Bank Director’s Story: How the Board of Congressional Bank Evaluated Itself

5-21-14-Bankers-Story.pngPeople always tell you of the unintended consequences of intentional actions. When the board of Congressional Bank, a $450-million asset institution in Bethesda, Maryland, decided to conduct its first board self-assessment last year, we had no idea what it would produce. We composed and conducted the self-review without outside help. It brought immeasurable returns.

The board of directors of Congressional Bank has been in place for 10 years. We have most of the founding members still sitting at the table, and about one third of our 15 members have joined in the last five years. The bank had come through the recession with a strong balance sheet, yet we knew that the near–term horizon of the community banking industry will bring great uncertainty and change. We decided to take the opportunity to reflect on how we could better support management in this next stage for Congressional Bank.

The board development committee launched a self-assessment process involving individual interviews with each of our board members. We were eager to know the strengths and weaknesses of the board as perceived by each board member, with interviews scheduled at a time when we were not rushed to accomplish any other bank business. The results of the reviews would be presented to the full board, although names of those commenting would be kept private.

Immediately, a valuable part of this process became evident. Members of the board development committee wanted to interview members they didn’t know well. As one member of the committee said, “I don’t ever interact with so-and-so. He is not on any committees with me, our paths don’t cross in the community and I feel I just don’t know him. This will be a great opportunity to learn more about him.” Another committee member said, “I would like to interview the women of the board. I am very interested in gaining what may be unique perspectives.” A third member of the committee made his request, “I am most interested in whether newer members of the board feel they are listened to and believe their opinions are respected as well as more-tenured members.” Members chose their interviewees based on their interests and the relationships they wanted to grow.

We built the board self-assessment around some traditional questions related to our board member roles, committee work and meeting agendas, such as:

  • Are we staying at the strategic level as good board members should, or is there room for improvement here?
  • Do we have the right board members for the future? If not, what areas of expertise, and characteristics/qualities do we need to add to the board with our next nomination of a new member?
  • We have not reviewed our own compensation for many years. Is our current compensation matched well with our purpose as a board, or does it need to be adjusted?

The board self-assessment also included some questions often used in other industries to uncover strengths and areas for improvement, such as,

  • What should we keep doing?
  • What should we start doing or do more of?
  • What we should stop doing or do less of?

These last three questions provided much more thoughtful responses, more enthusiastic ideas and more individual reflection than the other, more traditional questions. Several board members reviewed their own contributions to the board and declared their interest in additional or different committee assignments. Members expressed eagerness for even more knowledge and training about our bank, our industry and related regulatory matters.

Interviewees expressed their desire to ensure we were always aligned and focused in our time and energy with management on the matters that were of the highest priority for the bank’s success.

So was it worth it? We tweaked our board agendas, are reviewing our board compensation and have added more banking knowledge/training opportunities for our board members. Yes, I would say it was worth it.

But the full value of this self-assessment was generated in the unique process we used. The individual board member interviews, conducted by colleagues who serve on the board development committee, generated the real return. We conducted hours of one-on-one interviews exploring what each individual thought was important for the full board going forward, and the power of their own individual contributions for the best future of the bank. We grew more meaningful relationships and deepened our appreciation for each other. Yes again—I would say it was well worth it.

Bank Director’s Story: How a Community Bank Survived the Financial Crisis and Continues to Thrive

2-25-14-alarion-bank.pngCo-founding two banks in the past 15 years, one right before the financial crisis hit, has taught me many invaluable lessons as a director. The first bank, which opened in 1999, was an incredible success. The second bank, opened in 2005, was one of the few banks that got started in that time frame to survive in Florida. That bank, Alarion Bank, has had two years of positive net income growth and a healthy dose of fee income. First, I will give you a historical picture.

I was an advisory board member of SouthTrust Bank in North Central Florida in the mid-1990s. Three of us left the bank and raised the money to open a state chartered community bank in 1999, Millenium Bank in Gainesville, Florida. Our greatest problem with the new bank back then was the expenses and worry over the impact of Y2K on our computer and banking systems. After January 1, 2000, when the technological and banking world did not end, it was smooth sailing all the way until we sold the bank for three times book value in just four years.

Shortly after the sale, I was approached by an executive of a larger bank who wanted to open another community bank. We opened Alarion Financial Services in 2005 after handpicking a board of directors and raising $20 million. By our organizational documents, we were only allowed to raise $15 million, so we had to return $5 million to our enthusiastic potential shareholders. We sold to more than 500 shareholders in order to increase our potential customer base and spread the ownership to include grassroots investors in our two communities. We had six locations in Alachua and Marion Counties in North Central Florida. In addition to our board of directors, we created an advisory council in each county. These community councils became very powerful in helping us attract new and veteran businesses as clients for Alarion Bank.

We were achieving all our milestones and were on top of the world. It looked like another success story in the making. Then came the economic crash, which was much worse in Florida than most other states. After tourism, one of the largest economic generators in Florida is real estate. Therefore, it made perfect sense that our bank, like most other community banks in the state, had a higher concentration of loans in real estate than other banks in the country. We had almost no manufacturing in our state.  In addition, Taylor Bean & Whitaker Mortgage Corp. suddenly closed in 2009 in Marion County, where our bank headquarters was located, and 1,000 jobs, many high paying, were lost.

How did we get through it? What are we doing today to make our $275-million asset bank grow successfully and be profitable? In 1999, I had attended a bank conference and the keynote speaker was Charles Hughes, former CEO of SouthTrust Bank of Florida, who spoke emphatically about how important fee income would be in the future because interest margins were thinning. Remembering this strong advice, when we opened Alarion in 2005, our approved organization plan contained a template for a strong residential mortgage division. We wanted this strong, stable fee income stream. My main role as a director in the new bank was to help build the mortgage division. I have owned the number one market share real estate company for more than 25 years in Gainesville, Florida. We put together a marketing agreement between my real estate company, Bosshardt Realty Services, and Alarion’s residential mortgage division. This plan was approved by all the appropriate regulators prior to the bank opening. Desk rental and marketing agreements are still working and working well. These agreements are common in the industry and, if done correctly, can be very profitable for banks. I had previously partnered in a joint venture with SunTrust Bank and it was profitable from the first month due to the base that was created by the real estate salespeople. However, my partner was in Richmond, Virginia, and my company was in Florida, and there was also a third party manager who was 40 miles from us. In the end, it was too complicated.

This time around, Alarion Bank hired two originators who rented prime spaces in our real estate offices and a processor as well. The poor economic conditions did not hurt our residential mortgage division because it derived its income from the top real estate salespeople in our area. Even though real estate sales were down dramatically, the top real estate associates still were productive. Refinances helped our business; however, our basic bread and butter has always been referrals from real estate agents. When Realtors find a good originator who gives good service, they keep bringing more buyers to them. The mortgage division of Alarion experienced great repeat business from our Realtors and the bank subsequently opened three more desk agreements with other real estate companies in surrounding counties.

Alarion has the top market share in mortgage purchase volume in our county, which is pretty good for a community bank. No one has really been able to understand why such a small bank with only six locations could do better than the banking giant in residential purchases. It even has had the regulators surprised. In 2013, Alarion did $150 million in residential mortgage volume. We did not do subprime loans: We work strictly within the Fannie Mae/Freddie Mac guidelines, and we sell to investors rather than direct to Fannie and Freddie. These investors each have their own requirements (known as overlays) in addition to Fannie and Freddie’s guidelines, so there is a tremendous amount of scrutiny over our files. Our bank also has its own in-house portfolio for various deals where we only do short-term, adjustable rate mortgages.

We hired and continue to retain an outside auditing firm to review all of our residential loans on a monthly basis, in addition to our extremely competent in-house compliance team. Our mortgage division has carried our bank through the worst of times. Our regulators seem pleased with our system of originating, selling and auditing loans. We are always coming up with more creative ways to secure more business and have built a template for success in residential lending for the future. What was once a small side line has now become the business with the best risk model.

At Alarion Bank, we found our banking niche to make the bank very profitable and get us through the difficult financial crisis. Diversity and economies of scale were very important to keep us going through the past six years. A community bank can still compete and win over the larger financial institutions by creating a “hypermart” model which puts different related financial businesses under one company with one set of overhead expenses. Those businesses could be insurance brokerage, warehousing, investment brokerage, or in our case, residential mortgage lending.

A Banker’s Story: Lessons from a Start Up Bank

2-7-14-Samuels.pngSeven years ago after I left a large regional bank as president of the Nashville, Tennessee market, I wrestled with the idea of starting a bank, considering that as well as other career options. Weighing the pros and cons, my wife wrote on a cocktail napkin, “Ron likes to be in charge.” That was the end of that discussion and the start of Avenue Bank.

Over the past few years, I’ve been asked many times about starting a bank during the economic crisis and how we managed to survive, and thrive. So, within the limitations of this space, following are some of the keys to our success.

The #1 rule in real estate, “location, location, location,” proves true in banking as well, because your market has a significant impact on your ability to be successful. Market demographics, business environment and real estate values all determine whether your market is on the upswing or downturn—whether investments will be made or if they will go to other market areas.

In Nashville, we are enjoying unprecedented national recognition for our positive market growth, the rebound of real estate values, and our ability to recruit business investments. In the past 20 years, Nashville’s population has grown 60 percent with a strong demographic profile, and 234,000 new jobs have been created. But along with that, Nashville’s unique character and personality, our creative spirit, really defines us.

In founding Avenue Bank in 2007, we wanted to embody that creative spirit and redefine how clients experience banking. We established our brand with client evangelists who tell others about their surprising and incomparable relationship with Avenue Bank.

With more than 60 banks in our market area, people would say to us, “We don’t need another bank,” so we took that statement head on and one of our first marketing phrases was, “Not Another Bank.” It was a bold introduction, and delivering on that promise meant that we had to hire the best, empower them to take care of clients, create a great work environment, and focus every employee on achieving a few well-defined goals, as a team, each year. The strategic selection of our four branch locations positioned us in proximity of 70 percent of the deposits in this market area. And the decision to open all four within 18 months of starting the bank was another bold move that showed our commitment to the market.

One of the biggest factors in our success has absolutely been living by the mantra “right person in the right job.” Every employee has a role, and the team has to work together to deliver the kind of service we are known for. So, those employees who do not directly interact with clients know that they are in a key support role that is directly tied to client service.

Our concierge banking model allowed us to staff the branch locations leanly, with every banker trained to conduct transactions as well as open accounts or serve any other retail banking need. The use of free-standing TCRs (teller cash recyclers) eliminated the barriers of a traditional teller row, creating a modern and accessible environment. A benefit of our growth and success is our ability to hire top performing employees in a highly competitive environment. We seek servant leaders who have a real passion for taking care of clients, and we place a great importance on finding those that are the right cultural fit.

As a recognized employer of choice, we have been able to recruit seasoned commercial and private client bankers to join our team; many of them cite our local decision making as key to their decision to move. The same is true for experienced operations associates, many of them seeking an environment where they are valued.

As with any organization, leadership is vitally important. We have built trust in our leadership team by being transparent about our finances and decisions that impact employees. We use weekly all-employee meetings and newsletters to communicate, avoiding the interpretation that can occur when messages are passed through a hierarchy. Employees see and hear directly from me. Our leadership team establishes focused goals, bears the burden of tough decisions, and sets the tone for success.

I feel extremely proud when I look at our balance sheet and see $890 million in total assets, all organic growth. Avenue Bank achieved profitability in the first quarter of 2010, and now has shown 16 consecutive quarters of sustained profitability through 2013. Last year, our loan portfolio grew 26 percent, again all organic growth, which I attribute to the right bankers, in the right job, and a harmonious relationship with our credit team that works together to get a deal done.

But even as we look forward to achieving our next milestone of $1 billion in assets, I am more satisfied thinking about the relationships those numbers represent, the jobs we have created, and the support we’ve given to so many organizations in our community. Avenue Bank has more than fulfilled my vision.