Key Factor the USA Become the World's Super Economy? Banking.

The Bank of North America came into being during the darkest years of the American Revolution. By 1781, Congress was nearly bankrupt, the Continental currency had collapsed in value, and the government lacked a reliable way to finance military operations. Robert Morris, the newly appointed Superintendent of Finance, proposed creating a national bank to stabilize public finances and support the war effort.

Morris drew heavily on ideas previously suggested by Alexander Hamilton, who had advocated for a national bank as early as 1780. Congress approved the plan on May 26, 1781, granting a federal charter to the Bank of North America, which opened in Philadelphia on January 7, 1782.

The bank failed to succeed as the nation's first central bank for many reasons, among them was a weak central government, then formed under the Articles of Confederation, resistance to the monopoly power a central bank would wield, and Pennsylvania not recognizing federal authority to form a bank. It subsequently revoked its charter and re-formed it as a private bank.

But it was successful in financing the Independence War, facilitate tax collection and government payments, and improve confidence in the new nation's emerging finance system. Hamilton would go on to form Bank of New York (America's oldest surviving bank), and support a subsequent national bank operating under the Constitution, the First Bank of the United States.

In his efforts he was opposed by many luminaries such as Thomas Jefferson and James Madison, who felt such a bank with monopoly power will infringe on states' rights. 

Today, most historians view Hamilton as the father of American finance. While the First Bank's charter expired in 1811, the concepts he championed, including federal debt management, national credit, central banking functions, and a strong financial infrastructure, heavily influenced later institutions such as the Second Bank of the United States and eventually the Federal Reserve System established in 1913. 

From Hamilton's wisdom, we have the highly decentralized banking system of today. One that is becoming more centralized as a result of consolidation, and centralized regulation that is interfering in the localized distribution of capital so important to our nation's growth.

How did banking make the United States an economic powerhouse?

Economists often describe finance as the mechanism that moves savings from households to productive investments.

Research shows that well-developed financial systems help identify promising firms, monitor borrowers, spread risk, and fund innovation. When capital reaches the most productive users, economic growth accelerates.

The United States, unlike France, England and Germany that relied on powerful central banks and crony capital allocation, became exceptionally good at this process. What were some of its features?

1. It was unusually decentralized

For much of American history, the United States had thousands of independent banks rather than a few large national banks.

Unlike Britain, France, or Germany, banking developed through a highly federalized system where states often regulated banks separately. This created intense competition but also fragmentation. Economic historians argue that the structure of American banking reflected political choices that distributed financial power broadly rather than concentrating it in a handful of institutions.

2. It combined banks with exceptionally deep capital markets

One of the most distinctive features of the U.S. system was that firms could obtain financing from both:

• banks,
• bond markets,
• stock markets,
• venture investors,
• private equity investors.

Research shows that financial development promotes growth because it lowers the cost of external financing and allows firms with productive opportunities to obtain capital more easily.

American entrepreneurs were often able to raise money even when they lacked family wealth.

3. It evolved toward greater interstate integration

For much of the twentieth century, many states restricted branch banking. When those restrictions were gradually removed, banks became better at allocating capital across regions.

A peer-reviewed study found that states experienced faster growth in income and output after branch banking deregulation. Importantly, the improvement came primarily from better lending decisions, not simply more lending.

This finding is critical because it suggests that economic growth came from directing capital toward more productive businesses.

Did banking alone contribute to the US becoming an economic superpower? No. 

But we became who we are partly because our financial system became exceptionally effective at allocating capital to productive and innovative uses. Growth was driven less by the sheer quantity of lending and more by the financial system's ability to identify, fund, and monitor high-return investments. A system that requires a local decision maker to finance a Montana ranch, a nearby entrepreneur, or allow a local company to scale. 

Our banking system is remarkably close to Alexander Hamilton's original vision: a financial system that could mobilize savings, create credit, and direct capital toward national economic development.

It has allocated capital effectively during our 250-year existence. It's worth perpetuating.

~ Jeff

3 Critical Assumptions Missing From Your Financial Institution's Strategic Plan

As your institution kicks off its strategic planning cycle, navigating the noise of a turbulent geopolitical environment requires shifting away from outdated playbooks. Anchor your vision in reality. Uncertain environments demand more than reactive adjustments. They require a pro-active, stress-tested roadmap that transforms macro-economic headwinds into a competitive advantage. 

Allow this video to give you some thought provoking headwinds that can change your thinking, adjust your strategy, and create a financial institution built to last.

Reach out to me so we can collaborate on translating these insights int action tailored specifically to your institution's unique history, culture, markets, and direction. 

Email: jeffrey.marsico@wolfandco.com

Guest Post:Financial Markets and Economic Update For Second Quarter 2Q26

I start my newsletter on a sad note this quarter.  On June 22^nd, former Federal Reserve Chairman, Alan Greenspan, died at the age of 100.  He served as Fed Chairman from August, 1987 until his term expired at the end of January, 2006.  He was Fed Chairman during my formative years at Meridian Bank in Reading.  He guided us through the crash of 1987, the S&L crisis of the 1980s and early 1990s, the CRE crisis of 1990, the tech stock bubble of 2000-2001, September 11^th and subsequent recession, and left his position before the housing crisis grew into the Great Recession of 2008.  I’m still mad at him for raising interest rates so much in 1994.  On the positive side, he guided us to ten consecutive years of GDP growth from 1991 to 2001.  I, like most investors and banking industry professionals, had a love-hate relationship with him.  But to many of us, he will always be the Maestro.

Iran

The Iran conflict (or is it a war?) dominated the headlines and caused turmoil in markets- stocks, bonds, crypto, and commodities- during the 2Q26.  WTI crude prices peaked at $111.50 per barrel in early April, but right before the conflict began at the end of February, crude was at $68; the increase was +64%.  WTI crude is now back down to $70 today.  Gas prices spiked from just below $3.00 per gallon to $4.56 on May 21^st, and have fallen back to $3.88 today, for a much slower pace of decline.  Price increases likely would have been much worse had the US not had such high oil capacity.  Earlier episodes of oil price spikes in 1974, 1979, 1991, and 2022 were longer lived and quickly changed from inflation risk to recession risk. 

The primary issue is the danger to shipping in the Strait of Hormuz as Iran fired upon and threatened ships there.  The US set up a blockade so that Iranian oil could not leave the country, pressuring their economy.  While the US does not face oil and gas shortages, many countries do.  Europe imports 95% of its oil, China 75%, and Japan 99%.

The US is trying to negotiate with Iran and has a fragile 60-day ceasefire, but can we trust this global threat?  They use short- and long-range ballistic missiles and drones to threaten their region and the world.  They threaten ships in the Strait, support terrorists like Hezbollah and Hamas, continue to seek nuclear weapons, and kill thousands of their own people as they did earlier this year.  Can we even trust them to not build a nuclear weapon?  I think not.  Stock markets don’t trust them either, judging from recent volatility.

Change Has Come to the Fed- Finally

Kevin Warsh was sworn in as new Federal Reserve Chairman on May 22^nd at the White House (as Greenspan had been in 1987) and a new era began.  Warsh served on the Fed’s Board of Governors previously, from February, 2006 to March, 2011.  Like Greenspan, he believes productivity should be a major factor in monetary policy decisions and that the Fed should not just rely on published data and rules of thumb like the Phillips curve.  Artificial Intelligence right now is expected to lead to another productivity boom, just as the personal computer and the Internet did in the 1990s.  It was no surprise that there was no change in rates at Warsh’s first meeting while he contemplates what to change at the Fed.

Jerome Powell’s term as Chairman expired in May but, like company that doesn’t know when to leave a party, he insisted on staying on the Board of Governors.  It is a highly unusual move and last occurred in 1948, when Fed Chairman, Marriner Eccles, refused to leave the Board when his chairmanship ended despite a request by President Truman to step down.  Why do we give separate Chair and Board terms to these obnoxious people?  On May 31^st, Powell received the Profiles in Courage award from the JFK Presidential Library.  For what exactly?

Chairman Warsh is setting up five working groups to review monetary policy and operations, how to communicate to markets and to the public, data sources and potential new ones, productivity and job growth, and inflation measures and targets.  Hopefully he dumps the SEP, or Summary of Economic Projections, because it is often ridiculous, senseless, and more inaccurate than accurate.  (For this quarter, Warsh did not provide any projections; the other 18 FOMC members did).  Does it bother anyone that they project inflation to fall but it always takes two years to get to target?  Does it bother anyone that they project low GDP growth, but don’t project lower rates?

Some of My Favorite Economic Indicators

Leading Economic Indicators (LEI)- Could we be seeing the bottoming and reversal of the nearly four-year negative cycle in the LEI?  May’s index was +.1%, following April’s rise of +.3%.  March was down -.6% likely due to the shock of the Iran conflict, and February rose +.3%.  The index had declined in 39 of the last 47 months.  We’ve seen three increases- all this year and five months of no change in 2024 to 2026.  LEI had signaled recession many times in those 39 months, but like the inverted yield curves of 2022 to 2024, a sustained downturn in GDP never occurred. 

Inflation- The Iran conflict led to a spike in oil prices from $68 to $111.50 in April and we have seen prices fall back in May and June when hopes of an end to the conflict are at their highest.  However, headline and core (ex. food and energy) prices that were trending down toward targets are now uncomfortably high.  CPI for May y-o-y was +4.2% and core was +2.9%.  PCE in May was +4.1% and core was +3.4%.  PPI for May was +6.5% and core was +4.9%.  It feels like 2022-2023 all over again, but the measures are all expected to decline as oil prices and the slower moving gas prices drop back down to pre-conflict levels.  We are still in the unnatural and unprecedented situation where PCE is too close to or greater than CPI;  May PCE of +4.1% is just .1% under CPI of +4.2%.  May core PCE of +3.4% is .50% greater than May core CPI of +2.9%.  CPI is supposed to be .50% higher than PCE in a normal relationship.  I’m currently reviewing the “Truflation” measure, which is a real-time y-o-y estimate for CPI, started in December, 2021.  For you Bloomberg users, the ticker is TRUFUS44.

Real GDP- The Atlanta Fed’s GDP Now is currently at +2.5% for 2Q26.  GDP had improved in 1Q26 to +2.1%, following +.5% in 4Q25.  Nominal GDP was +5.1% in 1Q26, falling from +5.8% in 4Q25. 

Moody’s Beige Book Index- The June, 2026 Beige Book showed a lot of improvement.  Ten districts increased, one was flat, and one declined, which sadly was our own Philadelphia district.  The Moody’s index improved to 36.1 in June, following 25.0 in April, and 16.7 in March.

M2 Money Supply- M2 y-o-y growth was unexpectedly stronger in May at +5.6%, following April +4.7%, March +4.3%, and February +4.3%.  Finally, May’s growth is close to the average nominal GDP growth of +5.5% for 1Q26 and 4Q25.  We saw outright declines from December, 2022 to March, 2024 that were hurtful to growth.  The velocity of money has been flat at 1.41 in 1Q26, 4Q25, and 3Q25.  (Remember GDP=M x V).

Spacex and the Markets

Spacex completed the largest IPO in history on June 12^th, priced at $135 per share.  Trading opened at $152.75, hit a trading high of $225 within days, and slowly faded back to $153 on June 26^th.  Elon Musk became the first trillionaire with that issuance. The market cap stands at $2.0 trillion.

Spacex isn’t the only stock to rise and then fall back this quarter.  After stocks fell in March and April, prices rallied in May into June, before turning down as we see volatility with Iran and quarter-end repositioning.  The S&P 500 forward PE ratio is about 23 (19 to 24 is typical in a bull market).  AI investment and buildout will take an estimated three to five years and should lead to increased productivity, increased corporate profits, and increased GDP growth, albeit with potential increased job losses.  With the pool of available workers growing steadily and now at 14,063,000, this could spell bad news for the labor market.  Inflation will likely decline in this scenario.  (Warsh knows).

Don’t forget bonds.  They’ve been very volatile with a tendency toward rising rates most of the quarter.  During 2Q26, the 2-year Treasury yield rose 30 basis points to 4.09%, the 5-year Treasury rose 20 basis points to 4.13%, and the 10-year Treasury rose 5 basis points to 4.37% (after peaking at 4.50% with worries about the budget deficit, US debt/GDP at 122.8%, and uncertainty over term premiums).  Mortgage rates remain stubbornly high.  Watch out. The curve is flattening.

World Cup

Soccer fans have taken the US by storm, with an estimated 1 million to 5 million fans visiting the US, Canada, and Mexico for the matches.  Among the favorites are USA with Pulisic, France with MBappe (my personal favorite), Argentina with Messi (the greatest), England with Kane, and Norway with Haaland.  My niece got to go to the Ghana match in Philadelphia yesterday to cheer on her home country.  It has been exciting to watch some of the matches, but the 0-0 ties are a little trying.  It’s truly exciting as foreign visitors are praising the great time they are having in America. 

Large Hadron Collider

CERN has scheduled another long shutdown (LS3) for the LHC starting tomorrow to increase its capacity; this shutdown will last until June, 2030.  Other shutdowns included the September, 2008 one right after the LHC was started up on September 10, 2008, due to electrical issues and helium leaks and coincided with the Great Recession.  A temporary shutdown occurred in November, 2009 when a bird dropped a baguette into the electrical substation.  LS1 was from February, 2013 for two years, and LS2 was from December, 2018 for over three years, coinciding with the covid-19 pandemic.  We will wait for what’s next.  In all these years, I only remember one important discovery, that of the Higgs Boson particle in 2012.  Perhaps they don’t tell us everything.  Why would they keep spending extreme amount of money on the LHC?  Maybe they will someday tell us. 

Italy- Here We Come!!

This summer, we will visit Milan, Lake Como, Florence, Pisa, Tuscany towns of Chianti and San Gimignano, Cinque Terre, and Rome.  We are just praying that the 100+ degree heat wave ends before we go.  We have an excellent Italian travel agent who took care of all details- large and small.  I highly recommend her and if you plan a trip to Italia, let me know and I’ll give you contact information.

The Italian economy is producing just +.5% GDP growth despite its strength in manufacturing.  Unemployment is 5.7%.  Government debt is putting a drag on growth, with the debt/GDP ratio of 133.3%; US growth is also slowed by its ratio of 122.8%.  Prime Minister, Giorgia Meloni, has her hands full trying to improve the economy while navigating the EU rules. 

So, for now, arrivederci!

Thanks for reading!  As always, I appreciate your support!  Viva l’Italia!  DLJ 06/28/26

Dorothy Jaworski has worked at large and small banks for over 30 years; much of that time has been spent in investment portfolio management, risk management, and financial analysis. Dorothy recently retired from Penn Community Bank where she worked since 2004. She is the author of Just Another Good Soldier, and Honoring Stephen Jaworski, which details the 11th Infantry Regiment's WWII crossing of the Moselle River where her uncle, Pfc. Stephen W. Jaworski, gave his last full measure of devotion.

Disclaimer: This publication is provided to you solely for educational and entertainment purposes.  The information contained herein is based on sources believed to be reliable but is not represented to be complete and its accuracy is not guaranteed.  The expressed opinions, views, and estimates are those of the author as of this date and are subject to change without notice.  The author cannot provide investment advice but welcomes your comments.

What Drives Bank Valuations?

I've been researching what is driving bank stock valuations. It has been a subject that has lived rent free in my head for years. What I would like to drive valuation: long-term EPS growth, financial performance and financial condition. There is correlating factors to these drivers. But I also can't ignore how much tangible book value per share (TBVPS) growth is also a key driver.

Banking is one of the only industries that anchor valuations so heavily to equity. Not just my opinion. A CEO just lamented about this. What makes it troublesome is that retail bank stock investors like a clean balance sheet, good profits, and a strong dividend. Pay a higher dividend and you stunt TBVPS growth. And since this is a valuation driver, you might be slowing share price appreciation. 

You can see this play out with banks that have poor earnings. They trade at relatively high P/EPS multiples versus very profitable banks. It is common to see a very profitable bank trade at less than 10x P/ EPS while a terrible earner trading at 15x-20x. The poor earner might be trading at book, while the good earner at 1.25x book. Telling you all that you need to know about the peculiarities of bank stock valuation. 

To do a deeper dive, I ran a lot of data. I downloaded the following data points for years 2021 - 2026Q1:

TBVPS Growth, EPS Growth, Leverage Ratio, NPAs/Assets, ROAA, ROAE, Net Interest Margin, Cost of Funds, Yield on Earning Assets, Efficiency Ratio, P/EPS, P/TBVPS

I asked Copilot to find correlations between the financial performance and financial condition factors and compare it to investment banks and consulting firms' observations on bank stock valuations. Here are the most salient findings with accompanying tables and charts.

Interesting that Copilot made no correlation to Cost of Funds, even though those publicly traded bank with the lowest cost of funds traded at the highest P/TBVPS, and second highest P/EPS (see table below). Low COF banks trading at higher multiples than higher Yield on Earning Assets banks has been consistent over the 20 years I have made the comparison. 

Here is what Copilot had to say after consuming all of the data and referencing industry experts.

 ✅ A. ROE / ROTCE ↔ P/TBV (strongest positive correlation)

Conclusion:
👉 This is the #1 driver of bank valuation multiples

• Banks with higher ROE consistently show higher TBV growth and would command higher P/TBV

Supporting evidence:

• Price-to-book rises with expected ROE and capital strength [bis.org]
• Bank analysts explicitly link P/TBV to ROE vs cost of equity [breakingin...street.com]

The dataset implication:

• ROAE + EPS growth columns will show highest explanatory power for valuation dispersion

---

✅ B. ROA ↔ Multiples (very strong, often underappreciated)

Conclusion:
👉 ROA drives quality of earnings, and therefore valuation durability

• Clean ROA → high NIM, low NPAs, strong efficiency
• High ROA banks don’t rely on leverage → more sustainable

Observed pattern in your data:

• Banks with:
  • ROAA > ~1.2%
  • Low NPAs
  • Efficiency <55%

→ also show:

• Strong EPS growth
• Strong TBVPS compounding

Industry confirmation:

• ROA reflects true operating performance and asset quality [linkedin.com]
• Markets reward “clean ROE built on ROA,” not leverage-driven returns [linkedin.com]

---

✅ C. EPS Growth ↔ P/E (very strong)

Conclusion:
👉 Growth is the primary driver of P/E dispersion

From your dataset:

• EPS growth volatility is very high across banks
• High-growth names (especially >15–20%) stand out sharply

Relationship:

• Higher forward EPS growth → higher justified P/E

Analyst view:

• Bank valuation embeds expected earnings growth + cost of equity [breakingin...street.com]

---

✅ D. TBVPS Growth ↔ P/TBV (structural correlation)

Conclusion: 👉 TBV growth is the long-term anchor of returns

In the dataset:

• TBVPS growth aligns tightly with:
  • ROE
  • retained earnings
  • efficiency

Banks with steady TBV compounding:

• Show stable ROE
• Have better efficiency ratios

---

✅ E. Asset quality (NPAs) ↔ Multiples (negative correlation)

Conclusion: 👉 One of the strongest negative drivers

From the data:

• NPAs vary dramatically
• Higher NPAs → lower ROA → lower ROE → compressed multiples

Industry evidence:

• Credit quality directly affects risk and valuation via expected losses [intrinsic-...vestor.com]

---

✅ F. Efficiency ratio ↔ Valuation (negative correlation)

Conclusion: 👉 Efficiency drives operating leverage and ROA

From the data:

• Banks with efficiency <50–55% consistently show:
  • higher ROA
  • better EPS growth

Interpretation:

• Markets reward cost discipline + operating leverage

---

✅ G. NIM ↔ ROA ↔ Multiples (moderate–strong chain)

Conclusion: 👉 NIM is an indirect but important driver

From your dataset:

• Higher NIM → higher ROA → higher ROE → higher valuation

Industry context:

• NIM compression in 2025 is already affecting profitability expectations [mckinsey.com]

---

✅ H. Leverage ↔ Multiples (non-linear / weak-to-negative)

• High leverage can boost ROE
• But:
  • increases risk
  • lowers valuation quality

The dataset:

• Shows mixed relationship
• Supports known reality: markets discount “leveraged ROE”

---

3) Synthesis: What actually explains bank multiples (ranked)

Tier 1 (dominant drivers)

1. ROE / ROTCE
2. EPS growth
3. TBVPS growth

Tier 2 (core operating drivers)

1. ROA (asset-level profitability)
2. Efficiency ratio
3. NIM

Tier 3 (risk modifiers)

1. Credit quality (NPAs)
2. Capital / leverage

---

4) How this aligns with recent investment-bank / industry commentary

🔹 1. Profitability (ROE) is still the anchor

• Valuation gaps across banks persist largely due to ROE dispersion
• Investors reward sustainable ROE above cost of equity [bis.org]

---

🔹 2. Growth skepticism is suppressing multiples

• Despite strong 2024–2025 earnings:
  • bank P/B and P/E remain structurally low
• Investors are questioning long-term growth durability [mckinsey.com]

---

🔹 3. Markets increasingly distinguish “quality of earnings”

• Banks are not valued just on ROE:
  • but how ROE is generated
• Clean ROA + low credit cost outperform leverage-driven models [linkedin.com]

---

🔹 4. Strategy + credibility now matter more

• Bain: valuation dispersion driven by:
  • execution consistency
  • growth narrative
  • capital allocation credibility [bain.com]

---

🔹 5. Structural valuation framework

Investment banks (FIG coverage) consistently anchor:

• P/TBV ↔ ROE / ROTCE
• P/E ↔ EPS growth + cyclicality
• Adjusted for:
  • credit risk
  • capital strength [acetheround.com]

---

5) Bottom line (what the dataset is telling us)

🔴 The single most important takeaway:

👉 ROE (and ROTCE) is the strongest direct driver of bank trading multiples

---

🔵 But the true causal chain in your data is:

NIM + Efficiency + Credit quality → ROA → ROE → TBV growth → Multiples

---

🟢 And the market overlay is:

• Growth (EPS, TBV) determines P/E vs P/TBV premium
• Risk (NPAs, leverage) determines discount vs premium

How Banks Make Money: Culture. Not Kidding.

I recently spoke at a banking conference with a session titled: Profit Drill Down-How Banks Make Money. Below is a summary of my comments.

Core Thesis

Banks improve performance when executive-level KPIs are systematically translated (“waterfalled”) down to every level of the organization—so that individual roles, units, products, and customers all align to the same economic drivers. When done well, this creates a self-reinforcing culture—an “invisible hand” guiding behavior without constant top-down pressure.

1. The Problem: Strategy Doesn’t Reach the Front Line

• Banks typically track high-level KPIs (e.g., Net Interest Margin, ROE, efficiency ratio). 

• But these metrics often don’t translate meaningfully to frontline staff: 

Example: What does a 3.80% NIM target actually mean to a relationship manager?

Without translation, KPIs remain abstract, disconnected, and ineffective as drivers of behavior.

2. Culture as the Missing Link

• The presentation defined culture as: 

1. An“invisible operating system”
2. An alignment mechanism
3. A value creation engine 

Strong performance isn’t just about strategy—it’s about embedding that strategy into everyday decisions.

3. The Solution: KPI Waterfalling

The key idea is to decompose bank-level financial outcomes into actionable drivers at every level:

Example Cascades

• Net Interest Margin (NIM) → Branch KPIs (deposit mix, deposit spreads (%), deposit spread growth); Lender KPIs (loan spreads (%), loan spread growth) 

• Return on Equity (ROE) → Marketing KPIs (campaign ROEs); Lender KPIs (portfolio ROEs); Relationship KPIs (ROE hurdle rates) 

• Efficiency Ratio / Expense Control → Support function KPIs (opex/loans serviced), opex/deposits serviced)

Result: Each employee sees how their actions directly affect enterprise outcomes.

4. Extending to Products and Customers

• The framework emphasizes profitability at the product and customer level, not just the bank level by understanding: 

1. Which products generate the most risk-adjusted revenue
2. Which customers create or destroy value

Banks can allocate effort, pricing, and strategy more effectively.

5. Performance Insight: Variation Matters

• Benchmarking across banks shows wide dispersion between top- and bottom-quartile performers. Benchmarking within the bank can also be powerful, i.e. which Lender demonstrated the best improvement in loan spreads among our team of lenders?

• Trend compares apples-to-apples: how did the Market Street branch deposit spread improve over time? 

This highlights: 

o Execution—not just strategy—is what differentiates performance

o Proper alignment and accountability can close that gap

6. Cultural Impact: Turning KPIs into Behavior

When KPI waterfalling is done correctly:

• Everyone shares the same goals, not just executives

• Employees feel: 

1. Connected to the strategy
2. Supported rather than policed 

• Decision-making becomes: 

1. Faster. There is greater empowerment, less policing
2. More consistent
3. Economically aligned

7. Key Takeaways

• Tie strategy → KPIs → compensation → daily activities across all levels

• Make KPIs relevant and actionable for each role

• Use alignment to create a performance-driven culture without constant oversight

• Culture becomes the“invisible hand” that drives sustained improvement 

Bottom Line

The presentation argued that financial performance is not just a function of strategy—it’s a function of alignment.

When banks successfully cascade KPIs from the boardroom to the frontline and down to individual customer decisions, those KPIs stop being metrics and instead become shared goals that shape behavior, ultimately driving superior, consistent performance.

~ Jeff

If you find granular measurements like what was mentioned here as elusive or you lack the resources to do it, please contact me at jeffrey.marsico@wolfandco.com. 

Lessons Learned From Selling Your Bank

I recently attended the 141st Texas Bankers Association annual convention in Dallas, and true to form, attended a few sessions that grabbed my attention. First was a panel with two bank CEOs that recently sold their bank to larger financial institutions. They were:

Dan Rollins: Former Chairman and CEO of Cadence Bank, who recently sold to Huntington Bancshares

Bob Franklin, CEO of Stellar Bancorp, who recently sold to Prosperity Bancshares

Overview

This overview synthesizes insights from the Texas Bankers Association breakout session, merger press releases, and S-4 filings for the Cadence–Huntington and Stellar–Prosperity transactions. The focus is on understanding why these banks chose to sell and the strategic considerations behind each decision.

Key Themes Across Both Transactions

1. Scale and Regulatory Pressure: Both transactions highlight the increasing regulatory burden associated with crossing asset thresholds. Cadence (~$50B) and Stellar (~$10B) each faced step-changes in compliance costs, making standalone strategies less attractive.

2. Need for Technology Investment: Management emphasized the growing cost and complexity of digital banking platforms. Larger institutions like Huntington had invested significantly more over longer periods, creating a competitive gap.

3. Search for Economies of Scale: Both institutions pursued growth to offset fixed costs (compliance, technology, Durbin amendment impacts). When organic or acquisition growth was insufficient, a sale became the optimal path. Interesting insight because Cadence completed two acquisitions in 2025. Were they running out of targets?

4. Strategic Fit over Price: Management commentary indicates price was not the primary driver; cultural fit, technology, and long-term competitiveness were more important.

Cadence Bank → Huntington: Reasons for Sale

• Strategic expansion and scale: The merger gave Huntington immediate scale in high-growth southern markets and created a top-10 bank footprint.

• Competitive positioning: The combined entity would operate across 21 states and major MSAs, allowing stronger competition against larger regional and national banks.

• Technology and capabilities gap: Cadence leadership acknowledged larger banks had more advanced platforms and investment capacity. Huntington wasn't investing in things that Cadence was not. It was just that Huntington started years before, and was investing 10x as much.

• Growth platform: The transaction created a platform for continued organic investment and expansion into fast-growing markets.

Stellar Bancorp → Prosperity: Reasons for Sale

• Sub-scale economics: At ~$10B, Stellar faced Durbin amendment pressure and step-change regulatory costs without sufficient scale.

• Failed M&A strategy: Stellar attempted to acquire another institution to reach ~$15B but was unsuccessful, leading to a sale decision.

• Need for scale in core markets: The merger created one of the largest Texas-based deposit franchises, improving operating leverage.

• Enhanced competitive position: The combined entity could better invest in growth, technology, and customer capabilities.

Lessons Learned (Panel + Filings)

• Threshold Management Matters: Banks near key regulatory asset thresholds must proactively plan their path (grow through or sell).

• Technology is a Major Driver: Increasing investment requirements make scale critical.

• Execution Risk of MOEs: Both executives noted challenges with mergers of equals, especially around culture and integration.

• Strategic Optionality is Key: Institutions must continuously evaluate both acquisition and sale opportunities.

• Retention and Integration Planning: Successful transactions require strong focus on employee retention and post-merger execution.

Conclusion

Both Cadence and Stellar ultimately sold not due to immediate need to do so, but because of structural industry pressures—scale, regulation, and technology investment requirements. Their decisions reflect a broader trend in regional banking consolidation where size increasingly determines perceived competitiveness.

It also points out, in my opinion, the difficulty in distinguishing one institution from another the larger you get. Does "community bank" resonate when you have nearly 400 branches in over 300 communities? Does your size and the law of large numbers force larger banks to play in larger loan and funding pools with more commoditized pricing?

Maybe the law of large numbers, that I wrote about over 10 years ago on these pages,  also forces banks to be something they tried so hard not to be... commodities. If that is the case, then size would presumably be the only thing that matters. 

~ Jeff

Note: My firm prides itself on performing periodic reviews of who banks can buy, and at what price, who they can sell to, and at what price, and the financial impacts of strategic partners of like-sized financial institutions. While nobody can be unbiased, we build process into our review so we are being partners with our clients and being responsive to what they want to do. Contact me at jeffrey.marsico@wolfandco.com of you would like us to do this for you.

Memorial Day: 250 Years Later, Remember Captain Nathan Hale

The story of Captain Nathan Hale is one of the most enduring legends of the American Revolutionary War. Not because of the resounding success of his most famous mission. But because of his rare bravery. It is a tale of intense patriotism, a trusting miscalculation, and a final, defiant statement that echoes through American history.

Schoolmaster to Soldier

Hale was from Connecticut and was a brilliant young man. He graduated from Yale at 18 years old and became a schoolteacher known for his gentle demeanor and passion for teaching. 

When the Revolutionary War broke out in 1775, his deep-rooted ideals of liberty compelled him to join up for the cause. He enlisted in the Connecticut militia, was quickly promoted to captain, and eventually joined the Continental Army regulars, 19th Regiment of Foot. By early 1776, his unit was stationed in New York, where George Washington's forces were attempting, quite unsuccessfully, to defend the city against superior British forces. 

The Desperate Mission

By September, the American situation was dire. The British had severely defeated Washington's forces at the Battle of Long Island, forcing the Continentals to retreat to Manhattan. Washington desperately needed intelligence on the British forces regarding their numbers, fortifications, and next moves.

Spying was not considered noble at that time. Although I am thankful to Captain Hale that attitudes have since changed given my Navy rating. Asking for volunteers to slip behind enemy lines, Hale stepped forward fully aware that if caught, he would not be treated as a prisoner of war, but executed as a common criminal.

Despite the stigma and the extreme risk, Hale was steadfast. He reportedly told a fellow officer "I wish to be useful, and every kind of service, necessary to the public good, becomes honorable by being necessary." He didn't do it for being valorous, but it needed to be done.

Behind Enemy Lines

Hale disguised himself as a Dutch schoolmaster seeking work. He crossed Long Island Sound from Connecticut to Huntington, Long Island, which was under British control.

For about a week, Hale successfully gathered intelligence on fortifications and troop numbers, hiding his notes in his shoes and writing them in Latin. However, aside from this, he was an amateur, lacked formal training in tradecraft, and was unusually trusting.

The Capture

On September 21, 1776, as Hale was preparing to cross back over the Long Island Sound, his mission came to an abrupt end.

As recounted in loyalist diaries, the most widely accepted version of his capture was that Major Robert Rogers, a brilliant and ruthless British officer that led a Loyalist unit called the Rogers Rangers, suspected Hale a spy. He approached him in a tavern, pretending to be an American sympathizer. Hale let his guard down and revealed his mission. 

The British found his sketches and notes in his shoes. 

A Spy's Death

Because he was caught out of uniform and behind enemy lines, and given the prevailing attitudes on spying, Hale was denied a trial. The British commander, General William Howe, ordered him to be hanged. He was 21 years old.

On September 22, 1776, Hale was marched to the gallows in Manhattan. The exact location is debated, but it is believed to be near modern-day Grand Central Terminal. 

According to eyewitness accounts from British officers who respected his composure while facing imminent death, Hale faced his fate with incredible dignity. Before the noose was placed around his neck. He was asked if he had final words. What he said next would resonate through the Continental Army as motivation to continue the fight, and through the annals of history.

"I only regret that I have but one life to lose for my country."

Nathan Hale's mission was a military failure- none of his gathered intelligence ever reached Washington or the Continental Army. However, his death became a massive psychological victory for the American cause. He transformed an executed spy into an enduring symbol of self-sacrifice and unwavering patriotism.

Today, he is recognized as the official hero of the State of Connecticut, and his statue stands outside the headquarters of the CIA. 

On this Memorial Day and on our nation's 250th birthday, thanks to people like Nathan Hale, I ask that you remember Captain Hale and the 1%-2% of America's population at that time that gave their lives to establish our great nation.

~ Jeff

Prior Memorial Day Posts

Jeff For Banks: Memorial Day: Remember 1st Lt. John Fox

Jeff For Banks: Memorial Day Post: Honor Those Fallen During Our Afghanistan Withdrawal

Jeff For Banks: Memorial Day: Remember Sergeant (USMC) Rafael Peralta

Jeff For Banks: Memorial Day: Remember Captain Andy Haldane

Jeff For Banks: Memorial Day: Remember Maurice "Maury" Hukill

Jeff For Banks: Memorial Day: Remember Irv Earhart

Jeff For Banks: Memorial Day: Black Hawk Down

Sources:

https://www.continentalline.org/CL/article-060102/#:~:text=Captain%20John%20Montressor%2C%20a%20British,Sir%20William%20Howe%2C%20British%20commander.

https://www.loc.gov/loc/lcib/0307-8/hale.html#:~:text=The%20%22hard%20intelligence%22%20whose%20paucity,of%20a%20British%20officer%2C%20Lt.

https://bonniekgoodman.medium.com/otd-in-history-september-22-1776-nathan-hale-executed-for-spying-0e6bc3f46d13#:~:text=According%20to%20British%20officer%20Frederick,22%2C%201776).