How This 177-Year-Old Bank Innovates // Nitin Mhatre | Ep 32

Stephen, 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. Well, it's very cool and rewarding to be able to just spend a little bit of time with you both. You know, there's so much going on not just in our industry but really in our great country. We're sitting here kind of getting ready for the run-up to the November election, which we all know was shaking up when President Biden announced he was dropping out. So you know, we have the uncertainty there, which impacts regulatory conversations, some of the compliance things, obviously puts some of the M&A conversation into a bit of a blender. You know, on the business of banking front, not to overlook the continued slump in loan growth, which I know 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 which could boost some credit demand. So there's a lot of things that we could talk about and we could cover, but Steve and I really want to invite you into this conversation, Nitin, because we want to talk a little bit about this twin towers of transformation that impacts the tech side of your business and really the talent side. And 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 know, you're not talking to somebody who just fakes it till he makes it. He's doing some really cool things. And you know, 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 and 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 the business of banking. So just to give you a preview, we've got Marshall Tucker Band, we have Ice Cube, we have REO Speedwagon, somebody who you probably haven't heard of in a while is Terence Trent D'Arby, and then as I mentioned, our friends across the pond, we've got to finish with Oasis. So those are five musicians that are kind of waiting in the wings so that we can ghost 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.

Happy to. And Al, I think you introduced the bank really well. We're about 12 and a half billion dollar 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. Right. So when we talk about 'where you bank matters,' it's not just about creating that exceptional client experience that I think every bank is trying to build, but also continue to earn the trust of our clients. And you got to do that across every conceivable channel that the clients want to operate out of. Right. So I think the notion of 'where you bank matters' and how we're getting recognized, also being recognized as the top 10 most trusted banks in the country, is a reflection of the culture that the institution has had for over now decades. But what we've done is we've also talked about how we need to evolve as an institution because the consumer expectations have evolved rapidly, not just now but over the last 5, 10, 15 years, but the pace of change is just remarkable. And I think 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. And 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 the 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, and that communication is going to be constantly reminding ourselves and our clients about we will continue to provide exceptional service to you, we'll give you personalized advice, and you have access to us not just digitally but also through our bank and through management, and that's 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 have 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.

And I was just going to add the other element of this is, and which sometimes gets kind of not being as prominent, is how is the banker experience evolving and how do you make that better? Because if the bankers have a great experience, that reflects in the client experience, that reflects in the performance and shareholder value. And I think we're fortunate because we're getting recognized not just being the most trusted bank in America, but Newsweek and Time and Forbes also listed us among the greatest workplaces, and the greatest midsize companies, most trustworthy and greatest workplace, so it's all coming together really well.

Yeah, and Steve, as you say that, there's a little crossover if you wanted to hop on to Mary W. Newman'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 bring some data to the opportunities to really engage differently.

And that's so crucial, right? I think you kind of said it well. The how do you balance the short-term versus the long-term, that's the question, right? And as Warren Buffett once said, in the short term it's a voting machine, and in the long term it's a weighing machine, right? And I think the important part about this is even when we launched, about three and a half years ago, our own transformation plan, and you guys played an important role in helping us with some of the benchmarking work there, we did talk about how will we optimize ourselves in order to invest into the future, right? So 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. So I think all of that does create a significant amount of efficiencies that we chose to reinvest into the future. And that reinvesting in the future was digitizing the cloud experience, the client experience, enhancing the value proposition and the tech stack. And I, my team and I, share the pride in saying we really truly have probably the top quartile, if not top decile, tech stack of the midsize banks. And the reason we were able to do that was because we invested in what I would say 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 the middleware and enablement platforms like MuleSoft together, we built the CRM platform through Salesforce, and then we conducted a partnership with FIS and NCR to build a digital experience. So all of those five components have been kind of brought together, and I think that helped us invest into the future, and 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, and 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.

One, I think we like the momentum that we have. And two, just as you asked previously about how do you continue to invest into the future, and technology is a large, large part of it, but at the same time we recognize that ultimately it's still a people's business, and the talent matters and the relationships that they bring with them matters. So what we've done is, and what also happened to happen in a way, is there's been a significant market disruption in the New England market. There have been multiple M&As and mergers happening here that has 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 kind of their clients getting more disenfranchised, right? So 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 towards banks like us, and we've been beneficiaries of that. So over a dozen new hires that you referenced, we've been able to hire over the last couple of years, are effectively bringing us that ability to bring in new clients and supplement the outstanding bankers that we've had for many, many years with us. So I think it is an investment into the future, and connecting back to that talent and technology, so technology will continue to be invested in to be a differentiator and also the enabler for these bankers to deepen their relationships with the clients. And I think I'm excited, I get jazzed up about technology because to me, almost every CEO needs to be on the leading edge of technology because that's going to ultimately help you build a better client experience. And technology has gotten democratized, so the largest bank in the country is talking about a particular platform which is the same platform that a one or two billion dollar asset size bank is using. So the access to technology has become really easy for those who want to adapt.

And I, what we do and what we have been doing, and I think it's gathered more momentum going forward, is we're able to break it into the areas where it is making an impact. So I think I'll start with the macro view of this. We used to look at what portion of our technology dollar is getting spent in running the bank, or 'keep the lights on,' versus what portion is going into changing the bank, right? And that used to be roughly, I'm using rough numbers, about 80% was keep the lights on, 20% for innovation or change the bank. I'm proud to say as of last update that we did, we're almost 75% has changed the bank and 25% run the bank. So that is fantastic, and that's been a conscious decision. Those five components of investment that we talked about have enabled us to keep the 'keep the lights on' component smaller now. So now the 'change the bank' component, how do you track it and how do you measure it? And I think we continue to break it into two components. Okay, how is the banker experience changing and improving as a result of investments in technology? And 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? Right. So I think there is a way to compute the revenue per client that's coming through bankers that are getting support through the technology element of it. The non-client facing bankers, you track it through efficiency. So how many files or widgets are we able to process per client per banker? Right. I think those are relatively easy to track and measure, and that's kind of a function of the investment. The other side of this is the clients themselves and the investment in technology. How is it helping us improve the revenue per client? How is it helping us have more products and services per client? And how do you track that and continue to track that? And then the other side is also how do you reduce the expenses, cost per account, cost per acquisition? So I think there are the traditional components that still exist, but how do you bring it all and roll it up together into that return on technology? And some part 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 perspective.

Yeah. Now Steve, as you're saying all this, I gotta walk it back. I didn't know that you were on a first-name basis with Dr. Deming. That's pretty cool.

So that's a great question. And I think you touched upon something that I feel I should expand on a little bit. I think you use the word purpose, and I think that's important to us as an institution. We believe that purpose and performance cannot just coexist but can be actually complimentary, that amplifies your shareholder value. And I think we've been driven by that. And 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 practice. So we're proud of it. Coming back to your question about how do you leverage, how do you truly become a smart bank that leverages technology without kind of getting tangled into the regulatory elements of this? And I think there are pretty relatively cleaner use cases that we're looking to embrace. So when it comes to the client-facing activities, we are looking to use technology for next likely product, right? And how do you do that and how do you develop the platforms to be able 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 hairs of regulatory things. So I think that just makes us smarter in terms of client acquisition and client experience. There are components within underwriting, and that's where it could get a little caught up if you try to be too cute about it, you could get tangled into the regulatory stuff, you could get into the adverse impact and all of that stuff. So I think we're being careful in that space. But we are certainly looking at opportunities, especially within the small business/business banking area, where we believe there is a significant amount of opportunities to be able to streamline those processes on underwriting and client onboarding more effectively. And the third one, which I think is broadly being looked at by the industry, is the space of BSA/AML. And I think those areas have certainly been tested in different ways and different platforms, whether it's the good old RPA to the new AI/AGI kind of elements. I think all banks are trying to do that, and we are also looking to explore it, and we've launched a couple of pilots and MVPs and hoping to get that to a place where we would be effective. And the fourth one, which sometimes gets lost in the background but I think it's crucial if you're trying to be efficient, is procurement. And this notion of most banks our size have just a very large number of suppliers that you manage, and how do you bring that centrally and manage that? And we 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, you're able to negotiate well before you have to sign the renewal next week kind of situation. So I think those things are helpful, and most of these, outside of the underwriting elements, are not where you could trip yourself with the regulators.

It is. And just on, since we're talking about regulatory component as well, to me, we talked about relationships, and I treat our regulators as our partners as well. So we engage with the regulators, 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 actually get real good quality feedback that has been helpful in building some of these programs and platforms.

Thank you very much, Steve. Have a good one. See you out.