Industry Overview: Size Doesn’t Matter, but Profitability Does

2-3-Emilys-AOBA.pngBank executives, boards and industry experts have long debated—and disagreed—on exactly how big a bank needs to be to survive in today’s harsh operational and regulatory environment, with bank CEOs typically reporting that the perfect size is “a little bigger than [their bank],” quipped Curtis Carpenter, managing director at Austin, Texas-based Sheshunoff & Co. Investment Banking, during a presentation to more than 500 attendees. But William Wallace, vice president of equity research at Raymond James & Associates Inc., would argue that the size of the bank doesn’t matter.

“You don’t have to get bigger. You need to get more profitable,” said Wallace during a separate session.

The Acquire or Be Acquired Conference, held January 26-28 in Phoenix, attracts many banks seeking to make deals—many as a buyer, some as sellers. Most attendees were bank CEOs, senior executives, chairmen or directors, with an average bank size of $682 million in assets.

If size is indeed any indicator of strength, then banks with assets between roughly $1 billion and $15 billion have seen rising stock values and have the currency to make deals. John Duffy, vice chairman at Keefe, Bruyette and Woods, a Stifel Company, told the audience that banks with between $5 billion and $10 billion in assets are the most highly valued and profitable, making this size the sweet spot for investors. Many banks of this size are regional banks, whose stocks Duffy said have “exceeded our expectations both for the overall market and the banking sector.” Carpenter predicted that institutions with more than $2 billion in assets will be tempted to pursue an initial public offering (IPO) after seeing the high pricing commanded by similarly sized institutions—particularly those active in the M&A market.

The market responded more positively to deals in 2013, making both all-stock deals and strategic mergers more attractive. Carpenter noted that the response was particularly positive when those deals resulted in market expansion for the surviving bank, at a median stock price gain just shy of 6 percent 20 days after the deal was announced, versus almost 4 percent when there was a partial overlap in the market and little gains—less than 0.5 percent—when the deal was entirely in-market.

Overall, the industry could be looking at brighter days ahead as banks emerge from the dark days of the credit crisis. Margin pressure likely won’t get much better, but net interest margins have stabilized, though they remain historically low, said Duffy. And many institutions have learned to live with shrinking margins, Billy Beale, CEO of $7.1-billion asset, Richmond, Virginia-based Union First Market Bankshares Corp., said during a panel discussion. Rates are expected to rise this year, albeit gradually, and higher rates should result in greater profitability for the industry. For board members, executives and investors at small and mid-cap banks, there is much to be optimistic about: The industry saw deposit growth of 6.2 percent, despite low rates on deposits, and Duffy predicted that these banks will see better loan growth than bigger banks.

2-3-Emilys-AOBA-2.pngOverall the industry is healthier, with FDIC–assisted deals shrinking from a high of 157 in 2010 to just 24 in 2013, according to Carpenter. Credit has improved. “Asset quality issues are becoming a thing of the past,” said Duffy. And healthy sellers will command a better price in the market, though coming to terms on price will likely remain a point of contention for buyers and sellers.

“Things feel better today,” Frank Cicero, managing director at Jefferies LLC, said during a panel discussion of bank stock analysts.

However, banks with less than $1 billion in assets face challenges. According to Duffy, these small banks are less profitable, with a median return on assets of 0.47 percent, half that of mid-cap banks with between $5 billion and $10 billion in assets. The diminished importance of branch networks underlines the importance of further investments in technology. Small banks barely trade at book value, and they are less efficient. Ben Plotkin, vice chairman at Stifel Financial Corp. told attendees that banks with less than $1 billion in assets have a median efficiency ratio of more than 71 percent. In contrast, banks with between $5 billion and $15 billion in assets had a median efficiency ratio of 59.8 percent.

Given these challenges, it’s not surprising that banks with less than $1 billion in assets comprised 89 percent of total deals in 2013. Ben Plotkin expects further shrinking in the industry, predicting that there will be less than 5,000 banks in the next 5 years.

Smaller banks need to gain size and scale to absorb costs and increase profitability, or resign themselves to selling to another bank.

The Top Five Retail Checking Trends for 2013

outlook-new.jpg2013 holds much promise and potential for financial institutions (FIs) willing to think, believe and invest in checking product design and delivery that takes into account the top trends shown below. For those FIs that don’t, good luck waiting for overdrafts to make a comeback or for customers to start gladly paying for traditional checking-related benefits.

#1 Customer Friendly  Fee Income Will Continue to Emerge

2013 will mark the beginning of many more FIs deciding to design checking accounts that are so good that their customers will actually want them enough to willingly pay for them. Design previously   employed to devise complicated account terms and conditions that result in customer confusion and unfriendly penalty fees will be rechanneled into innovative design of great products focused on a fair exchange of value with customers for a reasonable monthly fee. This customer-friendly, fair value approach is the only way to generate massive, growing and sustainable fee income in today’s regulatory environment.  

#2 Relationship Building Will Necessitate  a More Engaging Product Experience

The rapid and projected growth of online and mobile banking (e.g. a March 2012 Federal Reserve study) has reduced branch traffic (25 percent over the past five years per consulting firm Bancography). This limits the number of opportunities for customers doing routine, checking-related transactions to interact directly with branch employees and experience firsthand exceptional customer service.

This means the checking product’s inherent value has to step up to play a larger role in building customer relationships. To do this, the checking account’s “customer connection factor” (CCF) will need to be much higher than it is today. In 2013, more and more FIs will realize the growing importance of the checking CCF and design and deliver accordingly. The top FIs are already there.  In 2013, they will smartly integrate applicable retailing best practices like local, mobile and social into their design and delivery. Those that wait to improve the CCF and rely solely on great customer service will regret this decision.

#3 Fixing the Unprofitable Relationships Will Be Required

The primary revenue generators (loans and fees) will continue to struggle to recover in 2013, while operating costs will continue to rise. This stubborn financial pinch will necessitate that FIs can no longer ignore dealing with the approximate 40 percent of their checking household relationships that are unprofitable (and make up only 3.5 percent of total revenue and 2.2 percent of all other deposit and loan relationship dollars). FIs will fix these relationships by actively employing the first two trends and not depending exclusively on the elusive cross-sale. Otherwise, the financial pinch will continue its squeeze and hurt.

#4 Optimizing the Existing Base of Profitable Checking Customers

Just as important as financially optimizing the unprofitable relationships is getting as many of the approximate 60 percent of customers who are profitable to experience your product’s improved CCF. This is the plan to optimize protecting (retaining) and growing existing profitable customers.

The top way to do this is to let them experience checking products with higher CCF than what you offer them today. Getting this done means FIs must also use innovative ways to get these enhanced products into the hands of these customers via unordinary marketing strategies like sweepstakes, contests, satisfaction guarantees, email communication, viral promotion and small business community tie-ins. Free or modified free checking will still be the dominant product strategy (only 9 percent of community banks have gotten rid of it and another 9 percent plan to). The difference maker when it comes to optimizing the experience of your best customers is for products to be better, not just free.

#5 Simple, Simple, Simple Will Win

This has been a trend for many years before 2013 and will most likely continue for years after. There are the three simple things FIs can do to win the retail checking game more in 2013 than in 2012. First, simplify your line-up down to three accounts (two if you don’t offer free checking) and clean up the grandfathered ones. Second, don’t invest in a branch sales report that tracks more than just direct sales, cross sales and referral sales by product that can’t be ranked in terms of sales performance down to the individual employee. Third, your checking-related sales incentive plan must be always on, (not just “on” when connected to a product or marketing campaign) and  explainable and calculable in less than thirty seconds.

Statistics stated are from StrategyCorps’ proprietary database of over two million accounts and polling research of about 100 FI executives.  

Bank Earnings Trends

The Federal Reserve’s actions in response to the U.S. economy’s sluggish growth and high unemployment rate have virtually ensured depressed bank earnings for the foreseeable future.

The Federal Open Market Committee (FOMC) recently proclaimed that it will “keep the target range for the federal funds rate at zero to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.” In addition to keeping interest rates “exceptionally low,” the Fed is embarking on another round of quantitative easing (QE3)—this time with no end date in sight. Indeed, the spigot is now open.


The obvious impact to bank earnings of Fed Chairman Ben Bernanke’s monetary policies is that net interest margins will continue to contract as we have seen virtually every quarter since 2010. Deposit costs are as low as possible, and loan yields will continue to decline as higher rate loans are replaced with lower yielding assets. Interestingly, as the chart [below] depicts, banks with assets less than $1 billion have been able to sustain higher net interest margins than their larger brethren, who have brought down the industry’s margins in lock-step. Banks less than $1 billion maintain a net interest margin of 3.75 percent, while those greater than $1 billion average a net interest margin of 3.42 percent through Q2 2012.  Nevertheless, the majority of banks of all sizes are seeing NIM contraction.


When margins contract, banks are forced to pull other levers in order to maintain consistent net income streams:

  • As asset quality has improved across the industry, banks have been able to release reserves back into income, although at some point this strategy will end as banks are unable to continue depleting their reserves.
  • Declining interest rates have meant increases in the value of securities portfolios for many banks which, in turn, increased income from realized gains on sale; however, securities yields will continue to decline during the low interest rate environment and future gains on sales will decline.
  • Noninterest income is notoriously difficult to generate—especially for community banks—and lawmakers have cracked down on fees such as overdraft, rendering this strategy more or less futile.
  • Banks can streamline operations and become more efficient, although at some point this strategy faces diminishing returns.


All the strategies above can help maintain earnings for the short term, but eventually they will leave bankers grasping at air without any more levers to pull. Absent an increase in net interest margins, returns on assets will continue to decline; this is inevitable. At that point, banks will face a choice: increase credit risk and loan volume to generate yield, increase interest rate risk by stretching for yield, or accept diminished returns. Certainly, one unintended consequence of Chairman Bernanke’s policies is that banks will begin to take on more credit and interest rate risk, threatening the industry’s renewed strength once again.

However, another strategy exists to increase shareholder value: exploring an acquisition or merger is one of the only ways to increase returns in today’s environment. Both buyers and sellers can benefit greatly from this strategy if the right deal is struck. A buyer can increase its net interest income by combining with a partner that has higher yielding assets or a lower cost of funds. Furthermore, cost savings can result in a more efficient operation. Likewise, sellers tired of fighting for returns—particularly those small, community banks—can achieve a liquidity event and cash out or ride the buyer’s stock, resulting in returns that could take years to achieve on a standalone basis.

Banks can expect at least another three years of difficult returns. Thankfully, the industry’s balance sheets are healthier, and it is likely industry consolidation will pick up precipitously as a consequence.

Thriving by Giving Back

tom-parker.jpgWith all the stories about banks below $1 billion in assets struggling to compete, a story about a small community bank returning to profitability with a community-oriented strategy deserves some attention.  The Bank of Santa Barbara in California may only have around $100 million in total assets, but ever since a group of philanthropists took controlling interest of the bank in 2009, it has been working its way towards strong capital, high liquidity and steady growth—all while supporting community organizations.   

The Hutton Parker Foundation, which supports community-oriented nonprofits, was one of the key investors in the 2009 buyout of The Bank of Santa Barbara.  Thomas Parker, president of the Hutton Parker Foundation, recently spoke with Bank Director about the symbiotic relationship between his foundation and the bank. 

Could you tell us about how the Hutton Parker Foundation and The Bank of Santa Barbara are working together, and how you came up with the idea?

Private foundations generally invest their money in Wall Street, and they are mandated to take 5 percent a year and donate it back to charity. 

Once I started [working with the foundation] in 1996, I looked around and I said, “You know it’s great to give away the 5 percent, but is there something we can do with the invested capital?” In other words, instead of investing it in Wall Street, why don’t we invest in our own communities?  So, I started making loans to nonprofits.  I bought buildings and created nonprofit centers.  Then, I went a step further and said, “Here’s an opportunity for the foundation to not only make a nice return, but also invest right in the community by buying stock in a local community bank.”  I got a number of other foundations, along with other individuals, to do it with me. It seemed like a great way to invest.

Not only can I invest in a [community bank] with our capital and make a nice return, but there are synergies that take place as an investor.  We have great insight into nonprofits.  Nonprofit employees equal 10 percent of the workforce, so a lot of loans go out to nonprofits.  Banks are kind of reticent [to make loans to nonprofits] because they don’t understand [them].   We have the ability to guarantee loans on certain projects if we know they are secure, and not only that, we know they benefit the community. 

How is the foundation involved in determining which nonprofits receive loans?

It’s really the nonprofits themselves that come to banks.   We don’t have much influence.  The [bank officers] certainly ask me how I feel about this kind of a loan when nonprofits are involved, but as far as the day-to-day operations—no.   I don’t influence the bank on whether they approve or disapprove a loan.  I’m only there as a resource if the [officers] happen to have questions about the nonprofit’s capacity.  This is a passive investment as far as management is concerned, but it’s an active investment as far as trying to work with the bank to make the community a better place.

So you have partial ownership of the bank?

The maximum amount of stock we can own in a bank is 20 percent.  And once we go above 10 percent, generally, any foundation or corporation pretty much has to sign a passivity agreement, which works fine for us.

How many different foundations is The Bank of Santa Barbara working with?

I think right now there are probably three.  There are two foundations and another major philanthropist owning approximately 50 percent of the bank stock. 

What is the average loan The Bank of Santa Barbara makes to a nonprofit?

It varies from a $10,000 to $20,000 line of credit to a $3 million to $4 million secured loan for a building. 

What happens in the event of a default on the loan?

If the foundation guarantees the loan to a nonprofit, the foundation would be on the hook in the event of a default.  With most of the loans like that, they are buying a building or rebuilding a theater, and they have pledges from people we are familiar with that we know will be honored.  They just need the ability to borrow in the interim until those pledges come in over two or three years.

Any advice you would give to community banks considering starting a relationship with a foundation?

Absolutely.  Knock on the door and start the conversation.  You never know the reception you will get, but it is certainly working in our case.  It’s about running the bank for the community, and knowing that a properly run bank can make a nice profit and that profit can then be given back to the community.  And I know that that resonates with depositors and with people that live within that community.

There are currently a lot of private foundations out there with more than $1 trillion in assets. That $1 trillion private foundations hold is primarily invested in Wall Street. There’s a trend right now for all of us in the private foundation field to look around and ask: “Is there a better way to invest our assets and still get a good return?”

How Can Retail Branches Become More Profitable?

fishbowl.jpgI have two grown children, 25 and 28 years old, who have checking accounts, but have never been in a bank office.  Yet, despite all the evidence that branch usage is in decline over the past decade, the industry continues to build new offices.  As a director of 10 different FDIC-insured banks during my 25 years as a consultant/investor for the financial services industry, I do not envy the job of current bank directors preparing for the future.  With a large amount of capital tied up in single-purpose real estate and fees on accounts restricted by regulators, where can bank management and directors turn to make the branch profitable again?  The answer to this problem may lie in the historical study of how we got where we are today.  

In the first 10 years of my banking career at Trust Company of Georgia (now SunTrust), I held responsibilities in both management and internal consulting of operations and technology.  I remember going to our Fulton Industrial Boulevard branch on a payday Friday and hearing the branch manager ask, “What can we do to get all these people out of our branches?”  Well, mission accomplished!  These days the long lines on payday are more frequent at a Walmart financial center than at a bank branch.  What will draw these people away from Walmart, check cashers, payday lenders and title pawn shops and turn them back into profitable bank customers? Evolutions in technology, social media and product offerings now provide the solution.

Asset quality disasters, regulatory concerns and other survival issues have consumed the lives of many bankers as of late, leaving little time to pursue the five-year plan.  Banks now must begin to reshape business plans to reflect the evolution in technology and consumer behavior or become the next victim of obsolescence, much like such industries as home entertainment, photography, telecommunications and specialty retail.  Can a full function ATM machine replace a branch the way that a Blockbuster Express self-service movie rental kiosk replaces a store?  Never has the role of a bank director been more important than today; financial institutions must proactively chart a new course for retail banking.  Personal interaction with successful retailers in other industries can provide directors with the needed experience to guide their own companies.  Think of the experience of renting a movie from a kiosk instead of going into a store and compare it with using a full-function ATM instead of visiting a branch.

Now is the time to begin the evaluation of which branches are crucial to the customers in an area, provided all of the other ways that are now available to meet their banking needs.  Given the unlikely event that margins will grow, replacing fee income lost as a result of regulatory changes for most banks is critical to future earnings growth.  Directors need to be proactive in encouraging management to recruit customers that the bank lost to alternative financial services providers, such as check cashers and payday lenders.  To get these customers back, banks must offer a new suite of products and services, which includes cashing checks, money transfer, money orders, prepaid cards, reloadable cards, and fees to guarantee funds. In the future, perhaps a cash advance fee at a bank can replace payday lending.  These services can be highly profitable, as evidence by the large number of alternative financial services providers in the market place. 

An argument usually brought up by bankers is that no other bank is doing this. That’s not true. Regions Bank recently announced Regions Now Banking in all 1,700 branches.  The products mentioned earlier are all included in this offering.  Early results are extremely pleasing to Regions’ management team, which expects the new fee income will replace revenue lost as a result of regulatory changes.

When an industry must react to changes in technology and consumer behavior, the first thing to ponder is if the consumer still needs the product.  Does the public still need financial services?  The answer is yes.  So, how can banks use new technology?  The answer is still evolving, but every bank director who  has purchased something on Amazon, rented a movie from a kiosk, or used the self-service checkout at the grocery store has a personal experience that can be valuable in shaping the future retail bank customer experience.

Boosting Income Without Losing Customers

The Durbin amendment and new overdraft rules significantly cut into fee income, creating more unprofitable accounts. So what should banks and other financial institutions do to generate more fee income? StrategyCorps’ managing partner Mike Branton talks about how financial institutions can increase fee income from these accounts without scaring off profitable customers.

What are banks doing today to get more checking-related fee income?

There are three camps. One camp continues to do nothing. Maybe they think overdrafts are going to make a comeback.

Another camp is doing what we at StrategyCorps call “fee-ectomies”—charging for things banks have been giving away for free or relying on past tactics like balance requirements with penalty fee (maintain a $500 minimum balance or be charged $6). These fee-ectomies are perceived as unfair by customers—paying fees while adding nothing of value. Economists describe this as “an unfair value exchange.”

The third camp recognizes that consumers have been trained to value traditional checking benefits at zero due to free checking; that perceived fairness drives customer reaction to fees; and that you must not make the same checking account changes across the board with no recognition of the individual customer’s existing relationship profitability with the bank. We think the third camp will be the winners financially and with their customers.

What specifically is this third camp of banks doing?

These banks have first found a way to understand which checking customer relationships are profitable and which ones aren’t. Doing this allows for checking account changes to selectively fix the unprofitable ones and protect the profitable ones, rather than a wholesale change that may raise fees on every customer.

Once the banks have this identification and segmentation, the account design changes include adding non-traditional benefits if you are going to add a checking fee. Adding a fee without blending in new benefits results in customers feeling their bank is just greedy by charging for things that have been given away for so long. Think about how you feel about when airlines charge for luggage.

Third, once banks have determined the precise checking account changes to each customer segment, they should communicate these changes clearly and directly to each customer with an “upgrade” message rather than a “we need more fees but aren’t providing you any more value” message. And they train their branch personnel to understand how these changes are truly fair for the customer, so they can deal with inquiries from customers about those changes.

In a nutshell, these three things are what StrategyCorps does for financial institutions.

So I guess you don’t agree with banks or thrifts charging fees for the use of a debit card at $4 or $5 per month?

It’s insane. You’re taking the number one most convenient, most popular way that customers want to pay for something and now you start charging a usage/penalty fee for that card right at the time you need significantly greater transaction volume? This negative reinforcement won’t work and there’s consumer research showing 80 percent to 90 percent of consumers oppose this idea and 20 percent to 30 percent will change banks over it.

With the Durbin amendment (which caps debit fees at 21 cents per transaction for banks above $10 billion in assets), banks have to make it up with volume. So incentivize customers to use it more. We’ve designed our products to do this and are seeing transactions at least double. Charging a fee is going to not only tick off customers but also cause material account attrition that will offset significantly any fee lift.

Aren’t there going to be a lot of customers who say, “I don’t want to pay for a checking account?” Won’t a large number of people call the bank and say, “I don’t want the five dollar account, give me the free one?”

Actually, no. We understand this expectation and concern here by bankers, but we’ve done this account upgrade process hundreds of times. The reality is there is no appreciable negative response and minimal incremental attrition if you incorporate a fair fee-based account.

Doing this will get banks more fee income annually per account—the range is between $60 and $75—from unprofitable accounts, which is usually 40 percent to 50 percent of all checking accounts. Do the quick math; this is a significant number. The financial reward far outweighs the risk of losing accounts that were costing the bank money anyway.

And for the profitable accounts, there are several ways the relationship can be protected with this kind of “fair and upgraded” account strategy that significantly reduces their attrition risk.

Seven Ways Financial Institutions Can Maximize Profitability

FirstData-WhitePaper3.pngIn the past, financial institutions didn’t need to rethink the way they did business. But times have changed. Between today’s unpredictable global economy and new banking regulations recently enacted, it has never been more challenging to grow revenue, maintain profits and satisfy customers.

Today, banks and credit unions need strategic solutions to replace lost revenue, reduce costs and maximize profitability. First Data has created this white paper to help you explore new ways to effectively evolve your business in today’s world.

Our white paper addresses today’s big issues and critical areas, including:

  • The Durbin Amendment: Can you maintain checking profitability, despite lost DDA revenue? 
  • Debit Strategy: How can you rethink your debit programs in order to increase the profitability of your offerings?
  • New Technology: What do consumers expect when it comes to technology? How important is mobile banking? 
  • Fraud Prevention: Can centralizing fraud management help your institution reduce fraud?

To read the white paper, download it now.

The Loan Conundrum

Steve-Trager.jpgSteve Trager is president and CEO of Republic Bancorp, Inc., a Louisville, Kentucky-based, $3.1 billion-asset publicly traded company with 43 bank branches in Kentucky, Florida, Indiana and Ohio. Despite the crummy economic environment, poor loan demand and high regulatory demands, Republic Bancorp has maintained high profitability; even with half its loans in residential mortgages, and most of the rest in commercial real estate, construction, business and consumer loans.

Republic Bancorp had the second and third highest return on average assets and return on average equity last year, and the fifth best performance overall in Bank Director magazine’s ranking of the top 150 banking companies in the nation.

To be sure, the bank has experienced problems, too.  Its non-performing assets are 1.28 percent of total loans as of the second quarter, a decline from previous quarters, and it took a $2 million charge in second quarter earnings over a civil penalty from the Federal Deposit Insurance Corp. relating to its IRS tax refund anticipation loan service.  (The company says it will contest the fine before an administrative law judge and will work to make sure its tax firm clients comply with applicable banking regulations).

Trager talked to Bank Director recently about how he’s handling the challenges of the current regulatory and economic environment.

Can you talk about what sort of lending you do?

The challenge for us in residential mortgages is we compete with a government product that is a 15- and 30-year fixed rate at 3.5 percent for 15 years and 30 years at 4.25 percent and only the government would make a 15- or 30-year fixed rate loan at those kind of rates, with that kind of interest-rate risk. We are proud to be able to offer that government product to our customers as well and we service that product as a competitive edge. Every single one of our products is delivered by a Republic Bank banker as opposed to a broker and that is competitive difference for us. We sell those (government-backed) loans on the secondary market so we don’t keep them on our books.

So what kind of residential mortgages do you keep in your portfolio?

There’s an expanding universe of people who aren’t able to comply with the government’s rigid requirements. Some of those requirements don’t reflect credit quality. Some folks are very capable with good debt service characteristics, low loan-to-value. They might want to buy a condo and the secondary market is very difficult for condos.

We would love to expand our offering to an even bigger group of customers who are very credit worthy, if we could get a little better pricing. The biggest risk today is regulatory risk. The mortgages we do, the rates we do, and whom we make them to, is just subject to so much scrutiny, that we can’t take a chance to expand our portfolio credit offering to those who need it.

Didn’t your $2.2 billion loan portfolio grow a little bit in the second quarter, by 2 percent?

Absolutely, (it grew) by about $50 million. That was a little bit more than half commercial and some residential. I think customers see Republic Bank and our financial health as a stable, long-term option.

We’re still in the market for residential mortgages because we have enough size and enough volume. The risks are so great that it has pushed a lot of other lenders out of the market. Any mortgage loan we make, we’ve got to gather tons of fields of demographic information, for thousands of loans per year. It frustrates customers.

Have you loosened your underwriting standards recently?

We have not. Our underwriting standards have remained relatively stable over the last five years. I do worry that in this market, where there is not much loan demand and a lot of banks in desperate need of loans that that’s a dynamic that might cause some to stretch their underwriting models. We’re never going to sacrifice the long-term viability of Republic Bank or our customers for short-term gain.

Your focus has been maintaining a highly profitable bank. You saw profits rise 50 percent in the first half of the year compared to the same time a year ago to $80 million. How?

I think it’s a combination of the stability that our core bank provides. We haven’t been haunted by credit quality. We have had good demand from both the deposit and loan side. It’s just trying to do the right thing over and over again for a long period of time, and having the right people do it. We’ve got 780 associates and they do a spectacular job.

We also have niche businesses that supplement our bottom line. We are the largest provider of electronic tax refunds in the country. We service folks like Jackson Hewitt, Liberty and other tax services around the country, processing electronic refunds for their customer base. A small percentage of the customers would like to get an advance on their refund within 24 or 36 hours. That represented about 700,000 of our four million tax refund customers in the first quarter.  For the rest, when the IRS pays it, we make sure our customers get it quickly.

What advice do you have for other bankers in this difficult time to grow lending?

Go out and encourage and support a good lending staff. Get out and pound the pavement. Our lending staff is very incentivized to do that. Their incentives are tied to loan quality. Part of their annual bonus is determined by production and delinquency. We are fortunate enough to have had a lot of folks who have been with us for a long period of time, and that helps.