Friday, April 25, 2014

Why Banks Merge: Listen to the Sellers

September 2004, driving from a meeting in New York, on the grossly miss-titled Cross Bronx Expressway, Nathan Stovall, a reporter from SNL Financial gave me a call. The question: What was up with an upstate New York bank? My answer: The CEO was 67 years old and that would obviously be an impetus for a sale. He printed it as I said it. The angry phone call I later received from a bank director was well deserved.

Unfiltered honesty is sometimes a personal blessing, but mostly a curse. Rarely do you see in merger press releases the selling CEO saying, "Hey, I'm tired. I'm out!" But that is often the reason behind the nicely polished words formulated in the Investor Relations Department.

In 2013 there were 246 bank and thrift merger and acquisition deals announced, the highest number since 2007 when there were 318 deals. Year to date through April 22nd, there were 73 announced deals, putting us on track for a similar number of deals to last year. This all comes with fewer banks than there were in 2007.

What is driving deal volume? Investment bankers will tell you the definitive answer, which is of course their opinion. So I thought it would be instructive to take a look at what selling bank CEO's say in the press release when they announce they are turning over the keys to someone else. Yes, these statements are contrived. But within them there is often nuggets of truth. I simply hunt for those nuggets and put my own spin on why the bank was sold. 

These deals were all announced this month.

"Our combined financial institution will offer a wider array of products and services while continuing our long-standing personal commitment to our customers and community."

- Gregory Schreacke, President of First Financial Service Corporation in Elizabethtown, KY on his bank's sale to Community Bank Shares of Indiana, Inc.

Read: We needed greater scale to offer the products and services demanded by customers.

"Our combination... will provide greater capital resources and operational scale that will allow us to grow as part of a larger community bank."

- Loralee Hutchinson, President of Alarion Financial Services, Inc. of Ocala, Florida on the bank's sale to Heritage Financial Group, Inc.

Read: We need to be bigger and have more capital to keep up with regulation and the industry.

"[North Akron Savings Bank customers will gain] access to a broader choice of financial products and services comparable to those offered by the large banks operating in the region."

- Steve Hailer, President and CEO of North Akron Savings Bank on the bank's sale to Peoples Bancorp, Inc.

Read: There's no way we can keep up with the product and distribution channel changes coming down the pike. And what is social media?

"Customers will gain access to many new products and services, including insurance, trust, and investments, plus a full suite of contemporary electronic services.  At the same time, our legal lending limit will be much larger, which will help us to make larger investments in the local communities."

- Dick Baker, Chairman of Ohio Heritage Bancorp of Coshocton on the bank's sale to Peoples Bancorp, Inc.

Read: You have to make lots and lots of little loans when you only have $25 million in capital.

“I am excited about our increased capacity to lend, which will have an impact on the communities we serve."

- Mark Candido, President and Chief Executive Officer of Quinnipiac Bank and Trust Company in Connecticut on his bank's sale to Bankwell Financial Group.

Read: We only have $10 million in capital and can't get more on our own. Oh, and the fact that the CEO is 65 is a mere coincidence.

Am I reading it right?

~ Jeff

Saturday, April 12, 2014

I Want to Draw a Cat For You: Bankers Edition

I have two TV guilty pleasures that my wife endures: Spike TV's Bar Rescue and ABC's Shark Tank. On Shark Tank, this interesting fellow, Steve, pitched for $10,000 from the sharks for his business... I Want to Draw a Cat For You. I was highly entertained by the idea. So I had Steve draw me a cat, and I'm sharing it with you.

How often do I hear bankers wish they can get more activity from branch personnel? Almost daily. So I thought I would memorialize this conundrum in a cat drawing. And yes, I did pay $9.95 for it. Enjoy!

Saturday, April 05, 2014

Bankers: Are We Passing On The Tough Decisions?

"One of our problems is our long-term employees", said a banker to me. I have heard this so often that it probably applies to a significant percentage of Jeff For Banks readers. In an era of unprecedented industry change, if your employees embrace change like a cat embraces water, you might have a problem.

In my life, I have experience in two industries: banking and the US military. Well, I've also been in the newspaper business (paper boy), a top chef (Mickey Dee's), gasoline distribution (Hess boy), and food service (college caf worker). But I wouldn't exactly call a job designed to earn beer money or to bolster my eight track tape collection experiences worth reflecting on. Note the paper boy gig was not for beer money.

But in both banking and the military, employees resisted change, and leadership balked at making tough decisions. Tough decisions are not limited to employees. More broadly, tough decisions involve identifying a clear path, one that may be different than your current path, and allocating the resources to effectively succeed. This reminds me of one of my favorite quotes by Chris Lowney:

"The best business leaders I knew distinguished themselves, in part, by a willingness to focus energy, resources, and effort. The wishy-washy tried to cover their bases by doing and pursuing a little bit of everything, clearly fearful of committing to the wrong path. In the end, they succeeded only in diluting already scarce resources and scattering their focus to the point of inefficiency. Great managers, on the other hand, made tough either-or choices that directed effort and talent toward a limited number of objectives."

- Chris Lowney, former Jesuit and JP Morgan investment banker, and author of Heroic Leadership.

The above quote is part of nearly every speech and class that I teach regarding strategy. Why? Because it speaks to a significant challenge in banking. We mis-allocate resources and fail to make tough decisions daily. And it's putting our future in jeopardy. 

The most difficult decisions involve people. Technology and customer preferences have changed the epicenter of banking success from back office, transaction facilitating personnel to front-line, customer facing employees. But back office personnel are gripping old school ways with white knuckles. They use terms like regulation, compliance, policy, procedures as key reasons for holding their sway and allocating resources to their department. But are most transactions processed in bits and bytes versus the old way of moving paper from one inbox to the next? Then why have we not modified processes and shifted resources towards strategic priorities? The sergeants that run our support centers and resist change... tough decision.

Front liners have their habits too. How many FTEs do you have per branch? I challenge you to sit in one or two branches for a few hours. What are those five or six FTEs doing? Could they be spearheading a direct mail campaign to local businesses? Making follow up phone calls to those they recently sent direct mail? How about calling single service customers, or calling the branch's most profitable customers to ask "how are we doing serving you"? The resistance to doing this is monumental and confounding to me. If your branch employees aren't doing this... tough decision.

How about the tortoise pace in developing products or product packages to distinguish you in serving your niche? Don't have a niche that dictates resource allocation?... tough decision.

I once had a CEO tell me that they should keep a branch to maintain a presence in a particular town. The branch was losing a quarter million a year. If you are losing a quarter mil, do you want to be in that market? Tough decision.

In my career I have faced tough decisions. And I admit to making some painfully slow, especially when people are involved. I am not proposing dispensing of our humanity when making tough decisions. But when our very survival is at stake, you have to ask yourself if you have what it takes to make the tough decisions, or have somebody else, such as a buyer, make them for you.

Are you making the tough decisions?

~ Jeff