How to Get a Deal Done

The market for mergers and acquisitions among financial institutions has been nearly non-existent this year. Paul Aguggia, who heads the Financial Institutions Group for Kilpatrick Townsend & Stockton in Washington, D.C., talks about why that is and how to handle the formidable challenges of dealing with regulatory and shareholder concerns when it comes to M&A.

Why have we seen so few M&A deals this past year?

First, it’s the depressed stock price for both the target and the acquirer.  Emotionally, it’s very difficult to proceed when you feel as if you’re selling at the bottom.  For acquirers, a lower price means less buying power. Also, the regulators are delving deeper into pro forma capital levels as well as overall risk: Is there too much concentration of risk in a particular area? Do you have the resources to handle the risk of an acquisition? Regulators can signal concern early in the process.  Plus, there is due diligence. It’s difficult to get your arms around your own loans much less somebody else’s. Due diligence has become more important and more difficult. It’s more difficult to get comfortable with the risks and to price the transaction appropriately.

What advice do you have for potential acquirers and targets given these difficulties?

There is a fair amount you can do to review whether a partner is a good potential fit. You can conduct preliminary financial due diligence to see what a pro forma balance sheet and income statement might look like. You can have a discussion with regulators, usually on a no-names basis.  You can get the advice of lawyers and other professionals to determine if the deal makes sense financially and is likely to obtain regulatory approval. You can do, in effect, “pre-due diligence” before you devote any material resources to a potential acquisition.

For targets, if you’re not going to get top dollar for your institution, does that matter, if you’re taking stock in what might be a better company combined? As difficult as it might be to hear, don’t get too hung up on price. It’s not going to get easier to get these deals done and, in the meantime, you may lose potential acquirers.

What effect, if any, do you see activist investors having on the M&A market?

With regard to smaller institutions, activists are going to be very concerned about bad acquisitions. They would define bad as being overly dilutive on a book value basis and not picking up enough earnings to make it worthwhile, not to mention they might consider the risks from an operational and organizational standpoint as being unacceptable.  Investors want to see financial institutions stick to what they know. Many don’t think certain banks are suited for expansion through acquisition. We are hearing many of them say: “Don’t do anything silly, like an acquisition.” On the target side, we’re seeing activist investors anxious for an exit strategy, especially for smaller companies with limited stock liquidity. In short, I do think activists play some role in the M&A market.

What advice would you have for dealing with activist shareholders?

Not all activist shareholders are created equally. Some are more reasonable and patient than others. My advice is, don’t bury your head in the sand. Get advice about what you can say in a meeting or in public reports that shares elements of your strategy. Shareholders don’t like surprises.  Most investors want to know management and the board are focused, understand their concerns and don’t have a buy-at-all-costs mentality when it comes to expansion and mergers.

How should you approach regulators about an acquisition?

I think it’s important to have an open dialogue with regulators about your business plan.  They are not going to give you approval on the spot to engage in a transaction. If you let them know an acquisition is something you might want to do, many regulators will give you guidance. Regulators in many cases think consolidation is a good thing. But they want to see acquisitions done that reduce risk, not add risk, to the financial system.

Do you think smaller institutions are effectively precluded from being acquirers because of regulatory or compliance issues?

No, as long as they can make the expansion case with conviction and communicate effectively with their shareholders and regulators.  The ability to communicate a compelling case can be tougher when you don’t have economies of scale, which are more common with companies with more than $1 billion in assets—but I do think transactions are possible for smaller banks.

Waiting for M&A, and waiting…

With an apology to the late, great Samuel Beckett, the bank mergers and acquisitions market has begun to resemble the story line in Beckett’s Waiting for Godot where the two central characters—Estragon and Vladimir—spend the entire play waiting for a man named Godot, who never shows up. For the last few years, U.S. banks have been waiting anxiously for M&A activity to recover after the financial crisis of 2008, but the rebound has yet to show up.

snl-ma2012.pngAccording to SNL Financial in Charlottesville, Virginia, there were 178 whole bank and thrift deals in 2010, with an average price-to-book valuation of 113.4 percent. Through Dec. 1 of this year, there were only 140 whole bank and thrift deals, for an average price-to-book valuation of just 104 percent—a clear indication that the bank M&A has cooled off. Unless something truly stupendous happens in terms of deal volume in what remains of 2011, this will turn out to be an even worse year for bank M&A than 2010.

And based on the results of an email survey of independent directors, CEOs and other senior bank executives conducted by Bank Director and Crowe Horwath LLP in October, 2012 might not turn out to be much better. Of the survey’s approximately 225 respondents, 48.3 percent said they did not expect to make any type of acquisition—including a healthy bank, failed bank purchased through the Federal Deposit Insurance Corp., or branches—for the following 12 months, which would take us through October 2012.

“Activity is occurring, but it’s at a more modest level than it has been in the recent past,” says Rick Childs, director of assurance and financial advisory services at Crowe. “We are seeing some opportunistic buying, but buyers are being careful about what they take on.”

Of those respondents who said they would consider doing an acquisition, 36.6 percent expressed an interest in healthy banks, 26.8 percent in branches and 23.4 percent in an FDIC-assisted deal. Not surprisingly, there was little expressed interest—just 11.7 percent—in buying another bank’s loan portfolio, a probable sign that asset quality continues to be a concern throughout the industry. Childs says there are “some willing sellers out there,” including banks that have been unable to raise capital and are feeling the heat from their regulators, and banks that are worried about the rising cost of regulatory compliance following the passage of the Dodd-Frank Act and other recent regulatory initiatives.

Among likely acquirers, the top barrier to doing a deal—cited by 66 percent of the respondents—was lingering concern about the asset quality of potential targets. Other impediments included the “unreasonably high” pricing expectation of most potential sellers (56.9 percent), and the perceived risk of doing an acquisition in an uncertain economic environment (43.7 percent).

Also, when asked what the greatest barriers to selling their banks were, 69.3 percent responded that current pricing was too low.

“There is still a bit if a price gap between buyers and sellers,” says Childs. “Sellers understand that prices are down, but they’re still hoping for a higher price.”

Looking ahead to 2012, Childs expects there will continue to be an active market for FDIC assisted deals since there is still in excess of 800 banks that are in some kind of trouble. Many of those could end up being taken into receivership by the FDIC and either sold or liquidated. However, Childs does not look to see a significant increase in healthy bank acquisitions in 2012, even though organic growth will also be harder to come by, which normally would be a strong argument in favor of more takeover activity.

Instead, expect to see potential buyers wait for a stronger economy to lessen the risk of doing an acquisition, and for likely sellers to wait for better pricing.

“I think we’ll see a pretty sluggish market next year,” Childs says.

Just like Estragon and Vladimir in Godot, everyone’s still waiting.

From Asia: M&A Transactions on the Rise

global-deals.jpgAsian deal making kicked off 2011 in high gear. According to an October released survey by PwC’s Asian operations, deal optimism over the next 18 months is high. Of 375 Asian bank executives polled almost half indicate that their organization will undertake an M&A transaction in the next year and a half.

So what does this mean to the average
U. S. banker?

For one thing it means North American financial institutions trying to break into attractive high-growth Asian markets via acquisitions will face stiffer competition. Countries like Japan, Korea, Singapore and Australia with Asia’s most mature but slower growing markets will be bidding against U.S. and European firms for assets. China, which has already begun staking a claim in Southeast Asia and more eager than most to increase business lines, will likely build the competition for viable targets even further.  To make things tougher for U.S firms, PwC’s survey indicates successful cross-border transactions in the region are most common when there is a strong cultural bond, giving an extra edge to intra-regional bids.

On the flip side, acquirers in the U.S. don’t have much to worry about when it comes to competition from Asian bidders. The percentage of Asian firms interested in potential North America acquisitions is quite low. Only 1 percent of those surveyed by PwC indicated an interest in buying their way into the slow growing North American market. Africa, the Middle East and Latin America hung near the bottom of the list with the U.S. Only banks in struggling European economies proved to be less interesting than U.S. banks to Asian acquirers.

Lack of interest may not translate into NO transactions with American and European firms, though. PwC notes that even though most Asian assets belonging to troubled U.S. and European financial institutions have already been unloaded, Asian bankers indicated strategic assets offered by foreign firms would continue to be viable targets.

If not U.S. bound, where are Asian acquirers looking?

High growth markets are most attractive to Asian buyers. It’s no surprise then that China tops the wish list. While government policies and lack of verifiable information make M&A transactions difficult within China, financial institutions from other Asian countries seem more than willing to risk the unknown to get a foot in the door.

Aside from China, the strongest attraction is Singapore, Hong Kong and Taiwan. And Southeast Asian countries like Malaysia, Indonesia and Thailand are not to be left out of the mix. Southeast Asia is attracting growing attention because of expanding economies and liberalizing financial markets.

Despite excitement surrounding outbound M&A in Asia, the bulk of interest lies within domestic borders. Bankers in PwC’s survey indicate increased market share and capital efficiency are the primary reasons for domestic deals. They also point to a desire to broaden product offerings as a deal consideration. Most Asian bankers believe these three goals can best be met at home. As a result, PwC suggests domestic transactions will make up the bulk of the region’s activity.

Does all this interest translate to a booming Asian M&A market?

Perhaps the answer to that should be a resounding YES. However, this increased M&A interest by bankers in the region doesn’t guarantee clear sailing for transactions domestically or outbound for Asian firms. Three potential stumbling blocks could potentially put the brakes on activity.  Capital restrictions, regulatory concerns and increasing government involvement all have the potential to slow the activity. Couple those factors with a lack of verifiable financial information and pricing gaps, and transactions could prove slower than the optimistic view presented in PwC’s survey.

Now’s the Time to Identify Takeover Targets

Consolidation in the banking industry has ground almost to a halt. Stock prices have been tanking and few buyers or sellers seem interested in courting in this environment. But that might actually be a mistake, explains Steven Hovde, the founder, CEO and president of The Hovde Group, which provides investment banking, capital markets and financial advisory services focused exclusively on the banking and thrift industry. He speaks with Bank Director about what factors could change the merger environment going forward, and why bankers should be thinking about deals now.

Lots of people thought there would have been more mergers and acquisitions in the banking industry by now, but there hasn’t been. Why?

The drought in M&A activity is largely due to the remaining economic uncertainty and the inability of banks to grow revenues as a result. Furthermore, we’ve seen heightened uneasiness among investors due to the U.S.’s tumultuous political climate, as witnessed by the debt ceiling drama and the Federal Reserve’s several failed attempts to spur job growth through massive rounds of government stimulus. On top of these domestic issues, the European debt crisis has further increased investor anxiety. As long as the credit environment remains uncertain, M&A isn’t going to pick up to any significant degree.

What deals are getting done and what trends do you see there?

Deals are still getting done where the bank is small enough that the buyer can understand the loan portfolio and all potential credit issues. There have been a few larger deals, but that is not the norm. Bank recapitalizations will continue, assuming investors can get comfortable with the banks’ specific credit risks. However, most recapitalizations are of banks that have no option but to raise capital or risk failure, and are being done on terms that dilute existing shareholders down to a de minimis pro forma ownership.

What factors do you think would encourage more M&A?

The housing market must bottom out, or at least stabilize, for an extended period of time for bank M&A to return substantially. Until housing prices bottom, the overall economy will be troubled and loan portfolios will be scrutinized, particularly by buyers. Furthermore, because of economic and housing market uncertainty, the buyer’s credit marks, writing down the value of assets to fair market value, generally are too deep to negotiate a mutually agreeable transaction in today’s environment. A stable housing market—and ideally one in which housing values begin to increase—will break the dam for a gigantic M&A wave. However, with so many foreclosures in the pipeline and the uncertain debt markets in the U.S. and Europe, housing is unlikely to recover in the near-term.

What will be the impact of this environment on smaller banks, say below $500 million in assets?

Heightened regulation (e.g., the Dodd-Frank Act) will negatively impact banks and translate into reduced fees, higher expenses and reduced earnings for many community banks. Smaller banks, in particular, do not have the scale to absorb higher operating expenses and cannot generate sizable revenues from fee-based businesses like their larger brethren. Furthermore, small banks’ loan market shares have dropped, their balance sheets have become more liquid and their margins are shrinking. These trends have become so pronounced that even regulators have suggested many community banks will not survive the next few years.

What should banks keep in mind before they go down the M&A path?

Banks considering a merger or sale should understand their universe of potential buyers. Today’s operating environment is having the same negative impact on all community banks. The next M&A wave will come quickly with sellers flooding the market, ultimately resulting in a buyer’s market. Knowing the buyers for a particular bank will give bankers a leg up on timing the next wave. We often prepare our clients for sale well before they go to market. Knowing the buyer universe assists in the decision-making process. As many of today’s banks would attest, there is nothing worse than missing the market.


How to Avoid Minefields in a Merger or Acquisition

With hundreds of bank failures since the financial crisis began and many mergers and acquisitions taking place in an environment of financial and regulatory stress, Commerce Street Capital Managing Director Tom Lykos responds to written questions related to M&A in the face of shareholder activism and heightened judicial scrutiny.

Can you say a little about the regulatory and financial environment and how that is impacting banks?

The increased regulatory scrutiny that began with the crisis of 2008 has only been heightened by the increased regulatory burdens of the Dodd-Frank Act. However, there is a tension between the fiduciary duties owed to shareholders and the obligations directors owe to the FDIC and their primary regulator. At times, the director is caught between the need to accede to the “requests” and directives of regulators while vigorously advocating and advancing the interests of shareholders where the burdens of compliance seem excessive and adversely affect profitability. In such situations, engaging qualified and independent financial and legal advisors is justified given the nature, complexity and immediacy of the issues confronting management and directors. Reliance upon their advice is advisable given that the FDIC alleged, in its demand for payment of civil damages sought from certain officers and directors of BankUnited FSB in Florida, that they failed to heed the warnings and/or recommendations of bank consultants prior to the bank’s 2009 failure. 

How should bank directors approach M&A in the current environment?

In general, it is fair to state that the old standards still apply. However, the application of these standards has been more rigorous with regard to corporate governance in the context of both evaluating a bank’s strategic direction in general and especially in M&A transactions.  Officers and directors do not necessarily have to prove they received the “highest” or “best” price. Rather, they are charged with the duty of following a course or a process that leads to a reasonable decision, not a perfect decision.  In the context of a merger, an independent fairness opinion increases the probability that a board’s decisions will be protected by the business judgment rule and may also help facilitate shareholder approval of a proposed transaction.

If the old standards still apply, then how have the burdens on directors changed?

Although the standards have not changed, there is a higher level of scrutiny on directors now than at any time in the recent past. Increased regulatory oversight combined with increased shareholder activism has resulted in a corresponding increase in judicial scrutiny of the reasonableness of directors’ actions. The level of scrutiny is heightened in situations where an institution is not adequately capitalized, financial performance has lagged and shareholders have concerns about the bank’s strategic direction and the strategic options proposed by management. With regards to situations where subpar performance has led to shareholder activism, the creation of a special committee of the board and retention of an advisor to present strategic options are appropriate responses to address shareholder concerns. Without sounding alarmist, it may be that it is no longer enough for directors to satisfy their obligations to shareholders by negotiating a premium, hiring a financial advisor and obtaining a fairness opinion for a sale or acquisition. The courts have demonstrated an increased willingness to look behind the conclusions of a fairness opinion and board deliberations to determine if a transaction is fair from a financial point of view.

Can you give me an example?

Directors can look to recent court decisions to discern the inquiries relevant to appropriate director conduct. These include: Were the conflicts of interest adequately addressed and disclosed to shareholders, including those that may have unduly influenced directors, management and the financial advisor in the exercise of their judgment and discretion? Who took the lead in negotiating the transaction and what were their financial incentives for doing so? Was the process designed and implemented in a way intended to maximize shareholder value? Were there terms in the merger agreement and “deal protection devices” that were excessive or coercive in the context of the specific transaction? Was there adequate input from disinterested and independent directors? Was the fairness opinion truly independent or was the advisor’s fee contingent on a successful transaction, creating conflicts or “perverse incentives?” In short, both the courts and shareholders are focusing on the events and circumstances that lead to a transaction; the board process in evaluating a transaction (whether accepted or rejected); deal protection devices that may discourage or preclude the consideration of other offers; and the existence and disclosure of apparent or actual conflicts of interest among officers, directors and advisors that might impair their independent judgment.

Intangible Benefits of FDIC Deals

deal.jpgWhen I attend conferences or speak with investors, everybody wants to know about the financial consequences of doing an FDIC-assisted deal. My bank has done eight of those deals. To be fair, the financial advantages of buying failed banks are the driving force behind the large amounts of institutional capital that has gone almost exclusively to acquiring institutions. Tracking and reporting on progress relative to expectations will continue and it should.

What is becoming increasingly clear, even to a number cruncher like myself, are the intangible benefits that have been realized during this strategy. With many bankers starting to wonder if the opportunity to participate is over, or at least drawing to an end, maybe it’s appropriate to give some airtime to some these intangibles.

Opportunity to be on offense with the FDIC

We all understand the healthy, but defensive, give and take between bankers and regulators. In today’s environment, with so many banks on the FDIC’s problem bank list, the defensive tone is more pronounced.  These deals have allowed us to work offensively with the FDIC, to partner with them in the resolution of our industry’s problems. I am not using the term “partner” lightly here because it is exactly that kind of relationship that they want to foster with acquiring institutions.

This spirit of partnership does not mean that we escape serious oversight from the resolution and supervision departments of the FDIC. As with most successful relationships, though, the congeniality is maintained with consistent communication and a thorough understanding of each party’s goals. More face time with our primary regulator has been very good.

Opportunity to build or rebuild a workforce

Chances are your bank has made some hard decisions over the past few years that would not have been considered during the boom years immediately preceding the current economic period. Most banks, even the super-regionals, have rationalized virtually every expense line and every strategy to ensure that the timing was right and appropriate given the circumstances.

The hardest decisions bankers have had to make relate to staff reductions.  People matter in banking because this is still an industry where customer relationships count.

Not to repeat myself, but this “offensive” strategy has improved the morale of our bank, relieving some of the sting of the staffing decisions. Because of the increase in loan and deposit customers, we have been able to rehire some past employees and transition other idled employees to help manage those assets.  We have been able to build out new divisions and even hire new staff in both line and corporate functions.  And there is something real about the energy that new employees bring to a company, along with new ideas and best practices.

Opportunity to build M&A expertise

How many times have you heard in the last two or three years about the record levels of consolidation taxiing down the runway? It does seem likely to us, given the perception that banks need more operating leverage to counter all of the revenue headwinds (weak economic recovery, new regulations, etc.). The rapid improvement in operating efficiency that investors and boards want to move the needle on earnings is most easily accomplished through consolidations.

For an institution that plans on being an acquirer instead of being acquired, the FDIC deal strategy has been an excellent opportunity to build out an M&A line of business. Obvious divisions here include special assets and our data conversion team. These teams have mastered certain “transitional” functions that are vital to getting us to the next stage.

It is the cultural M&A expertise that has been fine tuned. “Ripping out” the acquired company’s culture with all due haste and replacing it with your own culture seems simple enough. Doing that and still having a team that wears your jersey with pride is more difficult. Our other teams have learned how to “sell” our cultural points (H/R systems, credit administration processes, sales culture) in such a manner that our new employees WANT to follow us.

As I mentioned at the outset of this article, the financial benefits deserve serious discussion.  But these and other intangibles will have their 15 minutes of fame someday. They will impact the bottom line in ways that are hard to quantify right now. 

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.

D&O insurance: hope for the best, prepare for the worst

red-umbrella.jpgOn day three of our annual Acquire or Be Acquired event, a major snowstorm was hitting the mid-west and shutting down many airports leaving attendees either stranded or dashing off to catch a flight. The possibility of being stuck in Arizona didn’t concern the many remaining bankers who joined the breakout session on D&O insurance, led by Dennis Gustafson, SVP & Financial Institutions Practice Leader of AH&T Insurance, as he explored how changes at an institution can impact its risk profile as perceived by the underwriters.

While there are a variety of activities that will impact the underwriters’ risk assessment process, by understanding what they look for, directors and officers can better communicate their story to the insurance carrier. Gustafson shared the following key factors that today’s underwriter considers when identifying a financial institution’s risk profile:

Regulatory Exposures
Given the condition of the financial services industry, regulatory exposure is still the single largest risk to bank boards. With the increase in bank failures reflective of the increased number of lawsuits authorized by the FDIC, it’s become the government’s standard practice to contact the insurance carriers of a failed bank to recoup their losses and therefore gain access to the policy whether the board did their job or not.

However, as Gustafson pointed out to the audience, when a bank is considered a regulatory risk, the D&O carrier can file a regulatory exclusion which allows the insurance agency to deny claims filed by FDIC based on asset quality and capital. 

Mergers & Acquisitions
Any director and/or officer of an institution in an acquisition is considered an increased risk as they are more likely to be sued. The insurance policy might need a mid-term acquisition’s threshold for acquirers, discovery provisions for sellers, change of control provisions, cancellation and M&A exclusion. Directors should conduct an in-depth conversation about the specific M&A goals of the institution with the carrier before renewing the policy.

Loan & Asset Quality
For many reasons, loan and asset quality directly affects the risk profile of any director or officer. AH&T utilizes an underwriting risk spreadsheet that includes benchmark figures and calculates the risk associated with each policy. For instance, a loan portfolio with 1-4 family mortgages carries less risk than an institution with a higher commercial real estate profile. Deposits, positive ROA and ROE, along with capital, give the underwriter a good sense of the overall risk profile.

Peer Benchmarking
By reviewing what a bank’s peers are doing, insurance carriers can help measure what type of policy a board member should be getting and how much they can expect to spend. As an industry, financial services saw the highest premium rate for $5 million in coverage during their last renewals

Securities Litigation filings by Industry
Another method carriers will use as consideration is the number of securities class action lawsuits filed in the financial industry as compared to the rest of the universe. In 2009, the financial industry had 38.2 percentage of market capitalization subject to new filings which made for a riskier profile.

Gustafson strongly recommends that before your next D&O renewal, you set up a meeting with all the bidding underwriters to accurately present the financial institution’s goals and objectives over the term of the policy. With a face-to-face conversation, the underwriters are able to ask and answer questions in order to get a better sense of the bank’s risks. By engaging in these conversations, insurance carriers can prepare the most appropriate language for a policy, therefore better protecting a director’s personal assets.

Two banks tell different tales. The case of Premier American Bank and Cole Taylor Bank.

Would you rather be Mark Hoppe, the chief executive officer of a Chicago-area bank struggling under the weight of bad residential construction and development loans, charged with refocusing the bank on an entirely new strategy?

Or how about Daniel Healy, the chief executive officer of Premier American Bank in Miami, who has raised $700 million in the last few years, mostly from institutional investors interested in buying failed banks from the FDIC?

The two laid out their strategies and challenges to a crowd at Bank Director’s Acquire or Be Acquired Conference in Scottsdale, Arizona this week, giving two very different scenarios of banking in a downturn.

“(Healy) is definitely one of the haves, not the have nots,’’ said Robert Monroe, an attorney for Stinson Morrison Hecker in Kansas City, Missouri, who was in the crowd.

Healy’s biggest challenge is making good use of all his cash. He has an ambitious plan of going public in the second quarter of this year.

His bank holding company, Bond Street Holdings, was chartered in October of 2009 by the Office of the Comptroller of the Currency. It was founded primarily to buy failed banks, but also to negotiate traditional acquisitions. It bought Premier American Bank in Miami and later, Florida Community Bank and Peninsula Bank, all of them taken over by regulators as they sunk under the weight of the real estate market in Florida.

The bank now has $2.5 billion in assets, $2.1 billion in deposits, 350 employees and 28 branches in South Florida. And it’s still looking for banks to buy.  Since Bond Street Holdings was founded in late 2009, many competitors have entered the market for FDIC deals. The agency has realized it doesn’t have to give as good a deal anymore to acquirers, Healy said.

“The pricing on these transactions has gotten very key,’’ he said. “But it’s still a good deal.”

A lot of banks don’t want to compete anymore for FDIC-assisted deals, though.

It’s hard to go up against all the institutional money flowing into companies like Bond Street Holdings.

Instead, a lot of bankers are in the position of Mark Hoppe, trying to execute a totally new strategy for an institution hurt by the crash in the real estate market.

Hoppe left Bank of America to turn around Cole Taylor Bank, which had lots of exposure to construction and development loans.

But the going has been rough. The bank’s holding company, Taylor Capital Group, announced a fourth quarter loss of $38.5 million to shareholders, compared to a profit of $30.7 million in the third quarter, after it beefed up its loan loss provision. It also said Friday it would raise $25 million from existing shareholders for added capital.

“I wish I could say we’ve reached the promised land but we haven’t,’’ he told the crowd at the banker’s conference.

Hoppe said he still is working to increase the $4.5-billion bank’s commercial and industrial loan portfolio, which has grown from 40 percent of the mix when he took his job to 55 percent today. He also is hiring teams for mortgage lending and focusing on growing a national portfolio of asset-based lending. Both businesses have added 500 new clients since Hoppe came on board.

The bank, meanwhile, has been reducing its exposure to consumer finance lenders and the $200 million portfolio of unsecured loans to corporations and individuals. Hoppe didn’t feel comfortable or knowledgeable enough to succeed in those businesses.