Follow Friday Fun

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.

Flying into Boston's Logan
An early approach into Boston’s Logan airport
  • 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.

Aloha Friday to all!

Snowquester’d

The White House on 12/18/09
My attempts at photography: the White House on 12/18/09…

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:

  1. Assisted self-service branches that cater to retail and small-business customers on the go with high-function kiosks;
  2. In-store and corporate branches; for example, in grocery stores and corporate office buildings;
  3. 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;
  4. Community centers that have a smaller footprint than traditional branches; and
  5. 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.

Friday Fun

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…

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Aloha Friday to all!

Does Banking Need a Re-boot?

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).

Shawmut HD.001

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.

Robert Parrish -- #OO
Robert Parrish — #OO

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.

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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.

Community banks, meet social media?

I posted these thoughts on January 30 to my DCSpring21 blog… as I move away from sharing bank-specific thoughts on that site (in favor of this one), I thought to re-post in advance of a few pieces I’m working on.

no-one-said-this-would-be-easy

55%

… or, the final percentage that correlates to the results shared from a Q&A with bankers earlier this week. Sorry, it is not the percentage of turtle tiles found at the Phoenician’s pool. That would be too easy; although, the image does fit when you consider the number of banks using social media vs. those that are not.

No, this is a post about building a brand — and with it, customer loyalty and engagement. For those of us that have been in a business development position, it is oh-so-true that its not easy to build a brand. But make no mistake, the rewards can be immense should you succeed. And yes, the 55% foreshadows the end to this piece.

Admittedly, I thought about taking this post towards my last few company’s efforts to employ various social media tools. However, the importance of building a recognizable, memorable and relevant brand came up with numerous bank CEOs and Chairmen at our recently-concluded Acquire or Be Acquired conference. To a man, they acknowledged the stakes to successfully position a bank are higher than ever, what with the growing popularity of credit unions, new technology and ever-emerging social media platforms. Even more so when a bank customer’s product adoption and brand loyalty is measured at the speed of a tweet or a post. Clearly, the integrity of a brand becomes critical.

So I was/am SHOCKED that more community banks haven’t hitched their wagons to the social media wagon. This is not speculation or wild assumption. Its based on hard fact.

Let me take a step back and explain. We welcomed 275 banks to the Phoenician for our 19th Acquire or Be Acquired this past Sunday, Monday and Tuesday — with a CEO, Chairman, CFO or director attending. I believe (but don’t have the final numbers in hand) that of the 720+ attendees, 575 worked for a bank. I share these numbers as a lead into this question I raised:

Question: How many of you are successfully using these on a daily basis to engage with your customers and potential customers. I’m going to ask ONLY the bankers in attendance to answer this one — and answer on behalf of your bank, not yourself. So you might be a proficient twitter’r, have more than 500 connections on your personal LinkedIn account and have been sharing pictures of this conference on FaceBook with your friends and family. But we’re curious how the banks here are making social media work for them.

The results pulled via an audience response system are startling — and suggest that those in the social media business have ample opportunity at community banks if they can show a bank’s directors and officers how the following ties into their business. The raw results:

  • Facebook = 33%
  • LinkedIn = 11%
  • Twitter = 4%
  • Pinterest = 0%
  • We do not use social media = 55%.

Wow.

In the spirit of a Friday Follow

In the spirit of Twitter’s #FridayFollow, here are three stories related to the financial community that I read/watched/heard this week:

(#1) If you were at Bank Director’s 19th annual Acquire or Be Acquired conference last month, you heard that declining net interest margins, loan growth and regulatory challenges are the top concerns for banking leaders. In the following video, Grant Thornton’s Nichole Jordan discusses these concerns and provides insight into what bank executives and members of a board might do about them.

 

(#2) While I live in Washington D.C., our company considers Nashville home. In the shadows of Union Station, Avenue Bank maintains its oh-so-cool headquarters. I met with our “neighbor’s” President & COO yesterday afternoon and wound up talking about quite a few things. SEC sports, the upcoming Masters, branding (that’s their hummingbird below) and gasp(!), even a bit of banking.

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When I asked if he’d read this cover story in Wednesday’s Wall Street Journal (“Business Loans Flood the Market“) about more banks competing for lending opportunities, he said he hadn’t. But, he did have good reason: he’d been talking about that very thing in Knoxville (at UT’s business school) the night before. While a subscription is required, the story lays out how banks are putting “their liquidity to work, but added competition puts pressure on rates and elevates risk.”

(#3) Finally, I receive a number of insightful research reports and newsletters. One of the better ones, IMHO, comes from Clark Street Capital. Each week, the Chicago-based firm shares its perspectives on banking, real estate, and the debt and loan sale markets. Worth a sign up.

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.

About that title…

urlSo about the name of my new, banking-focused blog: it flies in the face of the so-called “Texas ratio” that originally inspired it. If you’re not familiar with this ratio, it measures a bank’s credit troubles. Simply put, the higher one’s Texas ratio, the more severe the bank’s credit troubles. According to the Dallas Fed:

Bankers, particularly those in Texas, cringe at any reference to the Texas ratio. Of all the metrics used in finance, the Texas ratio is among the most feared because it can be used as an early warning signal to identify financial institutions at greatest risk of failure…

By design, this site will explore issues and opportunities relevant to key leadership throughout our financial community. So, I felt the title fits with a wink and a nod to my focus and interests.

You see, I’m bullish on the future of banking. While some want to criticize and harp on things like a Texas ratio (which, truth be told, should be renamed to reflect recent challenges in Georgia or Florida), I’m keen to explore the many ways banks continue to support our neighborhoods and communities as they grow through acquisition or innovative new strategies and/or tactics.

Make no mistake: the risk & compliance sides of banking will take a secondary position to how banks deliver value to their customers, communities and shareholders. As I spend a lot of time talking with bank executives and board members + leaders at those companies providing services and support to FIs, I intend to pass along some of what I’m seeing, learning and thinking on a weekly basis. But for now, “ciao, ciao,” and thanks for checking out my latest writing venture!