutions.

So what does it mean to position yourself for growth over the next 18 months?

Growth is tough. Big-bank stocks had an outstanding 2025, with returns around 29%. Regional and community banks trailed that somewhat but still had a solid year, and the first week of this year has been good for bank stocks, too.

But for all those institutions that saw their valuations recover, growth itself is not easy. There may be opportunities in commercial lending, but then you have the funding challenge. You also have to think about noninterest income, fee income and other revenue sources that diversify the franchise and keep it attractive.

The intentionality of growth is something you talk about a lot. That needs to occupy strategic plans and the C-suite. Where exactly does the institution need to evolve?

In a few weeks, many of our friends will be in Scottsdale for Bank Director’s Acquire or Be Acquired conference. I was thinking about the event because the title is a catchy way of saying, “Eat or be eaten.”

People also say “grow or go,” but I think that’s too simple. Growth means different things depending on the organization you’re running.

You may be an acquirer. You may want to win through specialized niches. You may operate as a banking-as-a-service or platform provider. Or you may be positioning the organization for an eventual exit.

Those are very different strategic paths. Each one changes the way you allocate capital, shape the technology strategy and deploy the team.

Is that how you think about it?

Absolutely. And the real arbiter isn’t asset size. It’s good old tangible book value per share.

If I’m acquiring and creating a lot of goodwill, that affects tangible book growth. If I’m growing organically in a smart way, that number can accelerate. If I’m disciplined about generating operating leverage, it will show up there, too.

Some of the great examples make that very clear. Jamie Dimon has tracked tangible book value per share going all the way back to his Bank One days. Under his leadership, the long-term growth is pretty striking.

I don’t usually quote other consultants, but McKinsey once published research suggesting about 40% of share-price appreciation in banking is tied to revenue growth.

We spend a lot of time talking about efficiency, AI-driven cost reductions, stock buybacks and dividends. Those things matter, but a lot of it is tuning. Revenue growth is what ultimately drives value.

Maybe McKinsey was reading our What’s Going On in Banking research to get a little smarter, a little faster.

You said a word that bears repeating: discipline. I brought notes for where I think banks need to focus over the next few months, and discipline is near the top because discipline can outperform scale.

Growth in 2026 is a capital-allocation game, not simply an asset-accumulation game. Banks need to be disciplined about portfolios and where they put capital.

Which segments do you exit? How do you think about the branch network? Where do you want to emphasize or de-emphasize? Those are leadership decisions.

Let me give you two examples from the Gonzo Banker of the Year awards we announced in December. Cullen/Frost is very focused on organic expansion and the use of capital rather than relying on M&A. That’s its strategy. It’s capital intensive, but very intentional.

Then look at Greg Garrabrants at Axos. They’ve allocated capital to distinct niche businesses where they can operate efficiently and get paid for the risk they’re taking.

The rock stars tend to be very good at capital allocation and at earning an appropriate return on those investments.

And that focus shows up in budgets and term sheets, not merely in mission statements. Sometimes we confuse a pithy statement with an actual strategy.

So one theme for 2026 is that discipline will outperform scale.

What was Tim Spence’s line about M&A?

It’s a means to an end.

Exactly. Tim has a lot of great lines. One that always sticks with me is the “11th commandment” his father gave him when he was young: “Thou shalt steal a good idea.”

That’s part of why we do Plugged In. We talk to different CEOs because the goal is to learn from one another. Everyone is trying to find ways to grow, compete, diversify and differentiate. If you see someone doing something smart, why wouldn’t you consider whether it applies to your own business?

That takes us to technology. Cornerstone has a long history at the intersection of technology and banking. We’ve been saying for years that technology has to pay its own way, but I think 2026 is where the rubber really hits the road.

We went to several major banking meetings last year where one of our takeaways was that scaling fintech companies are now being taken very seriously. The amount of business they’re doing and the way they’re changing table stakes are hard to ignore.

Weakness in delivery is more visible to customers today, and that directly affects growth.

So how does technology pay for itself? By the end of this decade, the average bank will probably have fewer people relative to its size, fewer facilities, more technology and more marketing. A lot of that marketing will be driven by data and technology.

I think making technology pay for itself comes down to active management of the vendor portfolio and having good metrics around spend. Technology is now one of the largest expenses in banking, yet it’s surprising how few C-suites can clearly explain what they’re spending and where.

The other piece is building real business cases and seeing them all the way through. CEOs often say, “I’ve signed all these checks, but I don’t know whether I’ve seen the outcome.”

We’ve seen institutions buy expensive platforms such as Salesforce or nCino and later ask whether they truly got the payback. That payoff discipline is still underdeveloped in many bank leadership teams.

To have credibility around technology, the conversation has to come back to outcomes. It can’t rely on optimism that something will eventually work.

When I think about return on technology, there are a few basic tests. Do you have a clear owner? Do you have quantifiable outcomes? If you can’t measure the result, what exactly are you doing?

And do you have a kill switch if the value never materializes?

That kill switch has been missing. You make an investment with the best intentions, it doesn’t work, and then you keep saying, “Maybe one more quarter. Maybe one more cycle.”

At some point, you have to make the uncomfortable decision that it was a good idea, but it didn’t produce the result you wanted.

You can still learn something without turning it into a long march of death.

Ryan Rackley, who leads our vendor management and contract work, estimates that only about 10% to 15% of clients are really good at doing look-backs on investments.

I joke that there’s a sophisticated system you can use to solve that. It’s called Microsoft Outlook. When the check is signed, put a meeting on the calendar for a year later and have someone from finance do the look-back.

The tools are there. We can be more disciplined about using them.

Speaking of looking back, did you watch the last season of Stranger Things?

I didn’t see the last season, but I’ve watched some of it. I know about the Upside Down.

One thing I love about the show is the music. “Running Up That Hill” by Kate Bush keeps making appearances, and I keep thinking we need to pull it into Plugged In.

It works as a parallel to the need for banks to have a living technology roadmap. A lot of institutions have the best intentions. They create a technology roadmap or strategy document, pull it off the shelf periodically, look at it, then put it away until somebody asks about it again.

We need to move from a project list to a real roadmap. You should be crystal clear about the 10 or 15 critical things you’re doing this year that will move performance, but the roadmap can’t be static. It has to evolve.

We joke at Cornerstone that the problem with technology roadmaps is they’re often too technology-driven.

They’ll say Snowflake, enterprise service bus or MuleSoft. They won’t say operating leverage or less compliance effort per account.

Roadmaps need to be tied to business outcomes.

Most banks also don’t want to go through core-system heart surgery if they can avoid it. Meanwhile, the digital stack keeps expanding. You add fraud monitoring, analytics for marketing and other capabilities. The stack gets bigger and more fragmented.

Managing that roadmap becomes increasingly important. The real risk is a group of technologists excited about new tools without business owners clearly attached to the outcomes.

You don’t want the objective to be, “We implemented Snowflake.” You want the objective to be, “We created measurable operating leverage.”

You don’t want to say, “We have AI in underwriting.” You want to say, “We materially increased loans approved per underwriter.”

Those are the kinds of metrics we like to benchmark.

And if you say Snowflake, I should be able to ask about Databricks. Leadership needs enough fluency to understand the technology landscape and evaluate alternatives.

Our friend Sam Kilmer was talking with us earlier today about this. Fintech companies are trying to solve discrete problems and add value, but how each solution fits into the bank’s future state is not always obvious.

You never want the technology roadmap, or worse, the technology vendors, to start defining the institution’s future for you.

Another outcome of a good roadmap should be speed to market. It shouldn’t become a project-management mechanism that slows everything down in pursuit of perfection.

Institutions are now asking which technologies work well together so they can accelerate delivery. Bankers come from a risk-management culture, so the instinct is often to de-risk technology implementation with layers of project management and certification.

That can slow you down. The real question is whether you have the knowledge and grit to make the technology work together and deliver the intended result.

This is complex work, but bureaucracy doesn’t automatically make it safer.

That brings us back to leadership and growth strategy. Are you an acquirer? Can you realistically buy another institution and integrate it into your team and culture?

If you’re trying to win through niches, that’s a different mindset. If you’re a platform provider, that’s different again. If you’re likely to be part of consolidation, your growth potential looks radically different from the others.

When people say, “Growth is hard, but we want to do it,” I think the first step is a more honest look in the mirror. Where are we today relative to where we want to be?

You may think you’re an acquirer when, in reality, you’re more likely to be acquired.

If you don’t have the DNA or the proof of growth that demonstrates you have the right to remain independent, that’s important to confront.

You have to earn the right to win and earn the right to play.

Our annual What’s Going On in Banking research is coming out soon. Every year we talk with hundreds of bank executives about their sentiment, priorities and plans, and Ron Shevlin takes that further with a formal quantitative survey.

One sneak peek is that roughly 40% of banks are planning to take a new look at digital account opening.

That makes sense. Many banks were focused on commercial lending and treated digital account opening as something they knew they needed to address eventually. Then Silicon Valley Bank happened and funding became an existential issue.

Now most funding strategies involve some kind of digital experience, not only in banking itself but in account origination and onboarding.

A lot of institutions implemented version 1.0 by asking, “What’s the cheapest thing the CFO will approve?” I think we’re entering a period where banks recognize they need a serious digital presence for deposit origination if they want to stay in the game.

That will become part of the test of whether an institution has built the DNA to survive.

Tim Spence made another point I like about branches. One way Fifth Third thinks about a branch is to ask how the physical location affects the response rate of direct marketing, which is increasingly digital and social.

That’s the new world. Regional and community banks are going to make a significant effort to catch up in an area where many are still behind.

There’s a lot of good material coming in the research. Ron digs into sticky deposits, tokenization and stablecoins, and why those issues shouldn’t necessarily be separated. He even mentions the metaverse, which apparently still exists somewhere, though he jokes that VR probably won’t be a major topic in future reports.

The larger point is that we’re in this strange period between optimism and concern. Bank stocks have performed well, but there is still uneasiness around questions like whether institutions can respond to AI, what stablecoins and tokenization mean for liquidity, and how fraud is changing.

These are thorny, potentially existential technology questions, but banks are still moving forward.

With AI specifically, boards should be asking about the cost, the risk and the actual revenue or efficiency benefit delivered so far.

To bring us home, you and I usually travel to similar places early in the year. Normally we’d both be here for Acquire or Be Acquired, but this time you’re heading to Hawaii. Not for vacation, unfortunately.

A group of large credit union executives has a CEO and board-chair symposium focused on the future. I’ll be facilitating discussions with CEOs and board chairs.

I’ve been reading a Harvard Business Review piece about asking smarter questions, so here’s one for those credit union leaders: How ready is your middle-management team to become the leaders of the future in an AI-driven world?

There’s a lot of discussion about what AI takes away and what’s left for humans, including the “human in the loop” phrase everybody now uses. But much of the actual execution in an organization depends on middle management, not only the executive team.

Leadership teams should be evaluating those skills honestly. Where do you need to develop people? Where might you need to add different capabilities? Where may roles need to change?

That middle-management layer is going to be the muscle that moves institutions forward over the next few years.

I ask because banks can learn from credit unions and credit unions can learn from banks. Nobody has to become the other, but if we can learn from each other and get a little smarter, a little faster, that’s the value of conversations like this.

We’ve got some great guests coming over the next few weeks and months, but Steve and I wanted to kick off the year by sharing what’s on our minds.

On behalf of Cornerstone Advisors, thanks for getting Plugged In with us.

It’s going to be a good year for entrepreneurial banking, whether that’s M&A, adoption of new technologies or taking advantage of a relatively benign regulatory environment, at least for now. Entrepreneurs have an opportunity in 2026.

Let’s go.