Tag: Growth

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Acquire or Be Acquired – Sunday Recap

The most successful banks have a clear understanding and focus of their market, strengths and opportunities.  One big takeaway from the first full day of Bank Director’s Acquire or Be Acquired Conference (#AOBA14 via @bankdirector): it is time for a bank’s CEO and board to reassess their strategic opportunities.

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thanks to Keith Alstrin of Alstrin Photography

90 Second video recap

Looking for profitability cures

From the strategies and mechanics behind transactions to the many lingering questions regarding industry consolidation, economies of scale, regulatory burdens and how to build long-term value, today featured some pretty fascinating presentations.  One of the common themes from the afternoon sessions: most bankers are looking to cure profitability challenges through some kind of M&A activity.

How much are you worth
Whether buying, selling or simply growing organically until it’s time for a transaction, a bank’s leadership team needs metrics in place to know and grow its valuation.  As we heard today, valuation is a controversial and complex subject.  To wit: it requires an in-depth understanding of a company, its market and competitors, financial and non-financial information.  In addition, factors such as the legal and regulatory environment proves quite a challenge.

Trending topics
Overall, the issues I took note of where, in no particular order: margin compression, deposit funding, efficiency improvements and business model expansion in the context of the current environment. Also, keep an eye on the the Northeast and greater Atlanta area this year for increased merger and acquisition activity.

More to come from the Arizona Biltmore tomorrow…

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A Postcard from Chicago

photo (28)Sometimes, saying hello is easier than saying goodbye… at least, that’s what I felt (and wound up sharing) as I took to the stage to wrap up today’s Bank Executive & Board Compensation Conference at the always awesome JW Marriott in Chicago.

(1) Leading up to the conference, our editor (Jack Milligan) and I heard from board members and executives that they continue to struggle with measuring executive performance and retaining key talent.
  At the same time, the two of us see the environment that banks operate in today demands productivity, proficiency with technology and the ability to sell.  So for this, our 9th annual event, we took care to focus on compensation trends, talent attraction and retention strategies.  In addition, we made sure to include sessions that look at how the next few years’ merger activity might influence incentive compensation plans and performance-based pay structures.  All told, over 110 banks from 38 states were represented in the audience — each, it seemed, engaged in conversations about how their particular bank might shape its workforce to meet the demands of tomorrow.

(2) Next year, we will almost certainly include breakouts and/or general sessions on nominating/governance committee issues.  We may also take a deeper look at “millennials” in the work force.  But this year, I found several presentations geared to critical questions facing boards and management that tied in to immediate growth opportunities.  For example, Steve Hovde posed questions like:

  • Is adequate organic growth even available today?
  • In today’s hyper-competitive loan market, can sufficient loan growth and loan yields be achieved?
  • Are branches in urban markets more important than rural markets?
  • How many employees must we hire to achieve organic loan growth objectives?
  • 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?

While larger banks continue to increase in size, many smaller community banks are fighting for survival in today’s regulatory and low-interest rate environment. These questions, when juxtaposed with compensation trends and strategies, were certainly on the minds of many in attendance.

(3) As I walked off the stage today, it was hard not to see banking’s business model being significantly challenged in today’s interest rate environment. With deposit costs near zero and fierce competition for loans driving down yields, many smaller banks appear to be running on fumes. For many, organic loan growth is almost nonexistent, and strategic M&A is the only other way to amass scale today. For this reason, some say that banking’s business model is broken, but I’m not sure I agree.  I posed this question to a panel of CEOs to wrap up yesterday’s program and am curious to hear from readers of About That Ratio.  Is our model broken?  If it is, can it be fixed — or what will replace it?  Feel free to comment below or via a DM on Twitter (@aldominick)

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Dass de Thing

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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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Industry at a Crossroads: the Investor View

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A curveball from New Orleans this afternoon… since I was on stage this morning to moderate a panel discussion on what makes a bank successful (to open this year’s Growth Conference at the Ritz-Carlton — #BDGrow13), my friend, colleague and Managing Editor of Bank Director magazine agreed to author today’s column.  The first guest post on About That Ratio, courtesy of Naomi Snyder, summarizes the investor community’s view on banks today.

As an industry veteran of more than 40 years and private equity investor in 15 banking companies, John Eggemeyer loves banks. But the co-founder of Castle Creek Capital LLC and Castle Creek Financial LLC had some hard-to-swallow statistics and opinions for a crowd of nearly 200 bankers and industry executives (198, but who’s counting) at Bank Director’s inaugural “Growth Conference” in New Orleans today.

  • Publicly traded banks from $1 billion to $5 billion in assets have seen their stock values rise at about half the rate of the broader market as a whole since early 2009.
  • Of the 300 or so publicly traded banks in that size range, only about 60 of them are trading at their pre-recession price multiples, he said.  
  • In the last 40 years, bank stocks always followed the same pattern in a recession: falling in value quicker than the rest of the market and recovering quicker.  

That didn’t happen during the latest recession. “We have lost a tremendous amount of value relative to the broader market,’’ he said at a session focused on the views of bank investors.  

It may be that investors are recognizing tough times ahead for the banking industry, where there are simply too many banks offering similar products and services. Low interest rates and a slow economy aren’t helping. Eggemeyer predicts that there will be substantial consolidation in the industry, both in terms of banks gobbling up other banks, and also in terms of branch reduction.

Collyn Gilbert, a managing director at Keefe, Bruyette & Woods, reiterated that view. “At the end of the day, how many unique stories are there?” she said. Eggemeyer says he prefers to invest in banks that have strong pre-tax, pre-provision earnings that are operating in good growth markets. Bank of America can’t outgrow the U.S. economy and it can’t acquire other big banks. A smaller community bank in a good market can do both those things, he said. However, he thinks investors focus too much of their time on growth. In reality, strong profitability will position a bank for growth. Gilbert agreed. “I think there needs to be a much better focus on the earnings side,’’ Gilbert said.

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Naomi Snyder, awarded the coveted “Gila Monster” moniker at this year’s Acquire or Be Acquired conference, is Managing Editor at Bank Director magazine.  Prior to joining our team, she spent 13 years as a business reporter for newspapers in South Carolina, Texas and Tennessee.  Most recently, she was a reporter for The Tennessean, Nashville’s daily newspaper.  She also was a correspondent for USA Today. Naomi has a bachelor’s degree from the University of Michigan and a master’s degree in Journalism from the University of Illinois.