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Preparing Today to Brace for Tomorrow

Alex Habet is joined by Sam Kilmer of Cornerstone Advisors in a discussion about the expected market landscape in 2023, the challenges and opportunities it will bring to financial institutions, and ways they can manage them.






Helpful Links

[Livestream] Facing the New Financial Services Frontier
[Blog] GonzoBanker
[Podcast] Fintech Hustle


Alex Habet

Hi, and welcome to the Purposeful Banker, the leading commercial banking podcast, brought to you by Q2 PrecisionLender, where we discuss the big topics on the minds of today's best bankers. I'm your host, Alex Habet.

Full disclosure, I have actually never met today's guest. The exchange that this guest and I are about to have is essentially the first one, basically first time ever. This is something I've actually never done on this podcast before. I've always known the guest a little bit beforehand, but as I was talking to the producer of the show, Cheryl Brown, and I mentioned, "Well, should I at least get to know this guest first?" She basically said, "It doesn't matter that you don't know each other. He's basically the type that can run with anything, shoot from the hip type." I was like, "OK, I guess we're going to try to rock and roll with this one."

I was doing a little bit of homework for today's show and I was getting a little pumped up to have this person come on. He's a well-known name in the financial services industry. If you search for him on YouTube, you'll see a lot of his stuff, but you'll also see a lot of MMA fighting. I think we're going to find out if this person is the same person or just a different one with the same name. Without much further ado, I'd really like to introduce you all to Sam Kilmer.

Sam Kilmer


Alex Habet

Sam, welcome to the Purposeful Banker.

Sam Kilmer

Oh, it's great to be with you, Alex. And I guess I'm flattered to know I'm the first ... First of all, it's great to meet you in real time, right now. And it's good to be with you. And of course, I have done a lot of work over the years in and around the folks at Q2. And so I know a lot of folks there and in the industry. But hey, great to work with you and looking forward to the chat.

Alex Habet

Yeah, likewise, likewise. Sam, you're managing director at Cornerstone Advisors, and you lead the fintech advisory practice. Now on the website, of course, it says that you also work with providers in addition, of course, to the fintechs, but also the investors, the banks, and the credit unions. I would classify that as a full bandwidth spectroscopy of the industry, if you will.

But you're also a regular contributor to GonzoBanker. Love the shirt. And you also moderate the Fintech Hustle podcast. On the GonzoBanker thing, I love how you guys describe it on the website. It's like, "The alter ego of Cornerstone Advisors." How'd you guys come up with that?

Sam Kilmer

Well, for starters, I would love to take credit for it, but I can't. GonzoBanker is one of those things that predates me, of course, and I've been here for 10 years. And the firm was founded 20 years ago. And GonzoBanker was actually a brand that they had, the founders, who were all still kicking and being troublemakers when the team came up with it.

And the idea was to just have fun and talk about things maybe that other people weren't talking about in the industry. And to keep it fun and to create this alter ego that says, "We don't always have to be buttoned up in suits. We can talk about these things." And I think it was knowledge content in the days before we even knew what to call that.

I mean, I think GonzoBanker was created in a time before ... I mean, really, I think it started out as a printed newsletter, if you can imagine that. And then it worked its way into the blogosphere. And we've done some video and some different things over the years, but it's essentially been about a monthly or biweekly or so written piece.

It drew me to the firm. It was my first impression of Cornerstone Advisors when I was at a prior organization and in the banking industry, when I read an article. It drew me into the firm. Obviously, I'm a big fan. I'm aware of the T-shirt, you're picking up on that. And so, the firm's been around a while and GonzoBanker's been there with it.

Alex Habet

Well, so how did you get involved in this business? You gave us a little bit of the backdrop of the company, of GonzoBanker.

Sam Kilmer


Alex Habet

Of course. But Sam Kilmer, tell me, how did you get involved in this business?

Sam Kilmer

In the spirit of, I wish I could claim credit for having some grand design, it's more accidental. I started working at a bank while I was in college. I had a pal of mine that said, "Working for a bank looks really good because they have to bond you." That basically, it's almost like in the days pre-LinkedIn, it's almost like an underwriting stamp of approval that you have banking on your CV.

I started working part-time while I was still in university. And when I finished, it just so happened that one of my job offers was being an analyst. Analyst being, whether it's credit analyst or marketing analyst or an analytical type of a job, tends to be the entry-level career track for, if there is such a thing, as the officer candidacy school of banking or the management training program of banking. At that time, it was very much that was it.
I started out working for a bank right out of college. I was a marketing analyst. And I started, and software became pivotal to it because I was a power user then of an analytics system that now we would probably call it a data mart type of system, an MCIFD system. And I became a power user of that system, ultimately sought out the company who was the purveyor of that system.

And within three years, I was working in implementations for mid-sized banks in deploying the system that I had been a power user of. That then took me into implementations, (which) inevitably in this business takes you into integration. One of the fun topics that we always have to deal with is "How do systems integrate?" Integrations lead you into partnerships. And that was my career track.

I've worked for two different banks and worked for two different tech firms. And I went back and forth before landing at Cornerstone 10 years ago. But it was a journey from analytics to system deployments, system deployments to leading digital banking for a mid-size bank. Then coming back in and then doing partnerships, mergers and acquisition, and strategy work for a tech firm.

I've been in that overlapping Venn diagram that used to be very separate. The bankers were over here, the tech people were over here. The investors might be over here. And those worlds have all really mashed up over the years.

That's why to me, it's very fun to be in the middle of all of it because some of these personalities that I run into, I've been around for years, people like Charles Potts over at ICBA. I mean, Charles called on me and my bank many, many years ago. I'm just using him as an example. And now he's over there, what is it? Running the bank think and the fintech accelerator. And so some of these people I've known my entire career. And they just have been in the middle of that messy sandbox of banking in fintech.

Alex Habet

Yeah. Today, through all that evolution of your own career, who do you typically spend the most time with these days? And what big project or what's a theme of the projects that you guys tackle on the most?

Sam Kilmer

Yeah, when I started out at Cornerstone, I was spending, let's just say it was 80/20. I was spending 80% of my time with banks and credit unions as well financial institutions. And about 20% of my time was spent advising tech firms and investors.

And it typically involved our knowledge at Cornerstone of the work we were doing with, we're in and out of 300, 400 financial institutions in client engagements every year. And so, when it was very informal, we would maybe do five or six or seven or maybe 10 engagements with tech firms that were around the banking world.

I mean we occasionally will be involved with companies like Salesforce or others that maybe serve multiple industries, but for the most part, it's companies like Q2 that are in the banking and fintech space. When I started at Cornerstone for the first six or so years, it was 80/20 where I was working with banks mostly and the remainder would've been tech firms.
Now it's just the opposite. I still have some bank and credit union clients that I work with. But now, because I lead the fintech advisory practice, I'm spending most of my time leading our work with fintech-type firms, whether that's, you want to call them fintech challenger type firms. Or if you want to call them fintech enabler, bank enabler type firms. Again, there's a tendency to say, "Well, those are very different."

Well, what I've tended to find is that some of these companies move very quickly from one versus the other. They start out and they're going to conquer the world and they're going to take all the banks' customers. And then all of a sudden, maybe there's a funding crunch or a slight pivot for whatever reason. And now, "Oh, we're now partnering with banks." And then all of a sudden, "Oh, now we're not partnering with banks, we're simply selling our systems to banks." It's been a very quickly moving space and it's been one where, quite candidly, beyond it being professional and paying the bills, it's fun. I love it.

Alex Habet

Yeah. And it's definitely a big interest. You're hearing it from everywhere, especially with how it evolves. And we'll come back to that a little bit later. But Sam, you'll be sharing your insights in a Q2 livestream in Austin, Texas, coming up very soon. You'll be part of a panel that's going to be talking about facing the new financial services frontier.

Every time I hear the word "frontier," it just makes me think of Star Trek. It's like Star Trek with money mixed in. But I guess Star Trek has no real concept of money, though, which is ironic in all this thing. But given that you're going to be coming on and sharing some information and some insights with everyone, I thought it'd be a good idea to bring some of that, as well, here to the Purposeful Banker.

Not to steal your own thunder coming up, but are you guys going to be focusing on the current market environment, the headwinds, whether it's economic or geopolitical or the systemic stuff? Or are you guys defining a financial services frontier in a different way that I might not be grasping yet?

Sam Kilmer

Well, I think what we're going to really try to home in on is the things that primarily bank executives, but also fintech, what things can you control? We may talk about a macro trend or two in there, but we're not going to get crazy and academic. It's going to be one of the things I'm really pumped up about is you, not only are we going to have Kirk Coleman there, your chief banking officer, who has a background as a commercial banker. We're going to have Susan Mlot, let's see, from Citizens Business Bank. We're going to have Nikki Pfleger from Encore Bank.

And these are a couple of just great commercial banks that are, I mean, great for different reasons. Maybe one is of classic commercial, sorting out some industry niches and going really high, great strategic execution. Maybe in California based. And then you've got another organization that's more fintech forward maybe, really trying out some new innovative things.

What I'm really pumped about is a conversation with ... And I'd love to think that I'm no slouch on this, but the other thing is just, it's maybe been a few years since I was a banker myself, but I was a bank executive. I led digital banking. But I just love it when we can put our heads together and talk about some things that we're seeing or early-stage things that we see people are actually able to do as opposed to talking about big macro things and buzzwords.
We're going to be getting into things like how to increase value. I mean there's going to be a lot of earnings pressure on banks in '23 for sure. There's a lot of pressure not only on things like regulatory with, whether it's some of the interchange revenue being under pressure for regulatory reasons, competitive pressures, interest rate pressures, all these things.

But in terms of things that can be controlled, most of the banks that we're working with are just really focused on commercial execution and not being so price sensitive. And so heavily tied to commercial real estate only types of relationships, but being more deliberate about the industry niches, industry verticals, types of customers that they want to serve and serve well in whole ways.

Not just lending to them, but also, helping them manage their money from a treasury cash management perspective. And doing so in whole ways that are well priced for value. That, as a bank, you're known as much for your knowledge and the talent that you have. Not just for being responsive generically and being great at service, but maybe knowing the medical sector or a specific area of ag really well. And just knowing that well enough that it puts you more, let's just say, maybe not the only one in line to win the business, but maybe it puts you first in line.

The combination of responsiveness and solid tech, but also key team members and a key team focus on some specific areas that give you a knowledge leg up when it comes time to earn or renew that business. Across the whole, not just loans, but that whole relationship of lending, treasury, commercial, consumer wealth, the works.

I know that's a lot, but I think one of the key things is in talking with Susan and Nikki and Kirk ... and Dean Jenkins also will be in the group. Is just thinking through how can we be very specific and deliberate about some of these things? Give people some ideas to take back and plug into their own shops.

Alex Habet

I want to tug on a little bit of a string that you opened up a little bit slightly here. I went back and I listened to some of your stuff recently, just a little sampling. OK. This show tends to focus a lot on the human element. We're obviously a technology, a fintech company, but we like to focus on the human element. And think purpose or how to think with purpose in finance, things of that nature.

And just listening to some of your old stuff, I think you have a very interesting take. Especially how you seem to be emphasizing that people are just as important of a factor in a digital strategy or a transformation as the technology itself, which often gets the lion's share of attention. And you use part of that alongside the concept of gratitude, which I thought was very interesting. Talk to me about what gratitude means to you, especially with the last couple of years and the changes and the challenges that some of these companies are facing today.

Sam Kilmer

Yeah, well, let me start with the people side of things. There's been this tendency, I think, or trade-off wrongly positioned that you have, well, customers just want to deal with people. They don't want to deal with digital. Well, I think that's a false trade-off because it takes people, different people maybe, different sets of skills for sure, to build out and to continue to be very, very competitive at digital. Whether it's people that banks might be leveraging from Q2 or people that they're having to bring on their own teams.

The struggle has been, it's just different people. It may be fewer people in branches, more people in call centers, fewer people in loan departments, more people in call centers or data science or digital build-out or integration or partnerships. If you're a fintech forward, where you're doing a lot of embedded finance work, you more than likely are going to be hiring a lot of partnership people that you haven't had. That kind of competency that you haven't had to have because you were used to dealing directly with consumers and businesses as opposed to dealing with third parties who are dealing with those businesses and consumers.

Point is, it's still people, it's just different. I think it's just different people doing different things, more developers. Less off-the-shelf, plug-and-play. You hear "turnkey" a lot. Less of that, more builders, more design thinking.

Banks are consolidating and getting bigger. We generally, we're bullish on that, though, because what's happening is that the number of mid-size banks has actually been increasing because the consolidation has happened among the very smallest. And they're moving up into the mid-size sector. While, yeah, bigger banks are getting bigger, the consolidation is actually creating several more mid-size real contenders that if they pick their battles and specialize well, they can prosper, their teams can prosper. But more importantly, they can help a lot of people.

And I think that's what oftentimes gets missed. And that's what I'm really grateful for, which is whether it's the team here at Cornerstone that I get to work with. And man, they're smart and they help me probably seem way smarter than I really am.

And I suppose you have very similar experiences, Alex. And I think of the same thing with banks. We sometimes refer to them as our troublemaker banks out there, troublemaker fintechs. It's like, I'm grateful that we're in an industry where if we're doing it right, we're marshaling resources to help people. And I just, I feel very grateful to be around a lot of people that are able to do that. That's where I'm coming from on gratitude.

And really, the people part of it is, even though we're hearing in the airwaves right now about layoffs and some various things, what I'm still seeing and hearing ... Just recently on LinkedIn, I put up a post about, I'm hearing about some of these layoffs happening. If there's any way that I can help for my connections, I want to help, I want to know about it.

And I probably had two or three times more responses of, "Send them to me. I'm looking for people, Sam. We need talent." As much as there are people that are being disaffected right now, there's also a whole lot of people that are looking for different types of skill sets that maybe we haven't used as much in the past, that we're having to build up that muscle memory.

When I started out in banking, as I mentioned earlier, credit analyst or some type of analyst, then maybe you're going to be a lender, then maybe you'll be the CLO. And then maybe you're going to be the CEO of the bank. That was the career track. The career tracks may be different. Now, it might be you're a data scientist or you're a digital developer or a UX design person.

And that person which may have never thought that they would then be the chief experience officer or chief retail or commercial officer, that's maybe the new road to the CEO. It's still people. There's still a lot of development that has to happen. It's just changing. As Kara Parkey, the president of AFT, mentioned one time on my podcast a couple years ago, it's still a hustle. The hustle is just different now.

And actually, when I heard her say that, that was the namesake for FinTech Hustle. And so, it's just different. And I should also point out, speaking of hustle and our podcast, that Will Furrer from Q2 and all of his energy and electricity was brought to bear on FinTech Hustle a while back, too. I'm grateful to be around people like you and Will and Kara and others in the industry that keep proving that it still is about people.

Alex Habet

Yeah, yeah, that's definitely true. And that's something that I've personally gotten to know over the last couple years, having stepped out of being a direct employee of a bank. And starting to see a little bit more of a broad perspective. I do want to steer real quick before we leave it for today's episode, on the concept of these purpose-driven banks. These niche banks ... or is it "nësh" or "nish"? I'm always ... do you use "nësh" or "nish"?

Sam Kilmer

I think I go back and forth. I need to research that too, Alex. You let me know after we're done here, which half of it I'm getting wrong.

Alex Habet

I guess. Yeah, this is probably something I could have just Googled right before this. But I want to get your opinion on an article that I ran into in the Wall Street Journal a couple days ago. This one ... in my spare time, I don't always read finance articles, but sometimes I do. And this one actually caught my eye and dug in.

And I knew it was an interesting article because then I started getting it from others in the company. Slack channel was lighting up with this. It's actually, it's talking about some of the challenges that some of the niche banks, niche banks are having these days. Something that maybe wasn't as well anticipated in the past maybe, but it's an article that focuses, from the Wall Street Journal, you might have heard of it. It's talking about two particular cases, one with SVB Bank and one with First Republic Bank.

They're two different banks, a slightly different flavor of the same challenge. But it's actually a very real challenge that I actually wasn't as aware of until I read this article. But the cliff notes are with SVB, for example, Silicon Valley Bank, it's in the name. They serve a lot of technology companies. And with the venture investing pretty much drying up, they're all of a sudden, at SVB or a lot of these tech companies, are burning through their deposits very quickly.
And that's causing a little bit of a crunch on SVB's side, especially when they have to fight to keep their funding costs low. And so, that's a surprise, I think, that certainly some of us that watched the industry more broadly didn't really notice would be as big of an issue. This particular problem is for large banks, it's like no sweat.

Industrywide, $100 billion has gone out the door recently. JP Wells, B of A, they're just like, "Whatever." But for companies like SVB, it's a big deal. The other example in the article talked about First Republic Bank, and their niche is to work with the ultra wealthy, who are typically, as you know, very savvy with their money. And so, if they can see their large deposit balances can get a good rate somewhere else, they're quick to move that money. And so, you have First Republic basically having to play defense and pony up to keep those deposits in the house.

Just with these two examples in mind, I'm sure there's plenty of others out there, but how would you coach them to stay the course? Or how would you make them feel better? Or where do you see an opportunity maybe, and this is, it's OK, it's a hot take. I dropped this one on you, but I'm curious, as the watcher you are, what's your reaction to this?

Sam Kilmer

First of all, I have mad respect and am a fan of both. And for the very reason that they are specialized, I think the real trick here is being different has its benefits. But it's not uncommon for any of you out there that have gone through regulatory exams before for a regulator to tell you how you're different. And usually, when they talk about how you're different, it's not good.

When you're being told that you're different and being compared to others, and it's a regulator or some type of situation, it may come across not very positively. I think that the short version of that is, is that one bank's specialization, or niche, niche. We'll figure that out later, won't we, as which that is. Is another bank's or the same bank's concentration risk. Yeah, there is some downside. Let's say you're taking on maybe perhaps more credit risk or other types of risk, liquidity risk, whatever, by having a specialization.

But remember, there are multiple levers of risk that one has to assess. And we've become very ... credit risk, liquidity risk, market risk, these are risks that historically in banking, I think we've become more comfortable with getting our hands around because they're oftentimes calculated in a model. And we're more a financial industry so we love our numbers. But I would point to a couple of other risk categories, reputational risk and more importantly, strategic risk.

I think while cyclically someone like a First Republic or a Silicon Valley bank, or we could go through City National, I mean there's ... Bank, all these different banks that have various niches. For starters, they don't have to have just one niche. They could have multiple niches that maybe have a relationship land and expand. I think some niches, Live Oak is a good example of that, where they maybe started with one and then they moved to a couple of others that were adjacent to that.

But I think the main thing is that while there might be some cyclical impacts of that that cause you to have to make some short-term ... you have to adapt to those things. I think strategic risk, long term, you're in a better spot because you get to know those markets really, really well. You get to know the jumbo mortgage market really, really well when you're First Republican, the wealth management market and how people are moving their money when they're high net worth.

And so, that knowledge and that ability to understand, relate to people, help them out. It's better because that's where you focus. Similarly, Silicon Valley Bank, your ability to help people in that sector is just better because it's not just about being able to analyze and provision a credit. It's about knowing the hotel industry or the dental practices better. And I think that puts the banks in a better position to do a couple things.

On the client side of the equation, get better help, get better guidance. Which I think is, again, back to being grateful. I'm grateful that there are people that stay smart about specific things and help them with very specific outcomes. I think the other thing is that that knowledge, when you peel back the layers, while there may be cyclical impacts, temporary cyclical impacts, over time, I think they've demonstrated that they're able to get a higher value relationship. Meaning that the clients value the knowledge in a way that allows the bank not to have to be a low-price player all the time. And to race to the bottom. And it becomes an arbitrage exercise.

And instead, it truly is about helping people with whole pain points and understanding that specific area. I think it's a function of what's your time horizon? And we're always, as an industry, our company, your company, their companies are going to have short-term challenges. That's why management gets paid the big bucks to deal with some of the challenges. But also, I think management is brought in to make sure that you're staying the course on your strategic imperatives and your target markets. And I think that those two banks are classic examples, so I'm a long-term bullish on that.

Alex Habet

And I think you've settled on "nësh", so your long-term bullish on the niche play is what I'm hearing.

Sam Kilmer

Yeah. Good catch, Alex. You're a great host and listener.

Alex Habet

Look, before we wrap, I do want to just bring it back real quick to the fintechs. It's your bread and butter after all, and we'd be remiss not to end with that. We talked a little bit about the evolving relationship of banking and fintechs. It's something of interest certainly to this audience.

I think the way I would probably pose this question: What's got you the most excited for the next, I don't know, few years? Where do you see the biggest kind of sleeper opportunities that you think are going to be making bigger waves? Or is that yet to be determined because we have an unpredictable landscape? But what's that hot take from your perspective?

Sam Kilmer

Oh, I think it's yet to be determined. I mean, I think the good thing here about, to me, the area that's yet to be determined is direct brands. How many direct brands will go to market with how much in terms of financial services? Meaning non-financial institutions going to market. Embedding, I mean, obviously embedding credit and embedding rewards and other store value. It is, I'm really, really bullish about how financial services and commerce come together.
Because I think that we have some universals that are coming into play that make banks, fintechs, and even consumer or B2B brands have certain things in common. There's certain e-commerce challenges that we all have in common around wanting to engage people, wanting to help them. Wanting to help them in a sustainable, profitable way. And I'm really bullish for how the talent from those areas comes together and sorts out how to work together.

I may not be as bullish on how some of the use cases that get spun out, how well thought out are the obtainable markets? How well thought out are the use cases? I'm always trying to stress test use cases. I'm always looking for, is this a real capability? And are we just talking about a cocktail napkin sketch of a ... Everybody's running around raging about an addressable market and it always involves billions and billions of dollars. But whenever I see that, I always try to peel that back and go, "Wait a second. What's the real obtainable market for that niche?" There I go again.

And so, I'm bullish on the specialization, very bullish on it. And I think that's going to work really well. Where I get a little bit reserved on is, is the use case very specific and concrete? And is the obtainable market thought out and reasonable? And so, those are a couple of the stress points I'm looking at but I'm very bullish on the intersection of banking and fintech. And especially as it gets closer and closer to the commerce that's underlying it, I get really bullish on it. And I hope you're picking up that I'm excited about it in the same way that I know that you're excited about this podcast.

Alex Habet

Yeah, no, I can absolutely feel it. Look, I want to leave it there because I want to make sure that we save enough of the goodness for the livestream. Sam, really anything else you'd like to plug besides the livestream? Anything else going on? Any things you want to tell the audience about?

Sam Kilmer

Oh, I would be remiss if I didn't plug my colleague, Ron Chevlin, our research director, who puts out our what's going on in banking study. But listen, the Fintech Hustle podcast, much like you're having fun here, is really something I love doing, just to get people's insights. Check it out, let me know what you think. But not here to plug, just here to share and hope you're picking up that, like you guys, we're just trying to be in the trenches helping people out.

Alex Habet

Awesome. Well, thanks again, Sam. Really hope you come and visit us again sometime soon. Really appreciate it.

Sam Kilmer

Yeah, hey, thanks a lot. Appreciate it, Alex.

Alex Habet

Alright. Guess we'll see each other next week in Austin, so looking forward to it.

Sam Kilmer

Yeah, looking forward to it.

Alex Habet

Alright, take care, Sam. Alright, that's it for this week's Purposeful Banker. If you want to catch more episodes of the show, please subscribe to the show wherever you like to listen to your podcasts, including Apple Podcast, Spotify, Stitcher, and iHeartRadio.

And if you have a minute to spare, let us know what you think in the comments. You can also head over to to learn more about the company behind the content. Until next time, this is Alex Habet and you've been listening to The Purposeful Banker.