Inside the Belly of the Bank with Collyn Gilbert

Streaming in from Scottsdale, Arizona, this is Plugged In.

Alongside my co-host, president of Cornerstone Advisors Steve Williams, I’m Al Dominick, partner at Cornerstone Advisors, who counts the bicentennial of this country as my birth year.

Now, I throw that out so that as people listening do the math, I can introduce Collyn Gilbert, somebody who has, I think, done her fair share of calculations in her career.

We want to welcome Collyn, who wears a lot of swag. I don’t know if she’s rocking any of the Valley Bank stuff at the moment, but she’s the EVP, chief strategy and marketing officer of this really awesome $54 billion-and-growing institution on the East Coast.

Collyn, it’s great to have you with us today.

Really interesting background. I’m excited to have this discussion, Al.

Is Collyn excited for the discussion?

I am very excited. Thank you both for having me today. I’m really looking forward to this.

We’re going to have some fun over the next 20 minutes or so.

You’ve been in some really interesting positions. You’ve seen different opportunities for businesses to grow and really challenge what they’re known for.

Steve and I thought we’d hop right into this conversation by thinking about the dynamic that exists in banks today.

A large institution has the challenge of running and protecting its existing organization while thinking about the future and where it could really push for change and opportunities.

We were geeking out on some Tom Petty.

We love Tom Petty.

We love Tom Petty.

He’s got a great album called Full Moon Fever, and one of the classic tracks starts with, “In a world that keeps on pushing me around, I’ll stand my ground, and I won’t back down.”

You know that song, Steve?

I’m going to be a bank. I’m going to still drive shareholder value. I’m not embarrassed to be a bank.

Right, exactly.

So we want to take that inner Tom Petty of yours, Collyn, and ask: How do you prioritize competition, headwinds, and these unexpected changes that are hitting the banking space as we head toward 2023?

That’s a great question, and it’s not easy.

Starting with what you alluded to, Steve, we’re in the banking industry. We should be proud of that.

At the same time, I used to always characterize the industry, and it’s not my own characterization, it’s a reality, as a commoditized industry.

The ability for differentiation is really hard. It’s a challenge.

Here we sit, and I think finding the opportunities to truly differentiate is becoming harder and harder.

That’s where we’re spending our time, or where I’ve certainly been spending my time in this role. It’s really understanding what we at Valley are good at and what the key differentiator is.

It connects all the things in terms of competition and headwinds, but I think it’s really understanding our value proposition and who we are at our core.

We hear this from companies in general: What is the “why”? What are people doing? What’s that shared purpose?

A lot of that has come out of the pandemic and some soul-searching that has happened for organizations.

Interestingly, banks are doing the same thing.

We’re really trying to figure out what our “why” is and how we are beating our competition.

It’s not as simple as the products and services that we offer because, frankly, it’s all the same. We have to think beyond that.

That’s the challenge we’re facing at Valley, and I think the industry should be facing it in general.

That’s part of what drew me to come to this side of the business. I think there’s a huge inflection point happening within the industry and a need to think very differently about how we approach our business, our customers, and the whole thing.

I love that term, “I came to this side.”

For everybody out there, Collyn has a very interesting background in terms of being an equity analyst on the bank side, watching banks and rating them.

Then I’m looking at your Q3. Great Q3 for Valley. Earnings up over 16%. I love this: 45-basis-point margin expansion, 39% efficiency ratio.

Then you watch the stock like this because that’s what’s happening with banks right now.

So here’s my fun question for you.

What don’t all your former colleagues on the equity analyst side get about what it’s like to operate a bank?

What does it feel like, Collyn, inside the belly of the bank now? What should they understand that maybe you’ve been enlightened to?

It is hard.

That is the appreciation and part of the reason for me to have made the jump.

You spend your entire career assessing something from the outside and applying some level of criticism or analysis.

But until you’re really on the inside and understand all the components of what drives an organization, it’s a whole different ballgame.

I say it and answer that in one simple word: It’s hard.

I’ve been here for almost two years, and for the first year I spent nearly all of my time really understanding the operational part of it.

I think that in order for us to figure out where we want to invest on a go-forward basis, allocate resources, and find our competitive advantages, we have to start with how we are run.

Where can we bring innovation and optimization to how we’re run?

It’s not easy.

I have so much respect for bankers, more than I would have ever had 10 years ago.

Tease up our next song, right?

It does, because Run-DMC probably coined this just for Valley.

It’s a song that says, “It’s tricky to rock a rhyme, to rock a rhyme that’s right on time. It’s tricky.”

Banking is tricky.

Unfortunately, Cornerstone’s marketing budget isn’t large enough for us to stream these songs.

But think about what Run-DMC said in terms of what Collyn is talking about.

If you haven’t paid attention to their attempts to be more purpose-driven, more community-focused, and to do things that separate themselves from others, they just launched a community lending platform that I think is pretty cool.

It’s all around providing more financial products, resources, and connections to women- and minority-owned businesses.

That’s impressive in and of itself.

But take us behind the scenes and talk a little bit about how you and the team were able to architect a strategy, execute it in a timely fashion, attract and retain the types of talent you need to pull something like this off, all while continuing to run the business that you’ve already established.

That’s a great question and a great area to dig into.

I think it started, as you alluded to, with our purpose and going back to our value proposition.

We need to be thinking about offering a service or solution to our customers that can’t be solved with technology, at least not in the next decade.

Maybe we can have aspirations to be much more competitive in that realm 20 to 30 years from now, but in the next decade, that’s not where our competitive advantage lies.

Looking in and really being a partner to our communities, I think that’s an area where we can thrive.

We have 200-plus retail branches that are big. They’re monuments in a lot of these communities.

I think our ability to connect that presence and that commitment to the community is important.

Our mission is to give people and businesses the power to succeed, and I think it starts there.

It definitely starts with our communities and small businesses.

One of the other benefits that I think we have as a bank, and certainly as Valley, is that sustainable service and being with our customers through that long journey.

It starts in the communities. It starts with small businesses and the ability to grow with them and be their partner through a lot of this.

I think that’s really an area where we can compete far greater than a lot of these fintechs.

I don’t know if we want to get into the whole fintech area. It’s lovely to be talking about it now as a bank, given what we’ve observed for the last couple of months.

But there’s something to be said for banking and its steady commitment to its stakeholders.

I think it’s cool that you got this initiative off the ground because clearly it doesn’t move the dial from an EPS standpoint over the next six quarters or something.

But you rallied the team around where this fits into the overall strategy.

I see a lot of institutions trying to reinvent what it means to be community-focused.

No, that’s a great point, Steve.

I think that’s something we need to think about because, at the end of the day, from a financial perspective, it’s not going to have nearly as much of an impact.

It’s just not a big enough market.

Obviously, we’re talking about individually smaller credits and smaller banking relationships.

So you’re absolutely right.

What is the impact it’s going to have?

Maybe less so on our balance sheet, but much more so in our commitment to our mission and purpose.

As an organization, whatever type of company you are, balancing all of your stakeholders is a challenge.

I think it needs to be at the forefront of a lot of the decisions that you’re making.

I love it, which gets to strategy, right?

It does get to strategy.

And don’t worry, Collyn, we are going to get into some fintech talk in a moment.

But before we do, as we’re discussing the business of banking, it’s easy to have an opinion when you don’t have a responsibility.

I was thinking about how people on the outside can look in and say, “Man, you could have done something different.”

We don’t have a time machine. We don’t have a future machine.

We don’t know if a decision we made is right or wrong, but you make it and pivot off of it based on the results.

We’re at that point of the year where people are looking ahead to 2023. They’re feeling strategic. They’re feeling good.

So if I listen to Twisted Sister and they’re singing about having a right to choose because they’re not going to take it anymore...

A great New York-area band.

Exactly.

I love that you preface it with, “If I listen to Twisted Sister.” Really, you are listening to Twisted Sister.

I referenced “Heartbreak Hotel” in the shower this morning. It was wonderful. The people next to me were just delighted with my voice.

But I wanted to ask Collyn, having sat in the seat that needs to think about the positioning of the bank, how do you keep your strategic planning from becoming just a glorified budgeting activity?

I think you have to look at it in a couple of different ways.

At the end of the day, a lot of the strategic decision-making that we’re doing is much longer term. It takes time to build.

To your point, Steve, around our community banking effort, that is going to take time to really build and become more robust.

Similarly, that applies to how we’re thinking about small-business banking.

Making investments in areas where we know the growth journey is going to be a lot longer is one consideration.

Another consideration is how we’re prioritizing investments with some of our niche businesses, which could offer a little bit more of a near-term return.

Then there’s the strategic part of optimization and resource allocation, which I think goes more toward your point around budgeting in terms of how we’re financing or funding some of these initiatives.

I think you’ve got to segment it into three different buckets.

But if we are making strategic decisions based on our budget, then we’re missing the mark and we’re not creating value longer term.

Having sat in an analyst seat, whatever it is that we’re doing has to deliver value either in the near term or long term.

We have to find ways to measure that and hold ourselves accountable to it.

I love the capital allocation discussion.

I’m a big fan of Chris Nichols at SouthState and how they have a kind of capital allocation, transparent competition as part of planning.

I think that spirit of transparency is important.

Every business unit can see, “Here’s what I’m investing, and here’s what I’m getting back.”

But some of this is long-term buy-and-hold stock, and some of this is dividend stock.

I think that spirit is going to be really cool for the regional banks to get better at going forward.

Absolutely.

The one thing I would add to that, and I think Valley sits in a unique spot that may be underappreciated, is that we do have the diversification that helps complement our businesses during various parts of the cycle.

We have a large residential mortgage business and consumer business.

When that’s out of favor, our commercial business emerges.

There are different components to when you start to really extract value from some of these complementary businesses.

I think thinking about that holistically is key too.

That’s where the equity analyst can add a lot of value.

How do I get that perfect model and business-line portfolio that gives you the best valuation?

I like how you don’t want to get sideways with the analyst community.

Anyone who’s listening, Steve Williams, I’m going to have to take a look at what he has to say.

All right, so you outed me on my shower music this morning.

I’m sure you know Dee Snider.

The beautiful Dee Snider, yes.

Okay. Your music knowledge is impressive.

But I’m sure you were singing along with Toto as they were talking about “Africa.”

I won’t even ask Collyn what she was listening to. Maybe that will be the next track.

But Steve, we’ve talked about what’s going on outside the U.S., and Collyn mentioned the fintechs that are happening here.

I think this is a great opportunity for the three of us to say, what’s making us stop and look outside our normal comfort zone?

Who’s pushing the definition of opportunities?

Who’s looking at banking as something more than a boring commodity or utility company, or something that’s simply a dumb pipe providing access to cash or taking deposits?

I look at Nubank down in Latin America, and I’m fascinated with their growth story.

In the U.S., Chime could be a growth monster like Nubank if they wanted to.

You look at companies. You look at fintechs. What is getting you excited?

Then, Collyn, I’m going to ask you maybe the flip side: Where do you think folks got a little ahead of themselves?

I’m really excited about something Collyn mentioned, and Tom Brown mentions this from Second Curve: the new diversity of these midsize commercial and regional banks.

They’re picking niches and scaling them, but they’re doing it in a modern way.

I love the fact that you’ve got a First Republic that’s an upscale bank, but now it’s getting more edgy in terms of how to integrate RIA.

Everybody talks about Live Oak building a national SBA platform.

I think what’s cool is the modernization of niches across traditional banking because I think that’s got legs.

To what Collyn said, we’ve got a knowledge edge here with our niche that you can’t just turn into an algorithm.

You can’t make it a smart contract on the blockchain that easily.

I think it’s sustainable.

Yep.

All right, Collyn. Give me the contrarian standpoint to what Steve just said.

It’s not actually contrarian. I totally agree with Steve.

The areas of opportunity need to be where, whether you call it modernization or however you want to define it, you’re supplementing what the bank is already doing and just making it better.

One area that I think we still need to crack in a much more strategic and impactful way is really around real estate.

You’re seeing it with proptech and CRE tech, but innovation has not yet come in great form to the real estate space.

Yet real estate is at the forefront of what so many banks do.

I think finding solutions and partnerships within the proptech and CRE tech space is frankly where I’d like to see us evolve more.

It goes back to being mindful of being franchise-value additive.

Then there are obviously the partnerships that just allow us to optimize the day-to-day, high-production, low-value components of it.

There’s that.

But in terms of thought partners, I think there’s a lot of innovation that can still come to proptech.

I agree, Collyn.

There have been a lot of folks saying, “I’m going to be the CRE portal, and we don’t need CRE originators.”

I’ve seen that fail for over a decade.

I still think when you think about the data you could get with rent rolls and payments, scale that up, and have a smarter commercial real estate industry, you’re right. We’re in the first inning there.

Another thing that we think about, and we need to, is the generational transfer of wealth.

That’s going to happen obviously on the consumer side as well as on the business side.

One of the things is understanding and being progressive about that.

That generation of real estate developers or customers might not be looking for that automated, more efficient solution.

But the next family member who’s going to take on that wealth or take on that business is going to be much more progressive in the way they’re thinking about the banking relationship.

That’s another area of opportunity, for sure, to try to get ahead of that.

Makes sense.

It does make sense.

I think this is a nice way to invite Collyn to take us home with our last artist.

This is somebody who will be known to everyone. One-hit wonder, but still cashing those checks.

I mentioned that Collyn recently became the chief marketing officer on top of being the chief strategy officer. Is that a fair way of representing your lot of hats?

Yeah.

Well, she’s got a long title, but she does have a lot of responsibility.

I know Ira and the team respect her, or they wouldn’t have done this.

But you could walk into a meeting and say, “To the extreme, I rock a mic like a vandal, light up the stage and wax a chump like a candle.”

That’s Vanilla Ice and “Ice Ice Baby.”

A brand in himself.

A brand in himself that has some durability and sustainability.

So Collyn, if I use Vanilla Ice as inspiration for this last question, how do you think about a bank like Valley leveraging its brand and finding inspiration from outside the financial sector to see new opportunities?

It’s interesting.

I used to say this all the time following the industry: It’s got to be around data.

The amount of data that banks hold today and the knowledge they have of their customers is extraordinary.

The gap is the ability to extract that data and do something with it.

I think that’s the opportunity, certainly for Valley.

It’s on our strategic roadmap. It could be the number-one priority where we’re sitting.

I think there’s significant power in really rationalizing and using AI tools, doing so much with data, and providing that solution to the customer before they even know they need that solution.

It seems kind of basic and simple, but I don’t think it’s something that banks historically have been very good at.

They’re good order takers, but not good at anticipating where their customers’ and clients’ needs are going.

What’s interesting as you say this is I was reading about Apple potentially getting into the health insurance space in 2024.

The impetus behind this is that everyone, it seems, wears an Apple Watch, so they already have a lot of self-reported information.

What if they could blend and marry some of the underwriting that goes on with the insurance side with the data that is already being provided by their consumers?

It becomes a virtuous cycle.

I don’t want to get into the privacy side of the health sector. We know that’s a whole other can of worms.

But that’s what I get excited about.

Apple is already a massive brand, and they have opportunities to do even more.

They create value for their customers in ways that the customer doesn’t think about today, but could really quickly prize once they see the application of it.

That’s what’s a little sad about where bankers are.

Valley could be doing a ton of single-family mortgages and not grabbing that one field that says, “I’m a self-employed business owner,” and pushing that right into a business lead.

It’s that kind of stuff.

There’s so much we can go after right away, even without AI.

Just using the information.

Yeah. No, it’s so true.

The behavioral analytics too.

What you just described, Al, with Apple and using the behavior of their customers to determine the impact it’s going to have on some of the healthcare industry, that’s what we have.

We have such insights into customer behavior, trends, and transaction trends.

There’s a lot there.

Part of the challenge for the industry is that you’re still sitting on old, archaic systems that aren’t talking to each other.

That’s a whole separate battle.

We’re undertaking a conversion right now to be in a better place.

But I think that’s an exciting opportunity.

You mentioned a bit of the fintech downturn.

I think it’s important that we don’t dance in the end zone as fintechs struggle, as much as figure out where we can partner and add value.

But I think it gives the banking industry time to get on with it, with digital origination, digital sales, and using data better.

2023 should be a real year of catch-up in those areas that Collyn is mentioning.

It’s where marketing and strategy come together.

Yeah, totally agree.

All right, Steve, let’s give Collyn our thanks.

Thank you, Collyn.

Thank you, Collyn. We really appreciate you taking the time to get Plugged In with Steve Williams and Al Dominick.

I loved it. Thank you both. It was terrific.

We’ll talk to you again soon.

All right. Sounds good.