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:
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.
Each year, Bank Director hosts a two day “peer exchange” for CEOs and Chairmen of financial institutions from across the U.S. This year’s event, held in Chicago at the Four Seasons, kicked off this morning with a spirited presentation by Cathy Nash, the former President & CEO of Citizens Republic Bancorp and Jim Wolohan, the former Chairman of the bank. I spent some time talking with Cathy and Jim before their presentation; what follows are the highlights of their talk on re-building, and subsequently selling, a bank.
In 2012, there were 230 acquisitions of healthy banks totaling $13.6 billion. Yes, this equates to more takeovers than the year before, but they were generally smaller in size. While the largest transaction was the $3.8 billion buyout of Hudson City by M&T, the Akron, Ohio-based FirstMerit acquisition of Flint, Michigan’s Citizens Republic garnered quite a lot of attention.
When the deal was announced last September, it was as a stock-for-stock exchange worth $912 million at the time of the announcement (*to put this in perspective, last week’s acquisition of Provident New York by Sterling Bancorp came in at $344 million). The price to Citizens’ tangible book value at the time of the announcement was 130% — and the combined entity will have roughly $24 billion in assets across five Midwestern states, 415 branches and more than 5,000 employees.
Against this backdrop, we asked this dynamic duo to share their experiences with their peers, starting with how a CEO works with the board to create a successful strategic plan. According to Cathy, you need to come to the table with options. Jim elaborated on her point, sharing the bank’s board explored organic growth, a partnership or outright sale of the bank and a combination of organic growth coupled with M&A under Cathy’s leadership. Both executives knew the bank needed to return to sustainable quarterly profitability; when neither felt they could match their peers’ median returns in an appropriate time frame, a decision started to come into focus. If they couldn’t deliver more than the cost of capital to their shareholders, exploring a sale had to take the lead.
The two also explained how to know when it’s time to pare back your offerings to your customers. According to Jim, shrinking the bank’s asset size once Cathy took the reins from $14 billion to just under $10 billion made sense thanks to rules and regulations like the Durbin amendment found in Dodd-Frank. In Michigan, as the economy soured, the soft and hard costs of growth made the decision slightly easier to bear. But their focus on the long-term return on equity and investment drove much of their strategy to get ahead by going small(er).
Thanks to Cathy and Jim for opening up. The decision to buy another bank often takes center stage at events like these, and their honesty in addressing both their struggles and excitement certainly set the tone for today’s program.
More to come this afternoon; specifically, an update on the state of the financial industry specific to the 43 institutions (21 of which are public) joining us at this year’s Bank Chairman/CEO Peer Exchange.
With trips this week to St Louis, Nashville and New York City in the rear-view mirror, forgive me for asking: is it Friday yet? While AA and Amtrak earned my business, it’s the following points that stick out from the week that was:
As I’ve written, quite a few banks continue to shy away from social media tools like Twitter, LinkedIn and Facebook. Well guess what. The SEC said its ok to use ’em to disseminate material information without running afoul of their fair disclosure rule (Reg FD). So I wonder how many public banks — Bank Director counts 487 in its database — will start to announce key information on sites like these and subsequently embrace this medium to engage with investors and consumers alike?
I was in the Keefe, Bruyette & Woods’ midtown offices yesterday morning. Fortuitous to be there talking M&A as the Provident New York merger with Sterling Bancorp had been announced just hours earlier. As the firm advised Sterling on the $344 million stock-for-stock deal, I left their offices wondering why more transformational deals that have strategic, and not just financial, value like this one aren’t being struck. One thought: a CEO wants to sell at a realistic price but has to overcome a reluctant investor base that comprises the majority of the board. I’m interested in other perspectives, and welcome your comments below.
Finally, TD bank’s CEO announced his retirement earlier this week, about a month after PNC’s CEO, James Rohr, did the same. While these decisions certainly remind us of the need for clear succession plans (both banks appear to have handled things seamlessly), it is Mr. Rohr’s comments about cyber security as he winds down his leadership of the bank that struck a nerve. While he could have been talking about the viability of banks under $1bn in asset size to compete, when asked what he thinks of too big to fail, he answered “I’m more concerned about too small to protect yourself… Because what’s happening with the denial of service stuff is it’s moving downstream to small banks who are going to be less capable of defending themselves.” Scary words from someone who is in the know.
A somewhat abbreviated Friday Follow-inspired post (coming to you from the great state of Missouri). On this Good Friday, I’m keeping things simple and sharing “just” three things I learned this week.
Of the news this week, Senator Tim Johnson’s announcement that he will not seek re-election in 2014 is especially noteworthy. Why? Well, the Democrat from South Dakota chairs the powerful Senate Banking Committee. His departure, according to this report from the Wall Street Journal, sets the stage for a hotly contested race to succeed him. This should interest many bank executives; “while he is regarded as sympathetic to the concerns of financial firms that operate in his home state, including community banks, Mr. Johnson has also fought GOP attempts to roll back or water down portions of the Dodd-Frank financial overhaul law.” I wonder if the next chair will push for legislation to breakup the big banks as the committee has discussed? As you can read in the American Banker (subscription required), guessing has already begun.
While I’d like to move off the topic of legislation and regulation, our own Chairman forwarded a client alert from the law firm of Goodwin Procter that kept my attention on rules and procedures. The title, Nasdaq Proposes Rule Requiring Internal Audit Function at All Listed Companies, says a lot. As you dig in, you’ll see this would go into effect by year-end. From a bankers point-of-view, financial institutions that are publicly traded already face the pressure of doing more with fewer resources. Every business function, including internal audit, is expected to bring value to an institution. So, much like the Senator’s announcement, this proposed rule is one to watch.
Finally, on the payments front, there’s been a lot of talk about the mobile consumer and his/her mobile wallet. For example, how Google Wallet poses a threat to big banks that make $$ off of card products. Yes, mobile devices have increasingly become tools that consumers use for banking, payments, budgeting and shopping. However, in this WSJ article (Consumer Using Phones to Bank, but Not Buy) we’re told “Americans are increasingly using their phones to avoid a trip to the bank, but they still have little interest in having mobile devices replace their wallets.” The piece builds on the results of a Federal Reserve survey released on Wednesday. The Fed finds the adoption of various tools isn’t as robust as one might be led to believe. If you have the time, it might be worth downloading the Fed’s results.
While I continue to get my proverbial legs under me here, I don’t want to forget some of the pieces I wrote for my DCSpring21 blog. Being that Twitter is pulling the plug on the blogging platform I’ve used to publish my thoughts since 2008 (adios Posterous), I’m going back through the 352 posts I shared to see what’s worth saving. One, from last November, resulted from a weekend trip to Petaluma, CA. I thought it an appropriate share as I enjoy a super hoppy Maximus.
So I found myself in Sonoma late Saturday afternoon. Little did I suspect, as I walked through a brewery tour at the purveyors of my favorite beers (the wicked awesome Lagunitas Brewing Company), that I’d come away with some business inspiration. But from one small business to another, cheers to the great folks behind Brown Shugga, IPA Maximus, Hop Stoopid Ale and the greatest named holiday beer of all time, Lagunitas Sucks.
As evidenced by the picture above, I enjoyed a taste or two of the good stuff. I also found myself scribbling down some takeaways. Specifically, my take on how they built their brand and reputation. I believe it applies to most all businesses:
You need character — and characters — to be successful & memorable;
Know your business — and be proud of the past and passionate about the future;
Tell a good story (or two, or three);
Be serious, but don’t take yourself too seriously; and
Don’t be shy about being the best.
So refreshing, in both senses, to spend an evening in Sonoma County. If you have a chance to head up to the brewery, a tour led by Louis comes highly recommended.
A pop quiz for you Laganitas lovers:
Q: Wilco Tango Foxtrot – does it make you smirk/smile?
Q: Why is 420 on the labels?
Q: What is censored — and what rapper’s 90’s CD caused the label flap?
Following the welcome of Pope Francis last week, I’m tempted to call this a slower news cycle and shorten today’s column from three points to two. But as the sun sets on this week, who am I to short-change the spirit of this #FridayFollow-inspired post? Especially as I heard/read/saw some pretty darn interesting things since last checking in!
Last week, I admitted to a bit of M&A “fatigue.” Not so seven days later. With the Koelmel announcement fresh in my head (it should be noted that he led the bank through a period of rapid growth beginning in ’05), I started to think about how history will judge their acquisition of HSBC’s entire upstate New York branch network. At the time, some thought it would spark what is now a cliché: a “wave of bank consolidation.” So why think back when the purpose of this column is meant to be fresh? From what I’ve heard (and read), branch acquisitions can present an attractive alternative to traditional M&A. Case-in-point, a research report put out by Raymond James called Bank M&A: Activity Should Gain Steam in 2013. While a few months old, their messages remain clear: with the “mega and super regional banks focused on expense control, many are taking a fresh look at reducing their branch networks. In turn, well positioned regional and community banks can look to branch acquisitions, which provide a low risk and cost-effective way to enter a new market or bolster an existing market.” Not necessarily a new idea, but just as I gave props to Fred Cannon from KBW last week for perspectives like these, let me give a shout out to Anthony Polini and his equity research colleagues for consistently delivering valuable insight and information like this on a regular basis.
Turning from M&A to truly organic growth, I was really impressed with a piece Tom Bennett, the Chairman of the three-year old First Oklahoma Bank in Tulsa, Oklahoma, authored for BankDirector.com. Tom’s piece, The Hidden Capital of Social Networks, introduces the idea of addressing “your equity capital needs and other performance items in your bank… (vis-a-vis) the social capital that exists in your investor group and how it can be utilized as a valuable source of strength.” With so many CEOs and Chairmen of community banks hoping and wanting their outside directors to generate business for the bank, this piece is definitely worth a read.
Finally, a special thanks to @GilaMonster for providing her input on today’s post… I am very grateful.
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:
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…
Well what do you know. On Wednesday, D.C.’s “snowquester” came in like a lion and left, sadly, like a lamb. So what do we have to hang our hat on this week? Well, the Federal Reserve did release its stress test results for the country’s largest banks yesterday afternoon. Interesting enough to make today’s week-in-review? Take a read through these three stories that I read/watched/heard to find out.
While I wasn’t in my hometown of Boston, MA to hear this first hand, I have it on good authority that a number of the bankers presenting at KBW’s regional bank conference two weeks ago spoke on our country’s rapid move towards energy independence — and on the real economic growth they are seeing in their regions as a result. If you’re interested, this equity research note (FSW Energy and the Regional Banks), authored by Keefe’s Fred Cannon, is definitely worth a read.
Juxtaposing energy needs with banking services reminded me of a “debate” between three bank analysts, including Fred, that centered on comparing banks to utility companies. Building off those perspectives, I found myself talking with John Eggemeyer (the co-Founder & Managing Principal @ Castle Creek Capital) last Friday afternoon about this very thing. While it didn’t make it into last week’s post, his hypothesis that the financial community bares all the characteristics of a mature industry sent me searching for white papers I worked on while in business school. John saved me some of the trouble by reminding me that banking follows a historic pattern of other mature industries (e.g. dealing with excess capacity; which, as a consequence, leads to fierce competition for business). My big takeaway from our conversation: price, not customer service, proves the ultimate differentiator.
Finally, as John and I talked about what bankers might learn based on the commoditization of businesses, I couldn’t help but think about M&A and organic growth. This leads me to my third point. The Washington Business Journal recently recognized the top 5 D.C.-area banks based on total return on assets. In the piece, authored by Bryant Ruiz Switzky, the area’s 37 local banks posted a median annual profit of $3.5 million in 2012. That’s up 44% from 2011. Yes, many rankings like this focus on growth in terms of ROA; personally, I’m also keen to look at earnings growth. Nonetheless, some strong banks on this list… with many more making some real strides here in our Nation’s Capital.
As a bonus, a tip of the cap to an American Banker piece on the hows and whys BankUnited’s private-equity backers are giving up a big chunk of their stakes in the $12.2 billion-asset bank. While a subscription is required to read yesterday’s “BankUnited to Strengthen M&A Buying Power After Stock Offering,” I think its worth considering the short and longer-term views on what reduced private-equity interest might mean to a bank like this one.
Summary: Yes, it’s snowing in the DMV… no, this picture of the White House doesn’t capture today’s totals just yet. Nonetheless, the run on gas, food and firewood started early yesterday. So what better time to post something new to About That Ratio than with the snow coming down and the power and wi-fi still on?
I’ve already touched on “Rebooting the Bank;” with today’s piece, I’m taking a look at “rebooting the branch.” Whereas Brett King inspired my previous entry, credit for today’s falls to PwC.
Recently, I’ve had the chance to talk with several of the firm’s partners about the rise of the digitally driven consumer and commensurate high-cost infrastructure of physical banking locations. I believe we’re in agreement that if the branch model stays on its current course, it will become a financial burden to banks; ultimately, cutting deep into cross-channel profitability. So today, I thought to share some information produced by PwC that looks at reinventing branch banking in a multi-channel, global environment.
Yes, the branch of the future has a critical place in banks’ overall channel strategy. However, in its December “FS Viewpoint,” the professional services firm cites the cost of a branch transaction being approximately 20x higher than a mobile transaction… and more than 40x higher than an online one. Consequently, banks are beginning to adopt a mix of the following five branch models in order to compete and improve their ROI:
Assisted self-service branches that cater to retail and small-business customers on the go with high-function kiosks;
In-store and corporate branches; for example, in grocery stores and corporate office buildings;
Full-service branches that provide one-stop banking (sales and service) to retail and small-business customers who prefer privacy and face-to-face interactions;
Community centers that have a smaller footprint than traditional branches; and
Flagship stores that deliver sales and advisory expertise while showcasing emerging capabilities to sophisticated customers.
The logic behind a mixed approach? It increases the bank’s geographic relevance to consumers and balances customer needs, revenue opportunities and cost to achieve growth.
Anecdotally, I’ve recently talked with two CEOs, Ray Davis from Umpqua and Stephen Steinour from Huntington, about their branching strategies in advance of keynote speeches they’ve made at our Acquire or Be Acquired and Lending conferences. It strikes me that when banks like theirs assess a prospective branching opportunity, they deliberate on things like:
How do you develop specific financial criteria for measuring branch performance;
How do you decide whether the best path to building customers is adding branches, or operating with a more centralized marketing strategy; and
What are the advantages — and potential pitfalls — of growing a branch network.
So as the snow continues to fall outside, I’m digging deeper into PwC’s perspectives. As a “bonus” to the white paper referenced about, let me also share a video from the firm “Look Before You Leap: Analyze Customer and Business Impact Carefully Before Implementing Product Change.” While the title is a mouthful, the message, pretty succinct.
Below are three stories related to the financial community that I read/watched/heard this week… An added bonus? After this sentence, About That Ratio is 100% free of any mention of today’s nonsensical sequester.
(1) So, the IPO market for banks is ringing? This week, McKinney, Texas-based Independent Bank Group (the parent of Independent Bank) went loud with its plans to raise up to $92 million in an initial public offering. The bank plans to use the proceeds from the IPO to, surprise, surprise, repay debt, shore up its capital ratios for growth & acquisitions and for working capital. This filing comes only a few weeks after ConnectOne in NJ (CNOB) closed its previously announced offering of 1.6M shares of common stock @ $28/share. Good to see…
(2)… and with Independent Bank’s news, now might be time to take a read through this brief overview of the JOBS Act put out by the attorneys at MoFo. Why? A centrepiece of the Act is its new IPO on-ramp approach…
(3) On the non-IPO tip, check out this cool/intuitive infographics for tech trends posted by NASDAQ to its Facebook page yesterday afternoon. Who said social media + banks ain’t quite as simpatico as they might be…
Now that I’ve baited you with the headline, let me tie it to the opinions of Brett King (who, in full disclosure, we just confirmed as a speaker at Bank Director’s upcoming Growth conference at the Ritz-Carlton in New Orleans).
A history lesson for those non-Bostonians reading today’s post. Shawmut Bank was established in Boston in 1836 and its logo, the stylized bust of Chief Obbatinewat — seen above — became widely recognizable in the Greater Boston area over the next 150 years. Heck, we had one in our house! Sadly, the name and logo were retired in 1995 as a result of the merger of Shawmut and Fleet. But for me — and many others I’ve met (hello Bank of the West’s CEO) — “the Chief” still inspires a smile and a story.
In my last post, I wrote that its not easy for a bank to build a strong brand. Still, as some are finding, the rewards can be immense. So I bring up “the Chief” (not to be confused with the equally awesome Robert Parish who dominated the paint for the Boston Celtics) as an example of a formerly strong brand that still stirs emotions and memories. It also provides a tie into what I’ve been reading of Brett’s in terms of building a “sticky” customer experience and developing a multi-channel distribution strategy.
Admittedly, his “BANK 2.0” book reminded me of many I read while in the IT space. For example, those authored by Clay Shirky; at least, in terms of crowdsourcing, “disruptive” customer behaviors, technology shifts and new business models. But as Brett focuses on our financial community, I’m eager to crack open his “BANK 3.0” to see what he thinks might redefine financial services and payments. I’m particularly interested in his POV with respect to:
Where social media might shine a light on pricing, processes and heretofore obtuse policies;
How “customer advocacy” is killing traditional brand marketing; and
The growth of the ‘de-banked’ consumer who might not need a bank at all.
I’m always interested in hearing who’s “doing it right” in order to learn and share their stories. So I ask: in addition to Brett’s ideas, any suggestions for other authors, entrepreneurs, innovators, etc. worth a follow/read? Hit me up on Twitter or feel free to leave a comment below. I’ll re-post later this week as part of my “Friday Follow” inspired column.
FWIW, the Growth Conference focuses on how a bank’s board can become actively involved in building the bank – in securing customers, identifying lending opportunities, promoting the bank in the community, etc. Its a complement to our annual M&A conference, Acquire or Be Acquired, which I covered in detail on my DCSpring21 blog last month.