Category: Community Bank-focused

Of the 7,100 or so FDIC-insured banks in the U.S. today, more than 90% consider themselves community banks. In fact, some of the largest banks in the U.S. today (the so called “super-regionals”) still describe themselves as community banks. This category, however, focuses on banks around or under the $1Bn asset size.

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Swimming With Sharks

A resident of the Mandalay Bay in Las Vegas
A resident of the Mandalay Bay in Las Vegas

I’ve been on a lot of planes lately, and while I read a ton, I also listened to several interesting podcasts to pass the time.  One in particular brought statistician Nate Silver and author Malcolm Gladwell together with ESPN’s Bill Simmons to discuss how periodicals are adjusting to the Internet age (ok, some sports came up too). I liked their premise that it doesn’t take much skill to be the first to do something, but the later you are, the smarter you have to be.  Much as the publishing/media industry needs to speed up the creative process, so too do financial institutions of all sizes.  Take a listen to the podcast if you’re interested in their take; for three things I’m thinking about based on the last four days, read on.

(1) Yes, credit unions and banks are both financial institutions; this, however, is where the similarities end in my opinion.  I spend so much of my time with bankers that I decided to flip the script and attend the National Directors’ Convention for credit unions in Las Vegas this week.  As I depart the Mandalay Bay (today’s draft title was “Banking on Sin”), today’s tongue-in-cheek title is a nod to those organizations that compete with banks.  True, I enjoyed the cheerleading aspect of certain sessions; for example, “A Higher Purpose: Why Credit Unions Are Different Than Banks.”  Nonetheless, as session after session juxtaposed a credit union’s marketing, lending and risk & compliance efforts with those of community banks, I’m not sure why credit unions should continue to be exempt from taxes as they are.  Look, my Grandfather helped set up a credit union in Massachusetts, and I appreciate why credit unions were initially granted nonprofit status.  But as they directly compete with banks, the tax question stirs the pot at our conferences… and does have me scratching my head about the fairness of an uneven playing field.

(2) Woody Allen is credited with saying 90% of life is showing up. But John Kanas and his team at Florida-based BankUnited (which has $12.6 billion in assets) are doing a lot more than that.  At least, that’s what I’m thinking after reading “A Steal of a Deal” by our very talented Managing Editor, Naomi Snyder.  While a lot of attention in Bank Director’s current issue goes to “The Top Performing Banks” due to our scorecard that ranks all NYSE and NASDAQ listed banks, Naomi’s piece is a must-read.  As you will see, the best mid-sized bank in the country is headed by an incredible dealmaker with an appetite not just for risk but with an eye for long-term growth.

(3) Thinking about growing a bank puts a board’s role in strategic planning front and center.  So when Promontory’s founder and CEO, Gene Ludwig, writes that “Big Changes Loom for Bank Boards,” I think it’s an appropriate link to share.  In a piece that runs on American Banker, the former head of the OCC writes “the do’s and don’ts of board governance are still emerging, and there is an honest debate over the core topics — how effective new and detailed expectations are at improving safety and soundness, and whether new standards are merging the concepts of governance and management. However, the fact of the matter is that regulators are not going to back away from their enhanced expectations for the board. Board members and managers who do not take heed proceed at their peril.”  Take a read if you’re interested in his nine points a bank and its board might consider in today’s highly charged regulatory environment.

Aloha Friday!

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Back in the Saddle

A summer vacation sunset
A summer vacation sunset

It’s been a few weeks since I last shared what I’ve heard, learned or discussed on this site. Yes, vacation treated me well. But I’m excited to get back into the swing of things and especially pleased to welcome two new people to the Bank Director team: Katy Prejeant and Jake Massey. Both can be followed on Twitter @BankDirectorAE and @WJ_Massey. As always, what follows are three things that relate to bank executives and boards that caught my eye and/or ear this week.

(1) Drive a few hours west of our Nashville offices and you can find Memphis-based Mercer Capital. The advisory firm assists banks, thrifts and credit unions with “corporate valuation requirements and transactional services.” Each month, their Bank Watch newsletter pulls together a series of articles from around the web. From stress testing to Basel III, ESOPs to a Midwestern public bank peer report, there are some interesting reads this month. But one that caught my eye wasn’t in their report – it can be found on their main site. It’s a white paper on Creating the Potential for Shared Upside. Authored by Jeff Davis (a speaker at last year’s Acquire or Be Acquired conference), the piece reviews various financial issues arising when community banks merge or sell to a larger, public institution. With many anticipating an upswing in M&A deals in the second half of 2013, it is an interesting perspective to consider.

(2) In past posts, I have noted how the banking industry is a mature one. That is, where competing on price with the BofA’s of the world may best be seen as a fool’s errand. Nonetheless, McKinsey’s classic article on “Setting Value, Not Price” should be a must read this week. While not specific to the financial space, they lay out a reality where ”people buy products and services not on price alone but on customer value: the relationship between costs and benefits.” Although this trade-off has long been recognized as critical for marketing, this month’s “Insights & Publications” shows that businesses frequently get their price–benefit position wrong. They wrote in 1997 that “value” may be one of the most overused and misused terms in marketing and pricing. If you’re game, drop me a line below and let me know if you agree this is still the case.

(3) Spend any time talking with a bank’s CEO, and keeping pace with technology (and by extension, technology risk management) is sure to come up in a discussion that involves improving their business, brand and reputation. According to a new “FS Viewpoints” published by PwC, financial institutions have, for too long, “viewed technology risk management as a defensive tactic or regulatory compliance activity.” Based on the consultancy’s observations, “existing approaches to technology risk management often provide limited value to the business.” They see a real opportunity to leverage technology risk management to provide strategic business value. This piece shows how leading institutions are shifting their focus on risk management, moving from a fragmented and reactive compliance approach to a more balanced, business-aligned, risk-based strategy.
Aloha Friday!

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Know thy customer

The Park Hyatt Washington
The Park Hyatt Washington

Earlier this week, I spent a night at one of my favorite DC hotel’s, the Park Hyatt Washington.  As I checked in (and later, out) I paid close attention to their customer service efforts — and by extension, my customer experience.  Off-the-charts positive from start to end.  So as I wrap up this week’s travel (DC, Nashville and St. Louis to be exact), I thought to share three customer-focused thoughts from the last few days.

(1) I wrote about Brett King leading up to our annual Growth Conference.  He’s a best-selling author who, in this video “The Battle for the Bank Account: And Why the Banks Will Probably Lose,” explores the end-game in the emergence of the mobile wallet and what it means for the “humble” bank account. How does this apply to the experience a consumer may have with their bank?  Simply, when one can get a salary paid directly onto a phone, when your iTunes account doubles as a prepaid debit card and when you can use Facebook to send money – its fair to wonder will there be any need for traditional retail banking in the future?  A longer video than we normally post to BankDirector.com but one certainly worth a watch.

(2) Today’s American Banker shares a recent study from Market Rates Insight.  Their work found that customers want products like identity theft alerts and mobile bill pay from their banks. As the publication summarizes, many community banks are unable or unwilling to offer those products.  So community banks may be leaving money on the table due to an inability or an unwillingness to offer a number of coveted financial products.  One wonders how much financial flexibility these institutions have in terms of new investments relative to the heavy compliance costs burdening such banks?  However, if smaller banks cannot compete on price, can they really expect to maintain a loyal customer base without fulfilling “basic” customer expectations?

(3) A I head towards the mighty Mississippi this morning, I took note of another report, this one by assurance, consulting and tax firm Moss Adams.  Western bank CEOs and their direct-report executives should expect average salary increases in the 3% to 5% range during 2013, according to a survey run by the firm.  Also, the industry as a whole should expect a nearly 50% reduction compared to 2012 in the number of institutions that continue to subject their executive officers to a salary freeze.  The firm also found compensation strategies continue to favor incentive-based compensation over salaries in order to place a greater emphasis on variable costs for the retention of key executive officers.  So if a key to great customer service includes a consistency of communication and direction from key leaders, this report bodes well for executives meriting a salary increase. 

Aloha Friday!

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Swimming without a bathing suit?

A full house in Chicago
A full house in Chicago

A busy week in Chicago… one highlighted by Bank Director’s annual Bank Audit Committee at the JW Marriott that kicked off on Wednesday morning and wrapped up about a few hours ago. For those that missed the event, today’s title comes from a conversation I had with the CEO of Fifth Third before he took the stage as our keynote speaker. Without going into too much detail, it refers to a line favored by our former publisher (and head of the FDIC) Bill Seidman. At conferences like this one, Bill was fond of saying when times are good, no one sees what is happening under water. But when things get tough and the tide goes out, well, you see who has been swimming without a bathing suit. In that spirit, what follows are three things I heard while hosting 350+ men and women, an audience representing 150 banks from 38 states.

(1) To kick off the conference, we invited the head of Hovde Financial to present on “Navigating Complex Financial, Strategic and Regulatory Challenges.” While we welcomed attendees from institutions as large as SunTrust, Fifth Third and KeyCorp, Steve Hovde’s presentation made clear that while larger banks like these continue to increase in size, many smaller community banks are fighting for survival in today’s regulatory and low-interest rate environment. Case-in-point, mobile banking technology is already in place at larger banks, fewer options are available to smaller banks to replace declining fee revenue (which could offset declines in net interest margins) and increased regulatory burdens favor large banks with economies of scale.

All of this suggests M&A should be hot and heavy. However, Steve pointed out that 2013 has not started out strong from a deal volume standpoint. In fact, only 59 deals were announced through April; annualized, this will result in significantly less deals than in 2012. Naturally, this leads many to think about building through more organic means.  To this end, he suggests that bank boards and management teams focus on questions like:

  • Is adequate organic growth even available today?
  • Are branches in urban markets more important than rural markets?
  • How much expense base would need to be added to fund the growth compared to the revenue generated by new loans?
  • Are we better off deepening penetration of existing markets or expanding physical premises into neighboring markets or both?
  • What steps can we take to enhance web and mobile platforms?

(2) In the spirit of asking questions like these, it strikes me that everyone has something to learn as we come through one of the deepest recessions in history. As businesses and regulatory agencies debate what could have been done differently, everyone is looking for an answer to avoid the next one, or at least, minimize its impact. Clearly, as directors and officers search for ways to manage future risks, they need to understand how to work together without impeding the organizations’ efficiency of operations while preparing for unexpected events.

Accordingly, we opened this morning with a session to explore this unique balance of corporate governance. The session included Bill Knibloe, a Partner at Crowe Horwath, Bill Hartmann, the Chief Risk Officer at KeyCorp and Ray Underwood, the Bank Risk Committee Chairman at Union Savings Bank. Together, they emphasized the need for both management and the board to understand current initiatives, future initiatives and various risks embedded in each to design plans for various oversight roles. For me, “plan to manage, not eliminate” stuck out in their comments.  If you were with us in Chicago, I wonder what was yours?

(3) Think about this: ­­­­­­­­­­­­­­it might be easier and safer today to rob banks with a computer than with a gun. While banks design their internal controls to help mitigate risk, our final session of the day looked at how an audit committee needs to properly address cyber risk as more and more attempt to attack an institution through the web. Here’s a link to a piece authored by our Managing Editor, Naomi Snyder, entitled Five questions to ask about cyber security; short, sweet and to the point. I hope to have more on this topic early next week as it kept the room full (I took the picture above just a few minutes before the close). Until next week…

Aloha Friday!

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Before I pack my bags

DC food trucks got some business...
By staying local, a few DC food trucks picked up extra business this week…

For the first time in nearly two months, I did not leave the friendly confines of Washington, D.C. for work.  Next week, AA gets my business back with a trip to San Francisco — followed by one the following week to Chicago and the next, to New York and Nashville.  Yes, I anticipate sharing a number of stories in the weeks ahead, but these three had me excited to post today.  As always, my #FridayFollow-inspired post on things I heard, learned or discussed that relate to financial organizations.

(1) File this one under “things that make you go hmmm.”  Earlier this week, the American Banker published an interesting piece entitled “Fed Reveals Secret Lessons of Successful Small Banks.”  As I’ve written in multiple M&A-focused posts, many investment banks  predicted a wave of consolidation among community banks after the financial crisis hit while positing that financial institutions need at least $1 billion of assets to compete/remain relevant.  This piece, however, cites recent St. Louis Fed research that shows the asset range with the most “thrivers” — the term the StL Fed used to describe remarkable banks — was $100 million to $300 million.  As the American Banker notes, much of the research stemming from the crisis focused on the mistakes banks had made, so the St. Louis Fed decided to take the opposite approach.  If you have a subscription to AB, their recap is worth a read.

(2) Disruptive technologies were front & center a few weeks ago in New Orleans at our annual Growth Conference.  Yesterday afternoon, McKinsey put out “Disruptive technologies: Advances that will transform life, business, and the global economy.”  While not specific to our industry, the fact that the “mobile internet” placed first should reinforce the conversations taking place in bank boardrooms today.  According to the authors, 4.3 billion people are yet to be connected to the Internet, with many expected to first engage through mobile devices.  Considering the six-fold growth in sales of smartphones and tablets since launch of iPhone in 2007, well, you can see why I’m bullish on banks getting social and enhancing their mobile offerings ASAP.

(3) Finally, for those quants looking for a good, non-Krugman economics piece, look no further than the NY Times’s “Economix” blog.  The most recent post: How a Big-Bank Failure Could Unfold.  In the piece, the authors consider what could happen if there were a hypothetical problem at a major international financial conglomerate such as Deutsche Bank or Citigroup.  As they note, “defenders of big banks are adamant that we have fixed the problem of too big to fail.”  This entry considers the alternative.  So for those with a desire to stay up late during this Memorial Day three-day weekend?  This might be a read for you.

Aloha Friday!

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Do we have enough banks in the U.S.?

Pirates-baseballAs I do each Friday morning, what follows are three things I’ve learned this week that apply to the financial community.  Let me start with the inspiration for today’s title and end with that for the picture of Pittsburgh’s PNC Park above.

(1) I’ve shared ideas from KBW’s Fred Cannon in the past; let me do so again based on a note he put out this Monday (FSW No New Bank Charters) that I strongly encourage you to read.  In my opinion, Fred is at the top of his field, so when he looks at the decline in new bank charters during the last two years (to zero) and wonders if we have enough banks in place today, its a thought provoking question.  To wit:

U.S. banking is being squeezed from the top, with high levels of concentration, and from the bottom, with no new banks, creating a less dynamic financial sector.  While regulators and legislators worry about the size and concentration of the largest banks, there is an equally concerning trend on the opposite side of the bank size spectrum. There have been no new bank or thrift charters issued during the past two years. This trend stands in sharp contrast to history, with dozens to hundreds of new banks starting each year, including during years of deep recessions. The lack of new bank startups may be causing limited competition for loans for small regional businesses and builders and pushing lending outside the banking system, essentially meaning that there aren’t enough banks in the country to promote maximum economic growth. Concentration and limits on size at the top end, and the dearth of new banks at the small end, will push greater market share of banking into mid-sized banks, in our view. This is good news for profitable mid-sized banks that can take advantage of both trends.

(2) t_1368782681Switching gears to the biggest of the big, we might have to honor Jamie Dimon by making it “his” week if the amount of media coverage continues for the man.  From American Banker to Bloomberg’s Businessweek to the WSJ, not a day went by without some mention of Wall Street’s “Indispensable Man.”  With JPMorgan Chase & Co.’s annual meeting in Tampa next week, our own editor thinks it should be a doozy for Chairman and CEO Jamie Dimon and the company’s 11-member board. The country’s largest bank has come in for some withering criticism ever since it lost a reported $6 billion last year on a disastrous credit derivatives trading strategy.  Ah, trading credit derivatives… I wonder if they will soon replace collateralized debt obligations as the scorn of the American public.

(3) Finally, a tip of the cap to Mars National Bank near Pittsburgh for “tapping a native son’s ties to America’s pastime to raise its local profile.”  According to a piece in the American Banker, the $351 million-asset institution in Mars, Pa., has formed a marketing campaign around pitchman Neil Walker, 27, a second baseman for the Pittsburgh Pirates who grew up seven miles away from the bank’s headquarters.  Mars National is “among several banks that have recently turned to sports stars to build business and spur goodwill;” for those interested in examples of how smaller banks are working to build brand loyalty in their community, this is an easy read that might inspire.

Aloha Friday!

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Dass de Thing

photo (10)

Today’s Friday Follow-inspired column takes a decidedly cajun turn (I tink dats rite) with a look back on time spent at the Ritz-Carlton in New Orleans. Fancy, for sure. Financially focused? Absolutely, thanks to Bank Director’s inaugural Growth Conference.

The slow economic recovery continues to challenge banks ability to grow as businesses both large and small reduce their leverage. Additionally, tepid growth (or in some cases, continued decline) in real-estate values presents challenges in the growth of consumer and commercial mortgage portfolios. Layer on the increased focus of larger banks on growing their C&I and small business lending portfolios due to increased regulatory pressure on consumer products and you understand how challenging it is for community or regional bank CEOs and boards to devise effective growth strategies. These obstacles did not, however, deter a crowd of nearly 200 bankers and industry executives from sharing their insight and opinions earlier this week.

(1) For example, Josh Carter from PwC covered what some of the fastest growing community banks are doing, both those who have grown through M&A, as well as digging a level deeper into those who are successfully growing organically. In his address, he noted a few bright spots have given the banking industry hope that economic and financial recovery is just around the corner (e.g. consumer confidence continues to improve, unemployment is on the decline and the home price index continues to tick up). As such, he believes there are five key areas that community banks should focus on to drive growth in their respective markets:

  • Emphasize productivity over efficiency;
  • Sharpen your business model; that is, serve niche segments, provide tailored offerings, excel at service quality, etc.;
  • Innovate within your business model, as banks that succeed most often are the ones that continually evolve and out-innovate their peers;
  • Pursue opportunistic M&A deals; and
  • Broaden your product portfolio.

(2) Preceding Josh was Jay Sidhu, the Chairman & CEO at Customers Bank. If you’re looking for a bank that is leading the field in terms of core income, net loans/leases and core non-interest income, look no further than his bank, which is expanding its business in three states — Pennsylvania, New York and New Jersey. Jay captivated his peers with a look at the changing face of banks in the United States and the role of a board and CEO in positioning bank to take advantage of this changing environment. Tops for him: an “absolute clarity of your vision, strategy, goals and tactics; there must be absolute alignment between board and management… (along with a) passion for continuous improvement.”

(3) Bank 3.0Finally, Brett King and Sankar Krishnan explored the “end-game” in the emergence of the mobile wallet and what it means for the “humble bank account.” With more than 60% of the world’s population without a bank account and the ubiquitous nature of mobile phone handsets and the increasingly pervasive pre-paid ‘value store’ – the two openly considered will banks still be able to compete. I’ll have more on this session in a subsequent post that combines Brett’s presentation with one made by John Cantarella, President, Digital, Time Inc. News and Sports Group. For now, let me suggest a trip to Amazon to check out Brett’s latest book, Bank 3.0: Why Banking Is No Longer Somewhere You Go But Something You Do.

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A big shout out to the entire Bank Director team who made this first conference such a success. Laura, Michelle, Mika, Kelsey, Jack, Misty, Jennifer, Daniel, Naomi, Joan, Bill… way to go!

Aloha Friday!!

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Its Aloha Friday

Cherry blossoms in DC
An example of organic growth in Chevy Chase D.C.

Earlier this week, as part of Bank Director’s annual Bank Chairman/CEO Peer Exchange, I was lucky enough to spend time with key leaders from 40+ community banks averaging nearly $900M in asset size. As I reflect on various growth-focused conversations I had with CEOs of NASDAQ-listed banks, I think I’ve found a common thread. Each person runs an institution profitable enough to make acquisitions — all while maintaining adequate capital ratios.  The interesting part (for me at least) concerns the strategies these executives set to build their brand and tactics put in place to “organically” grow their franchise.  As our industry continues to rally back from the past few years of pessimism, it really is fun to hear success stories.  So what follows are three thoughts from this week that builds on my time at the Four Seasons in Chicago.

  • While M&A offers immediate growth to the acquirer, I’m hearing that “stocking the bank for talent” is a real long-term challenge. While a bank’s CEO and Chairman must work even more closely to drive bottom line performance while enhancing shareholder value, I left Chicago convinced this team must more aggressively identify — and groom — the next generation of bank leadership. Without the big banks providing management training like they once did (an unintended pipeline of talent for community banks), its time to get creative. For example, while most at our event appreciate the need to get mobile, few community banks have the senior strategist on hand to do so right now. While that opens the door to outside advisors to support an institution, it does present longer term dangers as customers expect access to their banks sans branch or ATM use.
  • Keeping on the tech-to-grow theme, I read an interesting “big data,” bank-specific piece by McKinsey on my way home to D.C.  Personally, I’ve been interested in the various tools and tactics banks employ to analyze their massive amounts of data to detect/prevent fraud, devise customer loyalty plans and proactively approach consumers. This overview, complete with video, touch on these points and show how some are using big data and analytics to sharpen risk assessment and drive revenue.

Aloha Friday to all, especially my niece and sister-in-law on their birthdays.

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Creating High Performance Bank Boards

After spending the past two days with bank CEOs, Chairmen and lead outside directors from 45+ banks (roughly half being publicly traded), I thought to share the following video on a training & education program offered by Bank Director.  

Since 1991, Bank Director has supported chairmen, CEOs, CFOs, general counsels, presidents and board members of financial institutions nationwide with timely and relevant information and events.  In response to recent pressures placed on the banking community, our team introduced a board education program (DirectorCorps) as part of the services we offer.  This is not a one-time learning opportunity; rather, an ongoing collection of in-person, in-print and online resources for those wanting the highest performing bank board.  As quite a few of the attendees at our annual Chairman/CEO Peer Exchange inquired about what this is all about, take a look at this video we just posted:

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Expectations +/- Capacity

photo (21)
Heading up to 8 at the Four Seasons

The topic of a seller’s expectations and a buyer’s capacity is particularly relevant in light of what Cathy Nash and Jim Wolohan of Citizens Republic Bancorp shared earlier today.   Given that our economic environment is challenging, valuations are depressed and size and scale matter now more than ever, we turned our attention to matters like pricing expectations and the overall state of our financial community by welcoming Ben Plotkin, Vice Chairman of Stifel, to the stage.

Noticeably absent from the bank M&A market in 2012 were the “mega-deals” of years past that have often helped stimulate takeover activity. As I wrote about earlier today, the market made a modest rebound last year, with 230 acquisitions of healthy banks totaling $13.6 billion. But while there were only 150 bank deals in 2011—the third lowest volume since 1989—they totaled $17 billion.  While low levels of loan growth and continued net interest margin compression continue to challenge banks, there is “good news” according to Ben:

  • Profitability has improved (*primarily due to credit leverage);
  • Capital levels are at 70-year highs;
  • Valuations have improved significantly; and
  • M&A discussions are elevating.

To this last point, Ben cites capital access (or the lack thereof) as the driver of consolidation. Thanks to recent stock appreciation, potential buyers enjoy an increased capacity to pay meaningful premiums for smaller institutions and still preserve tangible book value.  As a result, larger institutions with access to the capital markets will most likely pursue M&A in order to overcome their more organic growth challenges.  

On the flip side, smaller institutions, especially those perceived by the investment community as not being able to earn their cost of equity and unable to access the marekets, may consider an “upstream” partnership.  In closing, Ben reiterated that asset growth is essential in order to create the revenue necessary to overcome the cost of doing business.

As with Cathy and Jim, our thanks to Ben for sharing his time and thoughts with us this morning.

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Financially Focused Friday Fun

1st stop at the Ferry Building in SF
Always my 1st stop at the Ferry Building in SF

What does my favorite, favorite, favorite purveyor of coffee have to do with banking (and payments)? I’ll do my best to connect the dots in this week’s financially focused Friday post. If you missed the last few week’s, take a spin on our way back machine, aka the search button on left.

As I do every Friday, what follows are three stories that I read/watched/heard this week. While tempted to open with a longer mention of seagulls, social media and white smoke, let me see if a picture really is worth a thousand words. This one succinctly captures the feelings that many community bankers have shared with regards to the last few year’s worth of new government regulation and scrutiny. It also sets up the first of this week’s three points:

MI-BU623_HANGOV_G_20130311213640

  • The WSJ ran an interesting piece entitled Small Banks in U.S. Hit by Rising Insurance Costs earlier this week. The premise: thousands of small U.S. banks “are feeling a financial pinch from the government’s efforts to punish executives and directors of banks that collapsed during the height of the financial crisis.” While I promise not to dwell on insurance costs or D+O liability issues today, Robin Sidel’s coverage (which I think originated at our M&A conference in January?) echoes what I’ve heard from bank executives. Namely, “the insurance squeeze is the latest headache for community banks that are still grappling with fallout from the financial crisis. Low interest rates, new regulations and tepid loan demand are pressuring profit. Many small banks would like to get out of the jam by selling themselves but can’t find buyers.”

Truth be told, I’m a bit talked out about bank M&A this week, so I won’t go down that path for point number two. Organic growth proves far more interesting — as its currently far more elusive:

  • On the same day I sat down with the founder and CEO of the Bank of Georgetown (who I think is doing a heckuva job building his bank), I had the chance to catch up with John Cantarella, President, Digital, News & Sports Group at Time Inc. Both talked about how banks are growing/changing; albeit, in much different terms. While Bank of Georgetown continues to build through commercial lending, let me share some thoughts inspired by John. In full disclosure, he recently sat down with our Chairman and agreed to speak to bank CEOs, board members and C-level execs our Growth conference in New Orleans. Subsequently, John and I talked about the focus of his presentation, “Standing Out in a Digital World,” and how he might introduce disruptive technologies and the companies bringing them to market (e.g. Simple and Square). If you’re not familiar with Square, its considered one of the hottest companies in the mobile payments space. When I hopped on their site to dig deeper, I saw that Blue Bottle Coffee Co. recently adopted Square for its point-of-sale. You should DM our Associate Publisher to find out how long she thinks it took for me to add this to today’s piece. So consider this my nod to both companies, our conference and this DC community bank. All interesting stories that really should have their own posts. Hmmm…. next week?

Finally, I do take comfort knowing a pendulum can swing only so far. While strictly my opinion, I believe too many folks within the various regulatory bodies focused on financial institutions (not hedge funds, not multi-national financial services organizations) are missing huge opportunities to contribute to — and communicate with — the banks they oversee. While I get off my soapbox, let me conclude with my third and final point from this week:

  • I saw the Comptroller of the Currency discussed community bank supervision at the Independent Community Bankers of America Annual Convention yesterday. I’m not in Las Vegas nor attending their event, so I simply hope the OCC’s lawyers didn’t totally overhaul his remarks. There are a lot of very real questions/concerns I know bankers would like addressed (e.g. Basel III, the tax benefits credit unions enjoy compared to community banks, etc.). If you were there and care to share, I’d be interested in any feedback/insight…

Aloha Friday to all!

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Go west young man?

Yup, that's me moderating a point-counterpoint session on bank M&A
*That’s me on the far left moderating a point-counterpoint at our annual M&A conference

As I head west (to Los Angeles for a few days of meetings), I started to re-read a few recent M&A outlooks for 2013.  Admittedly, I have a pretty long collection of white papers, analyst reports and opinion pieces in my Dropbox thank to our recently wrapped up Acquire or Be Acquired conference.  As I dig through the various projections, it strikes me that capital, liquidity and credit have improved at many U.S. banks since I rejoined the financial community in September of 2010.

Now, I draw no parallel to my return and this improvement — but do take comfort in hearing so many bank executives and board members voice more and more optimism about their months ahead.  That said, when I look back at 2012, I think few would contest that it was a year plagued with limited loan growth & intense margin pressure.

I share this as I think about the factors that will spark more M&A deals in 2013 than 2012. Fortuitously for today’s piece, I have some “inside” knowledge to share.  You see, with more than 700+ joining us at the Phoenician at the end of January, I had the chance to moderate a panel composed of two attorneys and two investment bankers.  I asked each to take a stance — pro or con — on the following statements before opening things up to the audience (of bank CEOs, CFOs, Chairmen and board members from 275 community banks).  What did we find?

  • 68% responded that 2013 will be the best year for bank M&A since the financial crisis of 2008.
  • It was a near dead heat (52% taking the con) that pricing for a well performing bank less than $1 billion will not exceed 1.25X tangible book or less.
  • 58% voted that the primary obstacle to doing a deal will be unrealistic price expectations of sellers.
  • 60% voted that banks that are thinking of selling would be better off waiting until 2014 when valuations will be higher that they are likely to be in 2013.

Not surprisingly, a strong and vocal 72% disagreed with the idea that banks need to be a minimum of $1 billion in asset size to be competitive in today’s market.  While certain economies of scale tip in favor of those above our industry’s magic number, I have to agree with the majority on this one.  Yes, compliance costs continue to escalate — and regulatory burdens, well, don’t get me started…

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For more on this three-day conference, I encourage you to read “A Postcard from AOBA 2013.”  Penned by our editor, Jack Milligan, his gift with the written word writes circles around my amateur efforts.