Tag: Bank Director

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Giving Thanks

Winston Churchill once said, “a pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”  I believe we all aspire to see the proverbial glass as half full — so this quote is one I thought to share as we wrap up this Thanksgiving week.  As I do each Friday, what follows are three things I’m thinking about; in this case, what I’m grateful for — in a professional sense — that reflects Churchill’s sentiment.

(1) The Harvard Business Review ran a piece this April entitled Three Rules for Making a Company Truly Great.  It began “much of the strategy and management advice that business leaders turn to is unreliable or impractical. That’s because those who would guide us underestimate the power of chance.”  Here, I want to pause and give thanks to my tremendous colleagues at Bank Director — dreamers and implementors alike — who prove that fortune really does favor the prepared mind (and team).

Al, Mika, Joan + Bill in Jackson, WY
Team pix at the Ritz-Carlton New Orleans
Makin’ it rain with our editor, Jack Milligan
The Arizona Biltmore, home of 2014’s Acquire or Be Acquired conference
Surprised (pleasantly) by our team with this video in Times Square
Signing off!
Michelle, me, Naomi and Laura at the Ritz-Carlton
Bailing out the car in South Central LA
Take a stance fellas
The JackAl in action
Some of our team celebrating 3 years
Closing bell at the NASDAQ MarketSite

(2) I believe that leadership is a choice and not a position.  As a small company with big ambitions, I find that setting specific directions — but not methods — motivates our team to perform at a high level and provide outstanding support and service to our clients.  This parallels the principle value of McKinsey & Co., one eloquent in its simplicity: “we believe we will be successful if our clients are successful.”  I read this statement a number of years ago, and its stuck with me ever since.  As proud as I am for our company’s growth, we owe so much to the trust placed in us by nearly 100 companies and countless banks.  Personally, I am in debt to many executives for accelerating my understanding of issues and ideas that would take years to accumulate in isolation.  Since returning to Bank Director three years ago, I have been privileged to share time with executives from standout professional services firms like KBW, Sandler O’Neill, Raymond James, PwC, KPMG, Crowe, Grant Thornton, Davis Polk, Covington, Fiserv… and the list goes on and on.  These are all great companies that support financial institutions in significant ways.  Spending time with executives within these firms affords me a great chance to hear what’s trending, where challenges may arise and opportunities they anticipate for their clients.  As such, I am thankful to be in a position where no two days are the same — and my chance to learn never expires.

(3) Finally, I so appreciate the support that I receive from my constituents throughout our industry.  It might be an unexpected compliment from a conference attendee, a handwritten thank you note from a speaker or the invitation to share my perspectives with another media outlet.  Regardless of how it takes shape, let me pay forward this feeling by thanking our newest hires, Emily Korab, Taylor Spruell and Dawn Walker, for expressing an interest in the team we’ve assembled and goals we’ve set.  Taking the leap to join a company of 17 strong might scare some towards larger organizations, but I’m really excited to work with all three and expect great things from each.

A late Happy Thanksgiving and of course, Aloha Friday!

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The Race is On

ferrari-458-challenge-race-car_100316284_m

The race is on… to expand into new markets, to add new talent, to introduce new technologies that attract and engage customers.  This race, playing out in cities and towns across the country, applies to many industries.  For our purposes, let me build on this theme vis-a-vis three takeaways from Bank Director’s annual Bank Executive & Board Compensation Conference in Chicago.

(1) How companies develop executives, attract leadership and approach compensation in today’s highly competitive and economically challenging world was front-and-center in Chicago.  As I wrote earlier this week, the environment that this country’s 7,000 or so banks operate in demands productivity, proficiency with technology and the ability to sell.  Finding the right people to lead such efforts, especially when you consider that every organization has a different set of “players” with a unique collection of knowledge, experience and skills, proves challenging.   Complicating matters is the fact that all banks are required to regularly assess whether any of their compensation plans encourage unnecessary or excessive risk-taking that could threaten the safety and soundness of the institution.

(2) Putting together compensation plans that reward growth and responsible risk takes many shapes.  However, the “adverse economic cycle” has dampened some employees’ opportunities to earn — and at a corporate level, has slowed the anticipated pace of bank consolidation.  While larger banks continue to increase in size, many smaller institutions are fighting for survival in today’s regulatory and low-interest rate environment.  According to SNL, there were 235 whole-bank M&A transactions announced and 51 failed bank transactions for a total of 286 deals in 2012. Total deals, as a percentage of overall banks in the U.S., have remained relatively consistent over the years between 3% and 4%.  Some interesting stats, courtesy of the Hovde Group:

  • Since 2000, sellers over $1 billion in assets have commanded a 32% premium over those sellers less than $1 billion;
  • In 323 transactions since 2000, sellers over $1 billion averaged a valuation of 246% of tangible book value; and
  • In 2,729 transactions since 2000, sellers less than $1 billion averaged a valuation of 187% of tangible book value.

M&A activity is once again heating up as financial institutions look to achieve necessary scale to compete and thrive… and while I will not wager on the exact number of deals that will mark 2013, I will take the over on 2012’s results.

(3) The relevance of scale, the pace and volume of M&A activity and the dynamic tension between the “bid-and-ask” takes center stage at our next conference: our 20th annual Acquire or Be Acquired Conference.  Held at the Frank Lloyd Wright-inspired Arizona Biltmore, we’ve put together a program that looks at the strategies potential acquirers might consider to the practical considerations the board needs to discuss.  As proud and pleased as I am for this week’s successful event, I am already gearing up to open our biggest conference the week before the Super Bowl.  Widely regarded as one of the financial industry’s premier M&A conferences, I am super excited by the hard work put in by our team and even more stoked to spend the next few months getting ready to welcome everyone to the desert.  To that end, I will begin to expand upon the topics and trends that influenced the development of this year’s program in future posts.

Aloha Friday!

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On Fee Income + Staying Relevant

Cloud Gate in Millennium Park
Cloud Gate in Millennium Park

So I shared my excitement for the RedSox World Series victory earlier today… Before I pack my things for a trip to the JW Marriott in Chicago, let me share three things I learned this week that relate to bank CEOs and their boards, not baseball and beards.

(1) As our very talented editor, Jack Milligan, wrote in the current issue of Bank Director, when it comes to fee income, “drivers tend to fall into three general categories, beginning with a variety of consumer-based fees from such things as foreign ATM withdrawals, overdraft protection plans, debit card transactions and some checking accounts.”  I bring this up as Jack and the team at Bank Director magazine ranked the top 50 publicly traded banks based on their ratio of non-interest income to total operating revenue for 2011 and 2012. The totals for both years were then averaged, which determined the order of finish. All banks listed on the New York Stock Exchange and NASDAQ Stock Exchange were included in the analysis (which was performed by the investment banking firm Sandler O’Neill + Partners in New York). At the top of the ranking are New York-based Bank of New York Mellon Corp., State Street Corp. in Boston and Chicago-based Northern Trust Corp.  For a full look at the results, click here.  For the story itself, register for free on BankDirector.com to access the digital issue of the magazine.

(2) Clearly, banking’s profit model is going through a period of transition.  Here, companies like StrategyCorps play an interesting role in helping financial institution meet their needs for more fee income without upsetting its customers.  No one — at least, that I know — wants to  pay for basic, traditional retail banking services.  They resent when a new fee is added on to an existing free service or product with no additional value (case-in-point, Bank of America’s $5 debit card fee debacle).  So as Mike Branton wrote in the Financial Brand, “financial institutions must seek new ways to incorporate non-traditional services that connect with consumers’ lifestyles.”  StrategyCorps took to Finovate’s Fall stage in NYC in September to demo, in less than 7 minutes, how financial institutions can use an enhanced mobile experience to successfully bring in fee income.  Take a look.

(3) Finally, I will be tweeting throughout our annual Bank Executive & Board Compensation conference next week (using hashtag #BEBC13).  This year’s 9th annual event focuses on compensation trends, talent acquisition/attraction and retention strategies. In addition, it looks at how the next few years’ merger activity might influence incentive compensation plans and performance-based pay structures.  I intend to post a few “postcards” from Chicago throughout the week — the first (tentatively set for Tuesday) on how companies develop executives, attract leadership and approach compensation in today’s highly competitive and economically challenging world.

Aloha Friday!

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Three Years Strong

I am taking a break from my regular routine of sharing three things I heard, talked about, learned or read to highlight my last few days at work.  Admittedly, I try to keep the company stuff to a minimum on About That Ratio; today, I feel it is ok to pull the curtain back a bit and share my pride and enthusiasm for our dynamic team at Bank Director. 

Ours is a successful small business, one composed of entrepreneurs and hard workers.  Today, CEOs, CFOs, General Counsels, Presidents, Chairmen and board members of financial institutions nationwide rely on our digital offerings, conferences, research reports, educational programs and Bank Director magazine to keep pace with an ever-changing business landscape.  Yes, we’ve been in business since 1991; however, our relationships with this hugely influential audience didn’t materialize overnight.  In fact, the past 36 months have driven much of our financial and reputational growth.  So as we celebrated our team’s three-year anniversary on Wednesday (I’ll explain below), I thought to share some thoughts and pictures this morning.

Some of our team celebrating 3 years
Some of our team celebrating at Arrington Vineyards

(1) For the Bank Director brand, a big change occurred in mid-2010, when our founder and Chairman sold our sister company, Corporate Board Member, to the NYSE.  Concomitant to that transaction, he began to assemble a team to “modernize” the Bank Director franchise.  This included a new website, new logo and company color scheme, new events, new editorial features, new data, new research, new sales efforts, new marketing campaigns, new PR efforts, and so on and so on.  So it was with real pride that our team of 17 strong celebrated what we’ve done over the past three years to re-build, re-imagine and re-position our company as the information resource for leaders throughout the financial community.

(2) While we work hard, we do play well together.  From snuggies in the office to orange flair being worn at our events, our company’s personality is a fun and creative one.  This was on full display as we laughed it up on Tuesday.  Here are a few fun, SFW pictures that show the lighter side of our crew, both in our Brentwood, Tennessee office and “down the road” at Arrington Vineyards.

Hmm… I wonder who else will have orange Bonobos pants on today
Kelsey + Joan taking a moment
2nd wave of wine tasting (Robert, Daniel, Jack, Dan, Mika, Michelle + random woman)
shocked that three people had to share 1 beer (Mika, Michelle and Kelsey)
No wine monsters here (Misty, Kelsey and Mika)… but the monster was out
Our fearless AssocPub, Kelsey Weaver
Our version of the conch, sported by our Managing Editor, Naomi
Winner, best tee shirt… c/o Shane
To beat down the pinata
Puffy Muffin to get folks in early
I think I’m properly attired… right Bill? And thanks for the hat!
Might be making this our 3rd office – does the move committee approve?
Shoes optional for Misty and me, stylish socks Robert!
Jake getting comfy
How’d that get in here?

(3) Finally, kudos to all those who preceded our team.  While people come and go, our brand and reputation reflects many years of hard work and the collective efforts of many talented men and women.  In addition, big thanks to companies like Circ (supporting our web and hosting needs), Robertson Design (for design), Data Marketing (in terms of fulfillment), Snapshot (videos), PrintWorks (prints materials for our conferences & reprints) and Grafix Solutions (business cards) for helping us look good!

While change is a constant, it is impressive to look back to the very first issue of the magazine and see how far we’ve come.  I’ve shared this proverb before (and will most likely do so again): “If you want to go fast, go alone.  If you want to go far, go together.”   Appropriate for how we got here today… and how we aspire to grow in the future.

Aloha Friday!

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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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What you learn at a puppet show

Hank Williams "walking" the red carpet in Nashville

I wrapped up a fairly intense period of travel with a day trip to NYC on Monday and a subsequent overnight in Nashville on Tuesday & Wednesday. While in the Music City, our Chairman invited me to join him at a puppet festival (yes, you read that right). The show, a musical chronicle of the history of country music, benefitted the Nashville Public Library Foundation and the Country Music Hall of Fame. Laugh if you will, but I will tell you, it was amazingly creative. As I mingled with various benefactors of both institutions, I found myself engaged in conversation with the former managing partner at Bass, Berry & Sims. Having led one of the preeminent law firms in the Southeast, his perspective on how dramatically the legal profession has changed in the last fifteen years struck a nerve. The parallels between his profession and the banking space were immediately apparent. So with Patsy Cline playing in the background, we talked about the future of banking, professional services firms and relationship building in general. As we did, I made a mental note to share three thoughts from this week that underscore how things continue to change in our classically conservative industry.

(1) First Republic’s founder and CEO, Jim Herbert, shared some of his Monday morning with me while I was in NYC. Jim founded the San Francisco-based bank in 1985, sold it to Merrill Lynch in 2007, took it private through a management-led buyout in July 2010 after Merrill was acquired by Bank of America, then took it public again this past December through an IPO. For those in the know, First Republic is one of this country’s great banking stories. Not only is it solely focused on organic growth, it’s also solely focused on private banking. While my conversation with Jim was off-the-record, I left his office convinced its the smarts within, not the size of, a bank that will separate the have’s from the have not’s in the years ahead. Clearly, as new regulations and slim profit margins challenge the banking industry, the skills and backgrounds of the employees who work in banking must change.

(2) Speaking of successful banks that have successfully navigated recent challenges… KeyCorp’s Chief Risk Officer, Bill Hartman, joined us last week for Bank Director’s annual Bank Audit Committee Conference in Chicago. Bill is responsible for the bank’s risk management functions, including credit, market, compliance and operational risk, as well as portfolio management, quantitative analytics and asset recovery activities. While I shared some thoughts about that program last week, I thought to elaborate on how KeyCorp divides the roles and responsibilities of its Audit and Risk Committees. Some still think you “retire” to the board; as he showed, that is definitely not the case – especially not at an institution that counts 2 million customers, 15,000 employees and assets of $89 Bn. In terms of Key’s Audit Committee, members oversee Internal Audit, appoint independent auditors and meet with the Chief Risk Officer, Chief Risk Review Officer, and of course, for financial reporting, the CFO. I thought it was interesting to note their Audit Committee met 14 times in 2012 — twice as often as the institution’s Risk Committee convened. With many smaller banks considering the creation of such a committee, let me share the focus of their Risk Committee. Strategically, it is responsible for:

  • Stress testing policy;
  • Dividend and share repurchases;
  • Modeling risk policy;
  • Asset and liability management; and
  • Setting tolerances, key risk indicators and early warning indicators

For those thinking about introducing a Risk Committee into their bank, take a look at what some of our speakers shared leading up to last week’s Audit Committee conference for inspiration.  For a recap of the event, our editor shares his thoughts in today’s Postcard from the Bank Audit Committee Conference.

(3) Yesterday, I was pleased to learn that ConnectOne’s CEO, Frank Sorrentino, agreed to participate in our annual Bank Executive & Board Compensation Conference in November. In addition to being one of the more active bankers I follow on Twitter, I’ve written about his bank going public in a previous post. Today, it’s a WSJ piece that shows U.S. regulators grilling banks over lending standards and “warning them about mounting risks in business loans” that has me citing the NJ-based bank. This particular article quotes the CEO of the Englewood Cliffs, N.J. bank in terms of lending standards (yes, a subscription is required). He reveals that regulators recently asked what he is doing to ensure he isn’t endangering the bank by making risky loans. His response: “the bank is trying to offset the lower revenue from low-interest-rate commercial loans by cutting expenses.” While I get the need for oversight, I do wonder how far the regulatory pendulum will continue to swing left before sanity/reality sets in at the CFPB, FDIC, OCC, etc. I’ll stop before I say something I regret, but do want to at least encourage a Twitter follow of Frank and his “Banking on Main Street” blog.

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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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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The Strategy to Sell

earplugs at the Four Seasons in Chicago
Needed for the wind here in Chicago… not our speakers

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.

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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.