Upwardly Mobile

man-using-iphone.jpgOne of the most read articles on BankDirector.com this month (Where Will The Revenue Come From) notes the number of dividing lines in banking today.  Up to now, credit quality and capital levels had been the chief variables separating the haves from the have-nots.  However, as those metrics stabilize, we turn our attention to another key point of differentiation: the ability to generate top-line revenue growth.  Now, I’ve been hard pressed to find anyone who believes revenues for the banking industry can return to their pre-crisis levels; nevertheless, individual banks can find success. Case-in-point, new technologies — most notably mobile banking — are opening doors to entirely new sources of revenue.  

This past summer, I wrote about mobile banking as a catalyst for growth.  Where many had focused their initial mobile efforts with an eye towards longer-term cost reductions, quite a few banks are growing their businesses using mobile products and services as complementary assets to what they currently offer.  Since writing that series, I’ve found myself talking with a number of bank executives and product vendors about how quickly a bank can “make mobile” happen.  Recently, I caught up with First Data’s Chris Cox, vice president, product development, in the company’s Mobile Solutions group, and asked for his take on using mobile as a way to acquire new customers.  He made the point that banks going mobile as simply an extension of their Internet banking experience miss the bigger picture.  Mobile is not necessarily risky, it’s almost a must-have. 

If mobile banking hasn’t become a part of your growth plans, you need to understand how providing such access to personal accounts and your institution as a whole supports your overall business strategy.  Cox talked about First Data’s experience with banks of various sizes.  Yes, economies of scale allow smaller bank similar opportunities to deliver a mobile experience as meaningful as the country’s largest banks.  However, a bank’s board would be well served to explore how the institution is currently meeting the needs of its consumers and consider how offering new mobile products and services can support its goals.  There is, after all, a need for a vision before strategy.

Solutions that level the playing field, such as turnkey, white-label, mobile-banking platforms can help even the smallest community bank offer choices, convenience and security that today’s financial institution’s customers need and expect.  Cox did warn that some banks offering a mere mobile version of their website instead of a mobile application may miss out on the mobile experience customers want.  He suggested the best banks look at attracting new customers and promoting new products and services.  Moreover, thinking mobile in terms of a new product delivery platform allows for the introduction of new products and services.  For example, you can help the customer base move from a “leather wallet” to a virtual or mobile one in order to make payments, deposits, or transfers or exchange value, anywhere.

Let us know, in the comments section below, how your bank is using mobile as a driver for overall customer growth.

Biggest banks are growing deposits faster than the rest

ahead-of-pack.jpgDespite the Occupy Wall Street protests and public frustration with big banks, customers are rewarding those same banks with an increasing amount of deposits in the form of money in checking, saving and other products, while smaller banks have been losing out.

A recent analysis by SNL Financial found superregional and mega banks, or those with more than $50 billion in assets, have seen the largest annual compound growth rate in deposits during the last three years, at 15.2 percent. The top ranked for deposit growth are Bank of New York Mellon, Wells Fargo & Co., and BMO Financial Group.

The smallest banks, those with less than $1 billion in assets, saw an overall drop in deposits during the same time period, losing .57 percent, partly because that size category has borne the brunt of bank failures during the financial crisis.

“In essence, customers in markets where a community bank has faltered have often taken their money to a larger bank, viewing it a safer bet than a neighboring small-town bank, making notable growth difficult for the remaining community banks even as customers put more of their money into savings accounts,’’ according to SNL.

The trend held true for banks in the middle asset range, where bigger was better as well. Banks between $1 billion and $10 billion in assets saw their three-year compound annual growth rate rise about 7 percent, while their larger counterparts bested them. Banks in the range of $10 billion to $50 billion in assets saw growth rates of 12 percent during the same time period.

But some smaller banks with strong capital and in acquisition mode were able to grab deposits from weaker competitors.

For example, Georgia’s State Bank Financial Group, a $2.9 billion asset holding company for State Bank and Trust and Co., nabbed five failed banks from the Federal Deposit Insurance Corp. It was the fastest growing bank in the $1 billion to $10 billion range and was also No. 1 in Bank Director’s Bank Performance Scorecard this year, a ranking based on a combination of profitability, capital and asset quality. The bank got started in 2009 with a $300 million investment from institutional shareholders.

The fastest growing bank in the small bank category was RomAsia, a $136 million asset institution in Monmouth, New Jersey, which got started three years ago to cater to the Asian-American community in New Jersey.

Hancock Holding Co. in Louisiana, which swallowed up its much larger competitor recently, was also a top growth bank. For a story about Hancock Holding, see coverage of Bank Director’s Acquire or Be Acquired conference, where the bank’s president and CEO Carl Chaney talks about the bank’s strategy.

Fastest growing banks and thrifts under $1 billion in assets:



Deposits June 2011

3-year growth

Roma Financial Corp.’s RomAsia Bank


$112 million


Grandpoint Capital Inc’s Grandpoint Bank


$697 million


Texas Security Bank


$110 million


Fastest growing banks and thrifts with $1 billion to $10 billion in assets:



Deposits June 2011

3-year growth

State Bank Financial Corp.’s State Bank & Trust Co.


$2.5 billion


Talmer Bancorp.’s Talmer Bank & Trust


$1.8 billion


Bank Iowa Corp.’s Bank Iowa


$899 million


Fastest growing banks and thrifts with $10 billion to $50 billion in assets:



Deposits June 2011

3-year growth

FirstBank Holding Co.’s FirstBank


$10 billion


Synovus Financial Corp.’s Synovus Bank


$23 billion


Hancock Holding Co.’s Whitney Bank


$11 billion


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. 

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. 

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.


2011 Banker and Board Poll: More acquisitions ahead

Still, M&A pricing may never return to pre-crisis levels

One of the best ways to see where banking is headed is to ask bankers and bank directors. That’s what Bank Director does every year at our annual Acquire or Be Acquired conference in Arizona, which got underway this year January 30.

In this year’s Banker & Board Poll, sponsored by BMO Capital Markets, more than 550 people were surveyed, mostly bank directors and CEOs representing a variety of bank sizes. The survey showed a distinct change in the outlook for banking and acquisitions compared to prior years. For one, asset quality is looking a whole lot better, so much so that generating loans has become the number one concern, rather than asset quality. More banks see growth opportunities ahead than in prior years, mostly through acquisition. And most expect the number of banks in the country to dwindle by the thousands.

For more detail on the survey results, see our full report.

Growing through Relationships

Our annual M&A conference, Acquire or Be Acquired was off to a good start this past Sunday in sunny Scottsdale Arizona with close to 700 attendees representing 265 financial institutions from around the country. After an early morning round of interactive workshops, several hundred banking professionals and industry experts gathered in the large Arizona ballroom to hear from two bank CEOs who have had success growing their institutions despite the challenging economy and it’s impact on the financial services industry.

As DeVan Ard, President and CEO of Reliant Bank a $400-million asset institution out of Nashville Tennessee, and Andrew Samuel, Chairman and CEO of Tower Bancorp Inc., a $2.7-billion asset holding company out of Enola, Pennsylvania described their markets, cultures and growth strategies, a pattern began to emerge between the two institutions despite the differences in their location, size and business lines.


Both focused on their strengths
During Ard’s presentation, he encouraged the audience to stay focused on building value to the franchise through bank relationships, rather than becoming solely credit driven. He attributed the success of Reliant Bank on its ability to remain focused on what made it profitable.

Tower Bancorp’s approach was quite similar in that Samuel recommended that his fellow bankers recognize what they do well, know their markets inside and out, and resist the temptation to look at other opportunities that don’t fit your core business model.

Both embraced relationship banking
It was clear that both institutions valued the relationships that they had built with their customers, employees, shareholders and other strategic partners. Reliant Bank was able to grow their post-recession deposits by 5-6 percent by leveraging existing relationships with customers and asking for referrals.

By knowing their market, Tower Bancorp was able to design fee-based products specifically for local not-for-profit groups whose boards were filled with the who’s who of their community, thus providing an intangible value to the bank. As a result, the bank created an advisory board to focus solely on this niche market.

Both overly communicate with everyone, including their regulators
It was certainly a common discussion throughout this year’s conference whether the regulatory challenges would take away from the ability to focus strategically on growth. Ard and Samuel both recognized that this was indeed a challenge, however by being proactive and keeping the lines of communication open with the regulators, they have little chance to be surprised.

In addition, Ard felt it was equally important to over communicate with employees, shareholders, media, and the community. By sharing with the employees the financial position of the institution, Reliant Bank was able to get the employees to buy into the plan to slow down growth as they weathered the economic downturn.

Both always look for acquisitions opportunities
Reliant Bank and Tower Bancorp are always on the lookout for potential acquisition opportunities with each having acquired branches and/or other banks within the past few years, however they never lost sight of growing organically. With over 800 banks still on the troubled list and many bankers simply suffering from fatigue, acquisitions are still a viable growth option for both institutions.

At Tower Bancorp, the acquisition strategy is simple, Samuel is responsible for creating strategic partnerships with larger banks in the area as well as actively calling on banks in the surrounding markets to negotiate potential acquisition deals. By building relationships with these potential future sellers, those banks are more open to working with Tower Bancorp, once their board makes the decision to sell.

Samuel still believes that Tower Bancorp can achieve a loan growth figure in the double-digits this year but remains steadfastly focused on organic growth. His acquisition process ensures that not every executive member of institution is involved throughout the entire process. By sharing the responsibilities across the board and senior management, the team has less opportunities to neglect their first priority of organic growth.


Both work diligently with their board
Involving the board throughout the entire process is key to both institutions success. At Reliant Bank, their three year strategic planning started with management, who then shared and received feedback from the board which was ultimately executed by the senior management team. Each quarter they meet to review the tactical plan to make sure it’s in alignment with the overall strategy.

Samuel indicated that Tower Bancorp followed a similar approach with a three-year strategic plan that is reviewed nine times a year. The board is always aware and proactively engaged with the executive team.

Two stories of success from two types of banks — one privately-held, one publicly-traded — one in the south, one located in the north, yet both remained focused on what they were good at while leveraging key relationships to ensure the growth of their organizations during the financial crisis.

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.