What is Rick Fairbank’s Endgame?

credit-cards.jpgCapital One Corp. CEO Rich Fairbank is a smart guy, but I think he needs to work on his timing. I mean really, who announces a major credit card portfolio acquisition on the same day that the Dow Jones Industrial Average drops 519.83 point – or 4.62 percent – for an 11-month low, particularly when big banks like Citigroup, Bank of America Corp. and J.P. Morgan Chase & Co. led the way down?

On August 10, Capital One announced that it was acquiring the U.S. credit card business of HSBC Holdings PLC for approximately $2.6 billion, just as global equity markets were panicking over the combination of Standard & Poor’s historic downgrading of the United States’ credit rating, deep concerns about the wobbly financial state of major European countries like Italy and France, and the distinct possibility that the U.S. economy might be slipping back into another recession.  This followed a deal announced in June, when Capital One acquired ING Direct, the U.S.-based online banking subsidiary of Dutch giant ING Groep, for $9 billion.

Of course, Capital One had been working on the HSBC deal for months – so the exact timing of the August 10 announcement wasn’t something that Fairbank had much control over. But if you know anything about Rich Fairbank you know he’s a fearless strategist who won’t hesitate to pull the trigger on an acquisition if he believes it’s the smart thing to do.

I wrote a story about Capital One in the second quarter 2006 issue of Bank Director that was based on extensive interviews with Fairbank and W. Ronald Dietz, a long-time director who currently serves as chairman of the bank’s audit and risk committee. Back then, Capital One was in the early stages of transforming itself from a consumer finance company whose principal product was credit cards to something that was more along the lines of a traditional commercial bank. It had recently acquired two regional banks, New Orleans-based Hibernia Corp. and Long Island-based North Fork Bancorp., and Fairbank spent a lot of time during the interview explaining why he did that. And in the process, Fairbank also revealed a lot about the way he thinks when he thinks about strategy, and it’s interesting to look at the ING and HSBC deals in the context of what he said about strategy five years ago.

Fairbank made these points in that 2006 interview:

  • He foresaw the emergence of a bifurcated banking market in the United States where many consumer loan categories like credit cards, auto loans, home mortgages and student loans were being consolidated by large national players (think J.P. Morgan Chase in mortgages or Capital One in credit cards) that used their size and economies of scale to squeeze out community and regional banks — but where the deposit market remained under the control of those same community and regional players, which used their local connections to great competitive advantage. Fairbank concluded that Capital One had to be a factor in both markets, and so he embarked on an unusual national/local strategy that led to the Hibernia deal in 2005, the North Fork deal in 2006 and the acquisition of Chevy Chase Bank in 2008.
  • He wanted to diversify both sides of the balance sheet, but especially the liability side. In the early 2000s, Fairbank might have been more fixated on funding than anything else. Prior to its regional bank acquisitions, Capital One funded itself primarily by raising money from institutional investors in the capital markets. But the Russian bond default in 1998 had roiled the global capital markets to such an extent that finance companies like Capital One were deeply concerned about whether they would still be able to fund their operations at any cost. I got the sense that the Russian debt crisis was a seminal event for Fairbank, and he concluded that Capital One needed access to retail banking deposits – which are inherently more stable than capital markets funding – if Capital One was to survive as an independent company.
  • When he thinks about strategy, Fairbank always thinks about where the industry will be five years from now – not where it will be next year. Here’s what he had to say five years ago: “A strategy must begin with identifying where the market is going. What’s the end game and how is the company going to win? Typically companies work forward from where they are. And they think it is a bold move to change 10 percent from where they are. But when one starts from ‘This is the market, this is the end game, this is where the market is heading and this is the timing of when the market is likely to get there,’ you are faced with a very different kind of reality. It creates a much greater sense of urgency and allows the company to make bold moves from a position of strength.”

So, what observations can we make about Capital One’s most recent acquisitions in light of that 2006 interview? First, the HSBC deal would seem to signal the continued consolidation of the credit card market, and affirms Capital One as one of that industry’s major players. It might seem counter-intuitive (or, just plain dumb) to acquire another company’s credit card portfolio when we might be heading down the second leg of a double-dip recession, but Capital One is probably the most analytical company I’ve ever come across — they analyze everything! – so I assume they have factored in all of the likely economic scenarios, including a spike in loan losses if the economy does tank.

The upside? Capital One squeezes enough juice from the HSBC portfolio through cost saves and revenue enhancements that the deal is accretive to earnings in 2013, which is the company’s current projection. The answer to whether investors will support this transaction will probably come later this year or in early 2012, when the company plans on raising some $1.25 billion in fresh capital to maintain its Tier One capital level in the mid-9 percent range.

To me, the ING Direct acquisition was actually more interesting. Capital One says it will use ING’s consumer deposits to fund the HSBC credit card portfolio on an ongoing basis, and some commentators have tended to see the two deals as being linked, i.e. Capital One wouldn’t have bought ING Direct if it also wasn’t planning on acquiring the HSBC portfolio. But to me, HSBC was tactical while ING Direct was strategic. Not only did the ING Direct acquisition provide funding for the HSBC portfolio, it also diversified Capital One’s funding base into the online consumer space – and Fairbank has pursued the goal of greater funding diversification for a long time. Just as importantly, ING Direct gives Fairbank a platform that he can use to build a national online consumer bank, which is a completely different animal than a regional branch bank, and is a natural fit with Capital One’s credit card business. I think Fairbank’s endgame is to build a national consumer bank. My guess is that he has looked five years into the future and seen further consolidation of the consumer deposit market. He can try to build a national deposit franchise through additional brick-and-mortar acquisitions, but that is an expensive and time-consuming approach.  The ING Direct deal gives him another strategic option that might be faster and cheaper – and more fitting with Fairbank’s sense of urgency. 

Joining Forces to Capitalize a New Bank

Private equity funds are playing an increasingly vital role in recapitalizing the U.S. banking industry. A unique example of this trend occurred earlier this year when four independent PE firms joined forces to make a $160 million capital investment in Birmingham, Alabama-based AloStar Bank of Commerce, a new institution which acquired the deposits and certain assets of the failed Nexity Bank from the Federal Deposit Insurance Corp.

Advised by FBR Capital Markets Corp. and the law firm Davis Polk & Wardell LLP, AloStar successfully negotiated an 80/20 loss-sharing agreement with the FDIC on $384.2 million in assets. The four PE firms are Fortress Investment Group, Oaktree Capital Management, Stone Point Capital and Pine Brook Road Partners, and each owns approximately 24.9 percent of the company.

FBR worked closely with AloStar’s founders, Chairman and CEO Michael Gillfillan, who previously was chief credit officer and vice chairman at Wells Fargo & Co., and Executive Vice President Andrew McGhee, the former head of asset-based lending at SunTrust Banks Inc. AloStar is a banker’s bank that will use consumer and commercial deposits collected nationwide largely over the Internet to fund an asset-based lending program for small- and medium-sized businesses. Recently, FBR Capital Markets Senior Managing Director Ken Slosser talked about the deal and its importance to the industry.

What are the unique aspects of this transaction?

We believe this is the first time that four private equity firms bid on a failed bank through the resolution process and won. We also believe this is the first time that the FDIC has approved a business plan for a bank receiving assistance that will use, as a primary deposit strategy, a nationwide Internet deposit gathering system to fund asset-based lending for small businesses across the country. There have been a whole host of transactions, both assisted and unassisted, where they have not allowed Internet deposits as a primary funding strategy.

Was it hard getting four private equity firms to agree on a transaction?

It was very difficult to raise capital for Nexity without government assistance because of the level of perceived losses in its loan portfolio. Once it was decided that any transaction would need to involve an FDIC receivership action, and we started working on an assisted deal with Michael Gillfillan and Andrew McGhee at AloStar, it was very straight forward to assemble the private equity group. All four firms really worked well together evaluating the opportunity, although they each evaluated the opportunity independently and their boards approved their bids.

Was there anything else about this deal that you thought was distinctive or unusual?

The regulators, including the Federal Reserve and the Alabama Banking Department, worked very closely with the old Nexity management team and the new AloStar team for months. They were unbelievably helpful in terms of evaluating and facilitating this transaction. We felt that the regulators were partners in solving a problem and they worked with both management teams to find the lowest cost solution for a troubled bank. I really believe that was critical.  We also had an outstanding management team at AloStar that had the depth of experience to work through the deal and also had the expertise to implement the new business plan.

Why is this deal important to the rest of the industry?

It demonstrates that thoughtful and creative solutions involving private equity, when they are appropriately structured, will be well received and approved by the regulators. I think the private equity partners here were terrific and cooperative and very helpful. They put in $160 million and were thoughtful and constructive about how that was done.

Bank acquisitions rise in first quarter, but not by much

Top dealmakers include Sandler O’Neill & Partners, Raymond James & Associates and Keefe, Bruyette & Woods 

Top dealmakers by volume

Top dealmakers by number of deals

There weren’t a lot of fish to be had, but Sandler O’Neill & Partners took the bigger fish. With 34 total bank and thrift acquisitions worth just $2.3 billion in the first quarter, the firm’s investment bankers were the top dealmakers by volume in the first quarter, after handling the $1 billion Comerica Inc. acquisition of Sterling Bancshares, Inc., according to SNL Financial.

race-track.jpgSenior Managing Director Jimmy Dunne III of Sandler O’Neill was ranked number one with two deals worth a total $1.5 billion: He handled Comerica as well as People’s United Financial’s $489 million acquisition of Danvers Bancorp., both announced in January.

He was quickly followed by John Ziegler and Liz Jacobs, both of Sandler O’Neill & Partners, who both worked on the Comerica deal as well.

Tom Mecredy of Raymond James & Associates, Inc., and Jeff Brand and Steve Kent with Keefe, Bruyette & Woods, Inc., were the top bank deal makers by number of deals, with three deals each.

Deal volume improved in the first quarter compared to last year, with 34 deals done compared to 26 during the same quarter last year. But pricing remains lower than historic levels, with the average deal price to book value at 103.2 percent in the first quarter, down from 123.7 percent a year ago.

Last year, there were more than 170 bank mergers and acquisitions announced worth about $12 billion, compared to 296 in 2006 worth $109 billion, according to SNL.

What Is Your Bank’s Number?

The banking industry is poised for a rebound in merger and acquisition activity, which raises the fundamental question of what a bank is worth and how the board and its advisers should derive that number. The art of valuation can be mystifying and the terminology confusing. Every director at one time or another has seen industry data on values, but converting that data into a meaningful picture of a bank’s value requires an understanding of what drives value and how the process works. Understanding the valuation process can help bank directors and top managers better understand the valuation report.
Levels of Value 

When determining the value of your bank, you need to consider the purpose of the valuation and the type of value you need for that purpose.

controlling interest value is what an outside party would pay for ownership of the bank. It is often defined as ownership of more than 50 percent. In banking, however, control is typically the result of an acquisition or, in more recent years, a significant recapitalization.

marketable minority interest is the value of a bank’s publicly traded stock on an exchange or other over-the-counter market. A marketable minority interest can be traded without restrictions. Since it is a minority interest, the ownership level is below 50 percent or is such that the owner can’t effect changes that a controlling owner would be able to.

non-marketable minority interest does not have a readily traded market, and transferring the shares takes time and, potentially, can result in a price reduction. To determine a valuation for a non-marketable minority interest, some sort of discount for lack of marketability is applied to the marketable minority interest.

To arrive at this discount, two sources of data are often relied on. The first set of data stems from restricted stock studies. Restricted stocks are shares of public companies that are restricted from public trading under SEC Rule 144. Although they cannot be sold on the open market, they can be bought by qualified institutional investors. Restricted stock studies compare the price of restricted shares of a public company with the freely traded public market price on the same date. Price differences are attributed to liquidity. Many consider the discounts a reliable guide to discounts for the lack of marketability.

A second set of commonly used reference data for determining lack-of-marketability discounts is derived from pre-IPO stock studies. A pre-IPO transaction is one involving a private company stock prior to an initial public offering. Pre-IPO studies compare the price of the private stock transaction with the public offering price. The percentage below the public offering price at which the private transaction occurred is a proxy for the discount.

Valuation Methodologies 

There are several approaches to determining a valuation.

The income approach to valuation indicates the fair value of a bank based on the value of the cash flows that it can be expected to generate in the future. A discounted cash flow (DCF) analysis is one widely accepted method of the income approach.

The DCF technique measures intrinsic value by reference to a bank’s expected annual free cash flows. Typically, this involves the use of revenue and expense projections and other sources and uses of cash. Factors that form the basis for expected future financial performance include the bank’s historical growth rate, business plans, anticipated needs for capital, and historical and expected levels of operating profitability.

An alternative method is the market approach, where a bank is valued by comparing it to publicly traded banks as well as market transactions involving banks with similar lines of business. Factors to consider when determining the comparability of publicly traded banks include asset size, products, markets, growth patterns, relative size, earning trends, loan quality and risk characteristics.

Big Challenges, Bigger Opportunities in Bank M&A

Following our 2011 Acquire or Be Acquired conference in Arizona, Nichole Jordan, Grant Thornton LLP National Banking and Securities Industry Leader, Molly Curl, Grant Thornton Bank Regulatory National Advisory Partner, and George Mark, Grant Thornton Audit Partner and New York Financial Institutions Industry Leader, discuss the important issues facing banks today and how those are likely to help drive M&A activity over the next few years.

The issues addressed include:

  • Principal drivers of M&A activity
  • Critical post-acquisition issues
  • Effects of the Dodd-Frank Act
  • Pursuing growth in the year ahead

Download a PDF of the article.


Profit outlook for 2013: Still hobbled

Size and location will matter

What’s the outlook for community banks for the next few years? Well, not so great. That’s the view of about 30 investment bankers, equity analysts and consultants surveyed by Atlanta attorneys Jim McAlpin and Walt Moeling of Bryan Cave recently.

McAlpin said he was struck by how similar the respondents viewed the future for banking.
Community banks in particular have the worst prospects for profitability, in part because a lot of them relied too heavily on commercial real estate lending. Plus, bigger banks have more diversified income sources.


“We do have some community banks that are doing very well,’’ said McAlpin. “The challenge has been the significant increase in community banks in large urban areas, where it is more difficult to compete. We believe there is going to be opportunity in suburban and rural areas (instead).”

In fact, the consistent view of the industry analysts was that banks with less than $500 million in assets will have a tough time competing anywhere outside a rural area.

“Size and scale will increasingly matter in the world of community banks,’’ the attorneys wrote in their survey summary.

The expectations for profits are more dismal the smaller the bank. The survey respondents on average expect 2013 returns on assets to be:

  • For banks under $500 million in assets: .50 to .85 percent.
  • For banks between $500 million and $1 billion in assets: .7 percent to 1 percent.
  • For banks between $1 billion and $10 billion: 1 percent to 1.25 percent.
  • For banks above $10 billion in assets: 1.25 percent to 1.3 percent.

Industry analysts also expect mergers and acquisition pricing to stay lower for years to come.

“1.5 (times) book will be the new 2.5 (times) book value of a few years ago,” Peyton Green of Sterne Agee wrote in response to the survey.

Nobody expects huge rebounds in earnings and growth, so there’s not much premium buyers will be willing to pay, analysts said.

What was the prediction for pricing in 2013?

  • Banks with less than $500 million in assets: lucky to get book value.
  • Banks with between $500 million and $1 billion in assets: 1.25 times book.
  • Banks with between $ 1 billion and $10 billion in assets: 1.25 times book to 1.5 times book.

Because of the lack of organic growth opportunities in a slow economy, bankers will focus on profitability and cutting expenses, some industry observers said. Core deposits will be significant drivers of value, the attorneys said.

“There will continue to be consolidation but viable communities will always recognize the need for a ‘local’ bank,’” the report said.

For more information, you can read the final report provided by Bryan Cave.

Where My Deals At?

Last summer, Keefe Bruyette & Wood’s released an interesting bank takeover list. It had the usual suspects — potential buyers and potential sellers — and a “surprising” third: potential buyers who could become sellers. I thought back to this report while watching a handful of videos from our annual Acquire or Be Acquired conference over the weekend. With so much discussion at AOBA centering on FDIC-assisted transactions (which we will explore in greater detail in Chicago this May), this survey came back to me as it focused on so-called open-bank consolidation, comprising potential deals that wouldn’t involve a shutdown by the FDIC first.

Quite a few presented their views on non-distressed bank mergers at our 17th annual M&A conference —  forecasting a huge wave of bank M&A driven by aging management, the need to cut expenses and boost earnings, heightened regulatory costs and more. Of course, FDIC-assisted bank transactions continue to attract strategic acquirers, and the bidding process remains competitive. So “escaping” this particular discussion at our event proved nearly impossible. Indeed, for any healthy bank, considering this type of deal as a growth strategy bears real consideration.  

Case-in-point, this short video of Ben Plotkin, Vice Chairman of Stifel Nicolaus & Co.and long-time Bank Director supporter. We asked Ben to provide his thoughts on the impact of FDIC-assisted deals on M&A activity when we were together at AOBA; take a look:

A random fact that might interest only me…

As we celebrate President’s Day today, February 22, did you know today’s federal holiday celebrates George Washington’s birthday? In fact, this is the first federal holiday to honor an American citizen — celebrated on Washington’s actual birthday in 1796 (the last full year of his presidency).

The Return of Bank M&A

Bank Director is expecting record attendance at our 2011 Acquire or Be Acquired conference which starts on Sunday, Jan. 30, in Scottsdale, Arizona, and the driving factor is probably more than the forecasted sunny skies and temperature in the low to mid-seventies. Bank merger and acquisition activity finally picked up in 2010 after two down years, and the outlook for 2011 is even better. 

It was extremely difficult to sell a bank in 2008 or 2009 because the recession brought about a significant deterioration in loan quality throughout the industry. It’s hard to put together a deal when neither buyer nor seller has confidence in their loan portfolios. The buyer worries that it could end up overpaying if the acquired institution’s loan book performs worse than expected after the deal has been consummated – and in a declining economy, asset quality tends to be a moving target. Meanwhile, the seller worries that the buyer’s currency in an all-stock deal could end up being worth less than it thought if that organization’s asset quality deteriorates unexpectedly after the transaction has closed.

As you would expect, M&A deal volume in recent years has reflected this pricing dilemma. There were 296 bank and thrift deals in 2006 with an aggregate value of almost $109 billion, according to the research mavens at SNL Financial in Charlottesville, Virginia. Total deal volume dropped slightly to 288 and the aggregate value more sharply–to $72 billion– in 2007. Then an economic tsunami washed over the U.S. banking industry and the M&A market practically disappeared. There were 144 deals in 2008 for a total of $35.6 billion and 120 deals for a paltry $1.3 billion in 2009.

The past year shows that the trend has begun to reverse itself, with a total of 176 deals for an aggregate value of approximately $12 billion, according to SNL.

Banks get sold for a variety of reasons in a normal economy. The institution’s financial performance could be lackluster and the board might lack confidence in management’s ability to improve its profitability, so it decides to reward long-suffering shareholders by selling out. Perhaps the CEO is retiring and the board doesn’t have a qualified successor in place. Or the institution might be a relatively recent start-up that had always intended to provide its investors with an exit strategy after it had been in business for a few years.

These are all valid reasons to put a bank up for sale, but that option becomes less viable in a recession when the board might not be able to find a buyer at a price that it’s willing to accept. But now that the U.S. economy seems to be on a more solid footing and the industry’s asset quality has finally stabilized, buyers and seller alike are more confident about doing deals. And the normal demand from potential sellers who were bottled up in 2007 and 2008 – when the recession acted like a cork – should help drive deal volume in 2011.

1q2011.jpg[To read more about the M&A market, check out the cover story, Eat or Be Eaten in Bank Director’s 1st quarter 2011 digital issue.]

I occasionally run into the misconception that bank CEOs and directors come to AOBA to do deals, but that’s not the case. Most bank M&A transactions are a local phenomenon involving institutions in the same or contiguous markets and are negotiated behind the scenes, often by the CEOs first and later by the boards of directors.

Most attendees come to this conference to learn. How do you determine a fair value for your institution? What are buyers looking for when they scout for acquisitions? Is this a good time to sell? How do you ward off a hostile takeover attempt if your board doesn’t want to sell?

Each year we try to put together an agenda that provides CEOs and directors with the kind of knowledge that will help them make better decisions. The event is taking place at the Hyatt Regency Scottsdale Resort at Gainey Ranch and will conclude on Tuesday Feb. 1. I’ll be spending most of that time talking to CEOs and directors, listening to presentations and trying to soak up some of that same knowledge (and a little sun, truth be told), which I will share in a post-conference blog.

So stay tuned!


Will 2011 be the year for bank stocks?

The bad news seems endless. Unemployment remains high. Bad real estate loans continue to hurt banks. Increased government regulation and caps on fees will hurt bank income in the future. And yet, so many bank analysts are so bullish on bank stocks in 2011.


Profitability is returning or will return this year to many mid-sized or small banks, several analysts say.

Stronger banks will be able to buy weaker rivals and grow market share. Even the investors of struggling banks stand to gain after years of misery. Their banks will get bought out at premiums compared to the disappointing prices of the last two years. 

Here is a review of what bank analysts are saying about the outlook for bank stocks in 2011 and their favorite picks:

mmosby.jpgMarty Mosby, a bank analyst at Guggenheim Partners in Memphis,
 says he thinks all of the 15 large-cap banks he covers will be profitable by the middle of this year and he projects a 30 percent stock market gain on average for his group, which includes Winston-Salem, North Carolina-based BB&T Corp., Atlanta-based SunTrust Banks, and San Francisco-based Wells Fargo & Co. 

“We believe 2011 will be the year of the recovery,’’ he says. “We will finally see banks return to the norm.”

Some banks will be better off than others in the new normal, of course.  Banks such as Wells Fargo & Co., Pittsburgh-based PNC Financial Services Group and New York-based BNY Mellon have revenue potential and strong capital, he says, which means they could buy other banks or increase dividends, always a plus for the many dividend-starved investors out there. PNC Financial Services Group reported today record profits of $3.4 billion for 2010.

Jim Sinegal, associate director of equity research at Chicago-based
Morningstar, Incexpects his top picks such as New York-based JPMorgan Chase & Co. and Wells Fargo to return 25 to 30 percent gains for investors. He hedges that a bit by saying it may happen in the next year—or two.

“We don’t see any surprises ahead that could derail something,’’ he says. “We’ll see a slow and steady improvement. Credit is slowly and steadily improving. A lot of banks already are benefiting from that. The worst loans on their balance sheets have already been charged off.” 

He even likes Charlotte, North Carolina-based Bank of America, even though other analysts are just too worried about an ongoing investigation into the bank’s foreclosure processes to recommend the stock. 

“We think the best values can be found in recovering banks,’’ he explains. “We think the stock is cheap.”

Bank of America was trading at $14.37 per share Thursday midday on the New York Stock Exchange.

jharralson.jpgJefferson Harralson, managing director in Atlanta for Keefe, Bruyette & Woods, says smaller banks might have a more difficult time seeing stock market gains this year than big banks. They could be hit hard by new regulations that limit fee income. New restrictions on debit card fees charged to merchants could limit that source of income by as much as 75 to 80 percent, he says. 

Plus, many small and even regional banks have not paid back the government for the Troubled Asset Relief Program money, which could weigh on stock prices this year as well. Investors worried the bank will be forced to raise more capital to pay back TARP won’t be eager to buy those banks.

kitzsimmons.jpgKevin Fitzsimmons, managing director at Sandler O’Neill & Partners in New York, says 36 percent of the group’s bank stocks have a buy rating, compared to 26 percent in January of last year. 

He also thinks there will be more risk in small bank stocks this year, because the heavy weight of regulation will move to smaller banks, as in rolling downhill, as regulators begin forcing those banks to recognize their problem loans.

“This is not going to be smooth going (for all banks),’’ he says. “(The market) will be selective.”

The good news is all that new regulatory pressure on small banks could lead more banks to sell out—for a premium this time.

Sinegal said recent acquisitions have netted prices at two times tangible book value for the acquiring bank, as opposed to no premium or 1.5 times book value during the last year.

“There is more optimism that the worst is behind us,’’ Fitzsimmons says. “There has been optimism that some banks will be able to go out and acquire more banks and the acquired banks can be bought at some sort of premium.”

The Recipe for Success at Reliant Bank

recipe.jpgWith the end of 2010 quickly approaching, there’s no doubt that many bankers won’t be sad to see the end of yet another tumultuous year for the financial industry. However, the outlook for this badly bruised industry is beginning to show signs of improvement per a historical trends analysis shared by Ben Plotkin, EVP and vice chairman at the investment banking firm Stifel Nicolaus Weisel, during our recent Bank Executive and Board Compensation event.

Looking Toward the Future

Looking ahead to 2011, I had the opportunity to speak with fellow Nashvillian and CEO of Reliant Bank, DeVan Ard, who coincidentally will be speaking at our upcoming Acquire or Be Acquired conference scheduled for January 29th through February 1st in Scottsdale, Arizona. After briefly catching up, DeVan reiterated to me a theme that I have heard throughout the past few months, that this is most definitely a challenging time for bankers.

But the question on my mind was how did Reliant Bank, a $400-million community bank, manage to achieve over 46% growth in assets from 2008 to 2010 despite one of the worst economic downturns this country as faced since the 1930s? The answer to that question also happens to be the focus of DeVan’s panel next month, as he and Andrew Samuel, the CEO of Tower Bancorp Inc. in Enola, PA, will share their philosophies and methods for profitably growing their institutions during these competitive and challenging times.

Recipe of Success

As a non-TARP bank, DeVan attributes the continuing success of Reliant Bank to a talented team of employees, a strong board of directors invested financially and personally into the bank, and the continued dedication of building solid customer relationships.

Although DeVan ponders if he would even join the board of a bank today with all the regulations and liability piled on already stretched bank directors, he is confident that smart business decisions and good strategic planning goes a long way. Over the next few years, as loan demand continues to decline, Reliant Bank plans to improve interest margins, reduce expenses across the institution and look for non-interest partnerships to stretch profitability rather than focus on growth.

Results vs. Regulation

The trickle down effect of regulations aimed at larger institutions will most certainly hurt many small community banks proving once again that a few bad apples spoil the bunch. But with an engaged and invested group of directors who aid in the business development of the bank and are determined to make a positive impact in their community, hopefully Reliant Bank’s results will speak louder than regulations.