Friday, August 28, 2020

Texas Big: First Road Trip Since the Pandemic

It was bound to happen. After four months of lockdown, bankers are getting back to the office. They never stopped working, mind you. But work has been different to say the least. This month was our first opportunity to visit clients outside of driving distance since March!

The challenge: We are based in Pennsylvania and our governor still has a 14-day quarantine order for those traveling from Texas. So we condensed site work, and stayed the weekend! Here are some video highlights from the trip. Over 1,300 miles.

Special thanks to the eminently polite people of Texas, and our friends at FirstCapital Bank of Texas, N.A. for such a warm welcome.

Did you know someone planted Cadillacs in Amarillo?

In case your mobile device doesn't see the video to play, here is the YouTube link:

Monday, August 03, 2020

Bankers: Hunker or Pounce?

Unprecedented times. How many of our borrowers on forbearance can begin making payments? What provision do we make this quarter? How do we justify it? What will our constituencies think when we have to foreclose on borrowers?

For most of us, the onset of a recession means a time to assess the risk on our balance sheet, to tighten underwriting standards, and ramp up workout teams. It's what we did in 2008-10. And we were successful. We lived to fight another day.

But is it the right strategy for this pandemic recession?

I delivered this talk on a recent bank trade association webinar. And I'd like to share it with you.

At the end of 2019 everything seemed like sunshine and rainbows. Over a decade of economic expansion. Record earnings. Pristine asset quality. Capital aplenty. 

Then Covid-19.

Unlike 2008, banks were not the bane of our problems. In 2008, we were in the eye of the storm. Sure, community banks had little to do with liar loans or what was otherwise termed sub-prime. But many banks were, including the nation's largest. And "bank" is what's on our marquee. So community banks were grouped with the wrong-doers, even though the wrong-doers were a small percentage of our industry. They represented an outsized percentage of banking assets. So into the valley sank our collective reputations.

But today, we were not part of the problem. And through the Paycheck Protection Program, we actually became part of the solution. Community banks in particular. Banks with less than $10 billion in total assets accounted for 51% of PPP loans and 44% of PPP loan balances. We punched well above our weight. 

What's more, the very large banks that participated (Wells Fargo did not initially) largely ignored their small to mid-sized customers. When PPP opened, businesses flooded the gates. Like the Pamplona running of the bulls. Most of them banked with the very largest. And many of their calls to their "banker" went unanswered. So they called around to their community bank. Call-answered. Loan request-submitted. Approval-recieved. Funding-deposited. 

Steve Busby, CEO of Greenwich Associates, a financial services analytics firm, said this about PPP borrowers: "If business owners did not know what it meant to be a borrowing customer or have loyalty from their bank, they do now."

So, a win.

But now reality. The below chart shows S&P Global Market Intelligence estimates for the rise in bank non-performing assets.

And according to multiple bankers I spoke with today, the leaning is to wait it out. Feeling like Patrick Swayze described in Next of Kin.

But do we want to pass up on the opportunity to slay the gladiator (i.e. big bank) while they're down? Do we want to pass on the opportunity to operate with fewer, yet more capable (and therefore higher compensated) employees? Do we want to retrain our once branch-centric customers that were forced onto online and mobile platforms to be branch-centric again? All the while tending to our balance sheet?

Do we want to hunker?

This is our moment. What strategic initiatives will bust our 2020 budget? It's already busted! And our collective capital position is much stronger than 2008.

This is our moment to prove we can walk and chew gum at the same time.

This is our moment to invest in our employees to develop the human element, so critical in a "relationship".

This is our moment to invest where investing needs to be done, and pull the plug on inefficient uses of our capital.

This is our moment to prove that anything the big bank can do, we can do better.

Or, we could hunker, and wait it out. And let the moment pass.

Your choice.

~ Jeff

Sunday, July 19, 2020

Bankers: Who Has These Three Drivers of Value?

Two years ago bank stock analysts from investment banking firm Boenning & Scattergood identified three attributes in a financial institution that investors should look for. I wrote a blog post on it that is currently my third most read post of all time.

The three attributes were:

1. Superior Growth Prospects

2. Excess Capital

3. Strong Deposit Franchises

I can get behind these three. Can you?

Who Has "It"?

In 2018, I searched for individual financial institutions that met each of these criteria. In this post, I would like to search all publicly traded financial institutions between $1 billion and $10 billion in total assets to ensure I get adequate trading volumes to be able to compare trading multiples of banks that qualify as having these attributes and their financial performance. This resulted in 292 financial institutions (the "Measured Banks").

From there, I defined superior growth prospects as top quartile asset growth over a three year period. I defined excess capital as top quartile tangible equity to assets for the most recent year ended 2019. Strong deposit franchise was defined as top quartile non-interest bearing deposits to total deposits for that same period. 

The following table identifies all of the financial institutions that met at least two of the three criteria.

Thursday, June 25, 2020

Three Ways to Align Marketing With Profitability

The inability to connect Marketing activities to the bottom line is what I frequently hear from bankers that think the Marketing Department is a cost center. Measurement is difficult. 

I also hear that silos are a problem in banking. Yet Marketing is frequently held to account for the ROI of the checking or home equity campaign. And branch bankers say they weren't consulted nor were they included in promotion planning. They often hear of the campaign on the radio while driving home. 

If you read my articles, watch my videos, or have heard me speak you know I'm a big proponent of the Marketing function taking a more prominent role in banks because customer acquisition and the customer experience has changed so much in the past decade. There must be an integrated, cross functional approach to acquiring, onboarding, and serving customers well to deepen relationships and turn them into champions of your brand. And that includes support functions. Nothing is more frustrating than turning a raving fan customer into a cynic because they get buzz sawed by the wire transfer person at HQ.

I have a bias towards profitability and against widgets. I remember doing a process review at a bank where one branch had hundreds of checking accounts with $100 or less. When I asked... you know the answer, right? A CD promotion that required opening a checking account. Widget counting. If the branch manager was accountable for consistently improving the profitability of her branch, and the Marketer was responsible for the continuous profit improvement of retail checking, this wouldn't have happened. Because having hundreds of low balance retail checking accounts attracts cost, with little revenue. But I bet you the CD promotion report had none of this.

So here is what I suggest:

1. Make profitability the ultimate accountability. 

Mandatory disclosure, my firm measures line of business, product, and feeds to customer profitability systems. And I work diligently with banks to analyze, adjust, and improve their profit trends using this information. Because I believe it is the way to go. Imagine if Marketing were responsible for the continuous improvement of the home equity line of credit product (see table).

The pushback from using profit and profit trend as the ultimate accountability, and not just from Marketing mind you, is that there are so many things outside the control of the marketer. True. But isn't that the case for any line of business with their profit and loss responsibilities? I have no control over the D&O insurance premium at my firm. But I'm sure as heck responsible for the firm's profitability. Which leads me to my second way to hold Marketing accountable.

2.  Implement Product Management. 

Which is totally related to (1) above. If Marketing was accountable for managing the HELOC product, wouldn't they engage in cross-functional collaboration to improve the profit picture? For example, in examining the above table, it is clear that the Bank has done a good job at increasing the product's spread. Fee income has been flat. And operating expense as a percent of the portfolio has been rising, even as the portfolio has been growing. Aha! What is afoot? Is credit underwriting manual? Do customers apply online and the loan moves seamlessly and electronically through the bank's underwriting, closing, and booking process? Does someone in loan servicing spend half their time on insurance tracking? i.e. are your processes scalable and efficient? Did you have a $100,000 marketing spend to generate 10 loans? All would be on the table as the person responsible for the continuous profit improvement collaborates with all areas of the bank that touch the product to improve the profit trend. And if the HELOC profit trend improves, branches will be more profitable (if they are the line of business responsible for HELOC origination).

3.  Identify Root Causes and Track Improvement. 

I'm currently reading the book Everything They Told You About Marketing Is Wrong by Ron Shevlin. In it, Ron says "The key to future profitability isn't in simply keeping customers-it's from deepening their relationships. And engagement is a necessary precondition for that to happen." There's that profitability word. What was Ron thinking? But fine, let's assume that "engagement" is key to keeping and deepening relationships. What the heck is engagement? Ron says it's whatever the bank thinks it is. And here was the chart from the book to highlight the point: 

I took a picture from my Kindle. Don't judge.

I asked Ron how to measure it, and he sent me a slide deck that showed it was measured by survey. If there was evidence that there was a strong correlation between engagement and customer profitability, I think the savvy marketer can measure it without having to perform surveys in today's AI and CRM world. But let's assume engagement deepens and lengthens a relationship. Let's look at the profit trend of a business interest checking product.

This product is much more profitable than the HELOC. In terms of ROE, fuhgetaboutit. So profitability should drive what marketing initiatives you implement.

Back to increasing engagement to increase profitability. If Marketing was responsible for assisting bankers migrate customers from low, to medium, to high engagement, how would that impact the profit picture? For one, it would lessen the operating expense as a percent of the product portfolio, because there would be no Know Your Customer, Address Checks, promotions to win a new customer, etc. And second, the deposit spread would increase because the duration (CFO term) of the product would increase, yielding a greater FTP Credit for Funds. 

By increasing the profitability of Business Interest Checking, you also increase the profitability of branches that are generally responsible for deposits, and possibly the commercial lender if the bank measures their portfolio profitability, including the deposits they brought in. 

So identify root causes with high correlation to improving product profitability, and measure Marketing on them. 

This level of accountability breaks down silos as Marketing now works with various departments within the bank to improve the profit picture, and aligns Marketing interests with those of profit centers (i.e. no hundreds of low balance checking accounts). When product and therefore line of business profitability goes up, so goes the bank.

What's stopping you?

~ Jeff

Thursday, June 11, 2020

Money Is Math. And Math Is Color Blind.

Typical conversation at my house:

Me: How much was on the credit card?!?!
Wife: Well, it's because of [reason 1], [reason 2], and [reason 3].
Me: Our checking account doesn't care about the reasons. We pay the amount on the credit card, and it comes out of the checking account. Simple math.

This conversation is amplified for households in low-to-moderate income (LMI) families. So often they have too much month left when they run out of money. Causing them to do inefficient and costly things such as remit late payments and be assessed a late fee, use a high-cost payday lender, or sometimes ignore the bill. The cascade of falling dominoes leads to societal dependencies such as 30 million children relying on the National School Lunch Program for food. 

Nobody described this situation better than John Hope Bryant, an American Banker 2016 Innovator of the Year, in my firm's This Month in Banking podcast three years ago. I encourage you to listen to it for ideas on what your financial institution can do to facilitate economic mobility among LMI families. 

I also penned a TKG Perspectives article on the Community Reinvestment Act, its obvious lack of effectiveness if you consider outcomes instead of activity, and what financial institutions can do to promote economic mobility and community development.

Hint about the podcast and the article: It's not about altruism or box checking. In Bryant's words, "you can do well by doing good."

We tend to be emotional spenders and don't consider the long-term impacts of our decisions. I recall being the "money guy" for my daughter's travel softball team. It was a club team and we had an annual fee. Club teams are important for players that want to be seen by college coaches. 

We estimated our expenses and divided by the number of players to determine the fee. We usually rounded up in case of unanticipated expenses and to help families that may not be able to afford it. One family didn't pay, and after several unsuccessful attempts to contact them, we determined they must not be able to pay. So the rest of the families absorbed that expense.

And then the family showed up to the first tournament with the nicest ride on the team. They made the decision to buy a nice car, and couldn't pay for their daughter's club softball team. I'm sure the emotional excitement of buying that car, and pushing their budget to the limit, might have made sense that day. But imagine if, instead of other parents paying that fee, we kicked the girl off of the team? Had they considered this outcome when asking "can we afford this car?" 

This is where banks can play a constructive role. Had their bank positioned themselves as an advisor, the banker would've counseled the family on cars they could afford, without pushing the family budget to the brink, running the risk of dominoes falling if one thing went wrong, and teaching sound family financial management. Perhaps even set them up on budget monitoring tools and automated savings apps. 

Because we often make foolish financial choices if left to our own devices. Think how many people don't contribute to a 401k minimally to get the full company match? People leave the company match piece (i.e. free money) on the table because they don't want to reduce their pay by their contribution. What bank financial counselor would recommend that?

Financial foolishness is color blind. We all could use a dispassionate advisor. But it's particularly acute among LMI families because of the reasons stated above. 

As John Hope Bryant said in the podcast, in the U.S., the poor can save capitalism. Banks can help make it so.

~ Jeff

Note: If you're interested in my annoying video to my daughters on personal financial management, click here. I still own those shorts.

Sunday, May 24, 2020

Memorial Day: Remember Irv Earhart

The Battle of Luzon was one of the bloodiest battles of World War II, and the second bloodiest in the Pacific Theater. Americans landed on January 9, 1945, and lasted until the Empire of Japan announced their WW II surrender on August 15, 1945.

Although Luzon was secured by March, Japanese forces continued to battle until the war's end, and even afterward. The human toll of Luzon was significant: Japan suffered 192,000 to 205,000 dead, mostly from starvation and disease; Philippines lost between 120,000 to 140,000 civilians and soldiers; Americans lost 10,000 soldiers.

Luzon was to be the strategically significant base from which General Macarthur would direct war efforts against mainland Japan, who had seized the island in 1942. Americans first seized the island of Leyte in a significant naval battle that crushed the Japanese navy. Leyte opened the door for the landing of more than 60,000 American troops on Luzon on January 9th. Among them in the Sixth Army, was the 32nd Infantry Division, and Tech 5 Irv Earhart.

Irv hailed from Elizabethtown, Pennsylvania. He was a truck driver and lived with his parents and siblings on a 119 acre farm just outside of town. He and his brother joined the Army after the Japanese attack on Pearl Harbor. His brother, Bob, went to the European Theater, and Irv to the Pacific.

The Americans landed on Luzon with little resistance. Japan's strategy was to bog down American troops, keeping them engaged, so they had diminished capability of invading their homeland. The actual liberating of Manila and the island was effectively done by March, highlighted by Macarthur's arrival in the newly liberated city to cheering Filipinos.

But the Sixth Army pushed north to route out Japanese soldiers, whose main force was hiding in the mountains and harassing American troops. It was there that General Yamashita's Shobu Group occupied a large region resembling an inverted triangle, with northern Luzon's rugged geography as a shield. Baguio, the pre-war summer capital of the Philippines, was Yamashita's headquarters. The Americans laid siege, and Japan suffered tremendous casualties, most from disease and starvation.

The Japanese made their last stand at the Irisan Gorge, where the road crossed the Irisan River, some three miles west of Baguio. Irv Earhart's 32nd Division, which had also seen heavy fighting on Leyte, was by now worn down to almost nothing. Before Baguio fell on April 27th, Irv Earhart gave his last full measure of devotion on April 9th. He was struck down by enemy machine gun fire while tending to a wounded soldier. 

Irv left a fiancé, his parents, a sister and brother. He won two purple hearts and a bronze star.

This weekend, as we push through the Covid-19 pandemic and the sacrifices we have made to beat it, remember Irv's sacrifice.

His remains are buried at the Manila-American Cemetery in the Philippines. He never returned to Elizabethtown. 

~ Jeff


Tuesday, May 19, 2020

Can The Federal Reserve's Main Street Lending Program Be Manna From Heaven for Community Banks?

"How much more abuse can small businesses take from big banks?"
~ Community Bank CEO

PPP is winding down. Community banks not only took care of their small to medium sized businesses (SMEs), but also helped big bank customers when their calls went unanswered.

Why? Because the big banks prioritized. It was a first come, first served program. And the race to the gate was intense. Ask any banker and SME CEO worried that the program would pass them by. So when they didn't hear back from their big bank, they started calling the local banks. 

Opportunity to win new customers? I think so. And bankers ought to be strategizing on how to turn those borrowers into core customers. 

Main Street Lending Program

But there's more! Now I sound like I'm selling you two Shamwow's for the price of one. Could the more be the yet to be launched Fed's Main Street Lending program? Set to launch May 29th and end on September 30th.

There are three lending facilities: Main Street New Loan Facility (MSNLF), Main Street Priority Loan Facility (MSPLF), and the Main Street Expanded Loan Facility (MSELF). In this post, I want to focus on the MSPLF, because it looks to be uniquely set up so community banks can win those local customers that have stubbornly remained with your large bank competitor.

Fine Print

Let me copy/paste a unique Eligible Borrower certification/ covenant of the MSPLF:

"The Eligible Borrower must commit to refrain from repaying the principal balance of, or paying any interest on, any debt until the Eligible Loan is repaid in full, unless the debt or interest payment is mandatory and due. However, the Eligible Borrower may, at the time of origination of the Eligible Loan, refinance existing debt owed by the Eligible Borrower to a lender that is not the Eligible Lender." (emphasis mine)

So, as I read it, if the Eligible Borrower has a loan outstanding at a big bank, it can saunter into your office, apply for an MSPLF, and repay a loan at the big bank. And the MSPLF loan is LIBOR +3%, which is currently 3.42%. And the loan is unsecured and the amount is based on the Eligible Borrower's 2019 EBITDA. Six times their EBITDA. Oh, and no payments for the first year. Years 2-3 amortization is 15% of outstanding balance, and year 4 is a 70% balloon. And your bank need only maintain 15% of the balance and the Fed will participate the other 85% through a special purpose vehicle.

I doubt the big bank will be calling their smaller customers that are current on their loans and have a good chance of making it through the pandemic.

So why is that stopping you?


~ Jeff

Update: This from the ABA's Daily Newsbytes on the MSLP:

The Fed announced that it would hold a drop-in session on May 22 at 2 p.m. EDT and an informational webinar on May 28 at 2 p.m. EDT for potential lenders in the MSLP. The drop in session will provide an opportunity for lenders to ask questions about the program, while the webinar will give lenders a chance to learn more about the infrastructure and operations of the MSLP.
Registration for these live sessions will be limited to two representatives per institution, and recordings will be available after each program. Register now. Questions may be submitted in advance to

Monday, May 04, 2020

Guest Post: Financial Markets and Economic Commentary by Dorothy Jaworski

Readers note: You can also view this post on Penn Community Bank's website. Click here

Coronavirus Pandemic
Life as we know it changed in March, 2020. A new deadly coronavirus that originated in China quickly spread around the
world. We found that our government response was to declare emergencies and have us stay at home, confined, quarantine, lock down, and self-isolating, except for essential trips for food or medicine, or to go to work if you are an essential business employee. Gatherings and events were all cancelled to slow the spread of the virus. Panic buying of food and supplies led people to hoarding behaviors.

Every week that has passed- four so far- has felt like a year. It’s hard to remember January and February, except that we never really had any snow. Restaurants are closed. Theaters are closed. Even churches are closed and the new reality had me watching Easter church services from the Cathedral Basilica in Philadelphia on a website. It is not like any other Easter I have ever experienced.
The horrible, horrible coronavirus pandemic is not over yet. Call it COVID-19 or SARS-COV-2 but this virus is an invisible deadly threat to many people. 182 countries around the world have cases of people sick with the virus and those countries have ordered most people to stay home and closed businesses. Around the world, there are 1.8 million positive cases, 116,000 deaths, and 400,000 recoveries; there are 550,000 cases in the US alone with 22,000 deaths. For most of us here around Philadelphia, the stay at home restrictions began on March 13th, which was Montgomery County‘s date. Bucks County followed a few days later, along with business closures.
As frightening as this crisis has been, we have seen a mobilization like never before of government at all levels and the cooperation of private companies. We learned that we were too dependent on foreign suppliers of medical equipment and protective gear. US companies have filled the void. Even much of our drug supply is reliant on foreign production. Pharmaceutical companies are working on therapies for treatment and vaccine trials are being conducted already and are fast-tracked. Testing for those with the virus has been inconsistent but improving, albeit slowly. “Social distancing” and “flattening the curve” have become part of our strange new life.


We have seen people on the front lines of the battle against the coronavirus work with courage and at great personal risk. Doctors, nurses, aids, grocery store workers, police, fireman, bankers, postal workers, truckers, and others deserve our gratitude.
As the stock market faltered in March, we saw the Federal Reserve step up with emergency rate cuts and Quantitative Easing to buy bonds. As stocks worsened and bond markets traded in a volatile and chaotic manner, the Fed once again stepped in with a surprise rate cut (on a weekend!) and promised trillions of dollars to stabilize the markets. A hero emerged from the Fed- Chairman Jerome Powell. He recognized the urgency and acted with authority. He stated that the Fed will act “forcefully, proactively and aggressively.” Likewise, Treasury Secretary Steve Mnuchin worked with Congress to get a relief bill totaling $2.2 trillion passed. Both men have financial market experience and proved strong in the face of the crisis. These heroes absolutely acted appropriately and decisively.

The Economy

"Remember, it only takes one crazy thing to change everything." - Dorothy Jaworski

It’s hard to remember January and February, but the data suggest that the economy was gaining momentum before it hit a brick wall. Stay at home orders and closures of businesses cut off a large amount of economic activity. A health crisis quickly became an economic crisis.
Many workers are fortunate to work at essential businesses or to be able to work at home; 54% to 58% of employees in financial services, IT, and professional and business services can work at home. Parts of the economy are still running including the essential services of grocery stores, electric, water, cable, Internet and Wi-Fi, hospitals, banking, phone services, post office, trash pickup, and trucking and delivery services. The worst hit businesses with employees who are not fortunate enough to work have been retail stores, restaurants, bars, automobile sales, entertainment, sporting events, schools, airlines, and travel and vacation destinations. I’m sure that I will not be shocking you by saying that a steep recession began in March and will likely last for at least a quarter after we reopen the economy. Even worse, we see that it is true that 25% of Americans had little or no cash reserves.
In the midst of the crisis, stocks had plunged by 38% from the highs reached just in February. Does this percentage sound close to a Fibonacci retracement level of 38.2%? Just saying. The actions of the Federal Reserve and Congress stabilized the markets and we have seen a rally recovering about half of that amount. Compounding the coronavirus crisis and its negative effects on markets and the economy, oil prices were plunging as a dispute broke out between Saudi Arabia and Russia, threatening our own energy independence. Agreements to cut production have finally
saved oil prices.
Sadly our record expansion of 128 months came to an end in February, 2020. I had believed that we would continue the expansion into 2021, but that will not happen. The government-imposed shutdown brought our $21 trillion (annualized) economy to a screeching halt. What we thought would be a disruption in the supply chain from China, who was the first to close their economy, rapidly became a precipitous decline as we moved to keep people at home, many not working, and to close businesses. Initial unemployment claims in the first three weeks of shutdown totaled an astounding 16.8 million, or 10% of the civilian labor force.
The actions taken by the Fed stabilized markets. The actions taken by Congress to pass relief bills in three phases, totaling $2.3 trillion so far, will try to stabilize incomes for individuals and businesses. But for all of these actions, our economy is still not reopened. How we do it safely is still a matter of debate and planning. But reopen we must, before there is not an economy to come home to.
Before I scare you with some economists’ projections of dire declines that are floating around, I’ll remind you that much of the economic activity can recover and continue. There will be pent-up demand that I believe will get us growing again. At this point, once recovered, the economy will grow but at a slower pace than the 2% to which we had grown accustomed from 2010 to 2019.
Forecasts for 1Q20 and 2Q20 range from an annualized -9% to -40% (the worst number is that of JP Morgan), representing the largest quarterly decline in economic activity ever. These numbers are between $1 trillion and $2 trillion just for the quarter! Unemployment is projected to reach 15% to 20%, before dropping back to 10%, then lower. In the 3Q20 and 4Q20, the economy is projected to bounce back to an annualized range of -1% to +23% (again JPM is highest). In 2021 and beyond, we will continue to recover but because of the large increase in government debt from the relief programs and the fact that increased levels of debt to GDP suppress growth, many estimates call for GDP in the +1% to +2% range.


The economic projections just cited were made after most of the Fed programs and the Congressional relief bill, or CARES Act, was enacted.
The Fed took forceful action and cut rates by 150 basis points during March to take the Fed Funds rate to 0%. Remember, Fed policy of this type takes six to nine months before it is ingrained in the economy, hopefully ensuring that the eventual recovery is stronger than it would have been. They also implemented large, aggressive borrowing and purchase programs for Treasuries, Agency mortgage backed securities, corporate bonds, municipal bonds, loans, commercial paper, bank lending, and small business loan programs. Congress passed $2.3 trillion in three phases of relief bills to give loans and direct payments to individuals, state and local governments, small businesses, and front line hospitals. Will it be enough? And for how long can people and businesses hold on?

Interest Rates

Rates fell dramatically in 2019 and again in the first quarter of 2020, due to the emergency situation of the coronavirus and partial economic shutdown. The Fed Funds rate is back down to zero and the rest of the yield curve began to follow. I call it the "race to zero". The two-year Treasury yield is at 0.23% and the ten-year is 0.74%. With recession looming and a strong recovery projected but not certain, rates will remain low. Inflation never did make it to the Fed's target of 2% and is now declining, which is the typical recessionary response to companies' lack of pricing power (not to mention the plunge in oil proces). The risk now is that inflation falls down to zero or goes negative, to cause deflation. For manufacturers, capacity utilization is already low at 75% and will no doubt head lower. Finally, from a technical perspective, the velocity of money is already extremely low at 1.43, and it will head lower as we work to emerge from recession. The bottom line is that rates will remain very low for a long, long time.

Time to Reflect

We all have too much time on our hands. It is very hard to work at home and stay at home, too. In our lives, we haven't experienced a crisis like this. In my career, I've seen a lot of crises and we've overcome them all- hyperinflation of the late 1970s and early 1980s, the crash of October, 1987, the real estate crisis of the early 1990s, the Long Term Capital Management and first sub-prime crisis of 1998, the bursting tech bubble in 2000, September 11th, and the morgage, sub-prime, and financial crisis of 2008-09. This is clearly a new situation with a forced shutdown of the economy, which caused a selling panic, volatility, and a liquidity squeeze. One constant throughout has been the Federal Reserve, who stepped into each of these situations to calm and stabilize markets.

For all of us, we have had time to reflect on our new, changed lives. Will we be afraid to venture out? Go out to eat? Go to games and concerts? Sit next to other people? I don’t want to live in fear; none of us do. But like all of the crises of the past, we will make it through. I have no doubt. Be safe!

“But you knew there would always be the spring, as you knew the river would flow again after it was frozen.”
– Ernest Hemingway

Thanks for reading!

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 has been with Penn Community Bank and its predecessor since November, 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.

Thursday, April 16, 2020

Banks On Sale

My bank stock portfolio was comfortably in the black, with a solid 2.5% dividend yield at year-end. My have times changed.

Before I begin, I feel compelled to disclose that I am not a registered broker or financial advisor. I am not giving you investment advice.

At December 31, 2019, the SNL Bank & Thrift Index stood at 193% price/tangible book, 13.6x EPS, and a 2.63% dividend yield. Then Covid-19.

At April 14, 2020, I measured all banks and thrifts with total assets between $1 billion and $10 billion. Still community banks, and have decent trading volume for more efficient pricing. At the median, these banks had a market metric slash line (P/E, P/TB, Dividend Yield): 8.8x / 95% / 3.39%. But the differences among banks varied greatly. The greatest drop in market price was Marlin Business Services Corp., at 64%. At the other end of the spectrum, Community Bancshares in McArthur, Ohio GAINED 8%! Do they finance respirator production?

I should point out that Marlin Business Services has many subsidiaries, most of them finance companies, but one is a bank.


On average there was a significant drop in valuations. But "on average" is a pesky phrase. What is the standard deviation? Recall from statistics class, which gave me math stress by the way, the closer the standard deviation is to zero, the lower the data variability and the more reliable the average is. The higher the standard deviation, the more variation there is in the data and the less accurate the average is. The standard deviation of stock price decline between December 31st and April 14th for the banks I measured was 11.8. Yikes!

That means, within the data, there is opportunity. And I hear about this opportunity from bankers that really, really want to buy back their stock at these valuation levels. But an abundance of caution because of the unknown, plus optics, is preventing them from doing so. 

Fear of the unknown and the gravitational pull that whispers in our ear to buy high, sell low may be holding back the rest of us. It is tempting to be as liquid as possible during this period of uncertainty. But it is the uncertainty that has otherwise healthy and profitable banks trading below book value. Some comfortably below book value.

First Quarter

Early earnings releases, primarily by the big banks may be fanning flames of fear. Citi announced a $7 billion provision for loan loss in 1Q, up from $2.1 billion the quarter prior. JPMorgan announced a 1Q provision of $8.3 billion from $1.4 billion. But $1.3 billion in assets MainStreet Bancshares in Fairfax, Virginia announced a provision of $350 thousand, down from $358 thousand the quarter prior. 

I think it likely though that most community banks will announce increases in provision, and some significant increases, due to early forbearance and payment deferment requests. And, as I said to a bank publication reporter yesterday, big banks take more of a macro-economic approach when assessing their loan portfolio. Community banks are more credit-by-credit. And that may not come to bare until the second quarter. 


And this is likely contributing to the wide variation in valuations we are seeing. The below two tables represent the top 10 price declines in banks with $1 billion to $10 billion in total assets from December 31st to April 14th.

Some of the above banks have stories. For example, at first glance, First Defiance looks compelling. A 1.50% ROA, 12.15% ROE, only 63 basis points non-performing assets/assets and a 9.58% tangible capital ratio. Even if NPAs spiked, they have a loan loss allowance as first defense and their capital was very good. Why in the heck did their stock drop 53% and now trades at a 6x earnings and a nearly 6% dividend yield?

Probably because they closed on a previously announced all-stock acquisition of a $2.9 billion in assets bank on January 31st. After their December 31st earnings, but before quarter end. And before the precipitous Covid induced bank stock decline. The deal value at January 31st was actually greater than at announcement! 

So there is uncertainty there, at least until FDEF announces 1Q earnings, which is not anticipated until April 28th. Even then it may not be clear because it would be challenging for FDEF to get their arms around the Covid impact to their own loan portfolio, let alone another, almost equally sized bank. Uncertainty equals discount.

And so it goes with many of the banks in the $1 billion to $10 billion in assets cohort. They have stories that are not easily analyzed by summary spreadsheet. Investors must look at loan types, non-performing loan trends, capital levels and trends, and percent of allowance to total loans. And, perhaps most importantly, management. Because good management rarely falls victim to bad circumstances over the long haul.

There are deals out there. You have to put in the work to find them.

~ Jeff

Saturday, April 04, 2020

Bank Cash Forecasting: Pandemic Edition

My friends at CFO Consulting Partners most recent newsletter included timely and helpful tips on re-forecasting your cash, which is suddenly incredibly important, particularly in financial institutions that entered the pandemic with relatively lower amounts of liquidity.

Cash Forecasting

by Rob Milrod, Director, CFO Consulting Partners (

Cash forecasting, always important, becomes even more highly critical during times of economic disruption. Here are some key points to consider for an effective process:
1. Use a segmented approach to avoid over forecasting cash inflows. Consider customer segment, size, and seasonality - tax time could drive slower payment behavior for all types of clients.
2. Experiment with data that helps differentiate slower payers, e.g. credit ratings, industry, etc., to inform the forecast and contribute to faster collections.
3. Test solutions that help manage the lag between payments and collections; For example, tying accounts receivable team compensation to timely invoice issuance, offering discounts to slower paying customers for prompt payments, and perhaps requiring a partial upfront deposit from customers who regularly pay late.
4. Organize the forecasting approach and outputs in a consistent manner so that the accuracy of prior forecasts can be assessed. and so that it's clear where to adjust management's estimates.
5. For cash outflows, communication across the management team can make or break this process. Especially in a start-up where monthly spend patterns based on history are not available, there is no steady state to rely on. Management team members should regularly discuss and consolidate their outlooks for daily cash receipts and disbursements.
6. Start with prior bank statement activity to come up with typical monthly recurring items.
7. Map key bank statement items to actual expense so that the expense patterns in business plans and budgets can provide context for the cash forecast.
8. Identify cash items already expensed and therefore not in management's outlook, as well as future capital outlays. 
9. A detailed aging, accounts payable for outflows and accounts receivable for inflows, is a ready source of information for future cash flows and is extremely helpful in cash forecasting.   

10. Take into account any cash flow benefits from the new Coronavirus Aid, Relief, and. Economic Security Act.

Saturday, March 14, 2020

Pandemic: No Problem. And Messages From Our Financial Services Providers

Here is what my family is doing to reduce the risk of contracting or spreading coronavirus:

1. Washing hands with greater discipline for 20 seconds per wash. Which is difficult. I'm singing the "Baby Shark" song.

2. Daily disinfecting of frequently touched surfaces such as phones, keyboards, handles, etc.

3. Coughing and sneezing into our elbows.

4. Trying desperately to not touch our faces. Do you know how hard this is?

5. Following CDC guidelines and state recommendations to reduce risk, such as not attending large gatherings. The NHL made that difficult Flyers-Wild game decision for me. Hoping to get tickets for another game.

6. Towelette wipe down of seating area when I fly.

7. Sign up for my health plan's virtual doctor visit portal. In case we need it.

Here is what we are doing to support local businesses:

1.  Keep going to them.

2.  Order online, as most restaurants will either deliver or prepare for pickup.

3.  Highlight brands that are supporting their hourly employees even in lieu of significantly declining revenues.

4.  Highlight charities and wealthier individuals that are supporting the same, such as Kevin Love of the Cleveland Cavaliers donating $100,000 to support arena workers.

5.  Not sniping at politicians because I disagree with them.

6. Not hoarding.

Here are some messages that I have received from various financial firms regarding coronavirus preparedness. Perhaps your pandemic response team would be interested.

Stay safe out there and don't panic!


Dear Valued Policyholder:

As COVID 19 (the coronavirus) dominates the news and the stock markets have large movements from day to day, we at Genworth want to reassure you that our associates are well positioned to continue our long tradition of being there for our policyholders regardless of social and economic conditions.

We have proactively taken steps to make sure that our associates are safe, our call centers staffed, and our processing teams are able to function. We have implemented employee travel restrictions, provided associates with tools and technology and have encouraged them to work from home, conducted a deep cleaning of all Genworth facilities and revised our time off and FMLA policy. These changes provide our associates with the flexibility to adapt their schedules to meet our business obligations and limit any service interruptions.
Genworth’s high commitment to serving you includes a robust self-service opportunity MyGenworth available 24/7. To sign up, click: With MyGenworth, you can obtain current policy status and perform routine policy updates such as address changes and beneficiary updates. Additionally, we encourage you to consider signing up for Electronic Funds Transfer (EFT) for your on-going premium payments as well as policy benefit payments you receive from us on a routine basis. You will find the necessary authorization information under the “Billing and Payments” section on MyGenworth. 

To help you stay healthy and take care of yourself we are sharing some useful third-party resources.
We realize times like these can be unsettling, rest assured we are ready to serve you and value your business.

David O’Leary
CEO, President, U.S. life insurance division


Market Volatility and Your Workplace Retirement Savings
  Recent volatility within U.S. and global markets brought on by global health concerns has been historic and unsettling. You're not alone if you have concerns or questions about your retirement savings and investments during current market conditions.  
  MassMutual is committed to providing you with the power of perspective to help you navigate through these uncertain times.  
  Things to consider  
    Keep calm. It's not easy, but keep in mind that after downturns, history has shown that markets have recovered and delivered gains in the long-term.
    Revisit your goals and stick to your plan. Be sure to review your goals and keep your individual needs, risk tolerance and time horizons in mind before making changes to your investment strategy.
    Stay informed. For up-to-date economic insights and analysis, see MassMutual's regular market commentary.
  During market swings, it can be helpful to remember that a diversified and balanced portfolio may be a good defense for downturns and can help position you for potential market recoveries. We're here to help you – so be sure to check out our resources and tools to learn more. Please consider your goals, needs, risk tolerance, and time horizon before making any investment decisions – and consult with your financial adviser if needed.  
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You're a valued member of the Truist family, and nothing is more important to us than your health and safety.

As the spread of coronavirus, known as COVID-19, continues to be a growing concern across the country, we’re taking extra precautions to protect you, our teammates and the communities we serve. Our Executive Leadership and business readiness teams are monitoring the situation and are in close contact with health authorities, including the Centers for Disease Control and Prevention (CDC), to ensure we’re acting on the latest guidance and information.

We’re Here To Help

If you're negatively affected by the coronavirus situation, we’re here to help. Our branch bankers, relationship managers and contact center teammates are all committed to working with our clients to reduce financial stress during this challenging and uncertain time.

Contact Information:

Find up-to-date branch hours and other information to manage your accounts

Account information is available through our automated phone system 24/7.

As we assist clients and businesses who may be affected by the coronavirus situation, we're also listening and learning from those conversations to help us evaluate and possibly implement additional client relief measures as they emerge.

We invite you to use our convenient digital banking channels and phone banking options to conduct your banking transactions, and when in doubt, always feel free to contact your relationship manager or local branch.

What Our Company Is Doing To Help

Increasing our focus on disinfecting surfaces including ATMs, teller line areas, elevator touchpads, door handles and other high-touch areas
Increasing the number of hand sanitizing stations available in our branches and offices
Asking teammates who are sick to stay home until they are well
Asking teammates who have recently returned from any high-risk country on the CDC’s Coronavirus Disease Travel Information website, or who live with someone who has recently traveled to one of those identified regions, to self-report to their manager and work from home for at least 14 days
Suspending international air business travel and limiting nonessential domestic business air travel for our teammates
Conducting group meetings by phone or other digital means

Keeping You Informed

We’re committed to keeping you informed through this rapidly changing situation. As it evolves, you can always find the latest information here on Please do not hesitate to contact us if we can be of assistance with any of your banking needs.

For the latest information about COVID-19, please visit or your local health department website.

Navy Federal Credit Union

An Update for Our Members

The spread of the Coronavirus (COVID-19) has all of our attention. I wanted to let you know your Navy Federal Credit Union family is doing everything possible to keep our employees and you, our members, safe while delivering the best member experience possible.
What We’re Doing
We’re monitoring and following all guidance from the Centers for Disease Control (CDC), including taking the steps necessary to reduce the threat of COVID-19 exposure to employees and members.
Our branches remain open to serve you. We have an extensive cleaning procedure in place and can conduct additional cleanings if needed. Some locations have had their hours adjusted as a result of local conditions. For the latest updates on branch hours, you can visit our Branch Closures & Updates page on our website. Our team members are also being reminded to ensure their hands are regularly washed or sanitized.
Steps You Can Take
Our commitment to world-class, 24/7 member service remains fundamental to our mission.
Our digital banking tools are designed to be easy to use. Whether you’re paying a bill through the Navy Federal website, depositing a check, checking an account balance or transferring money using our mobile app, our goal remains empowering you to conduct your business quickly and easily.
If you need to access cash, we have more than 700 Navy Federal ATMs around the world, and you have free access to another 30,000 ATMs in the CO-OP Network®. You can find your nearest ATM here.
Our Mission
Despite the threat posed by COVID-19, your Navy Federal team remains committed to serving you and your families. You are our members, part of our family, and together we will get through this situation.
signature Mary McDuffie
Navy Federal Credit Union

Radius Bank

A message from Radius Bank on COVID19  

Like you, the team at Radius Bank is monitoring the latest news about the Coronavirus. As a valued client, we understand your concerns and the uncertainty you may be feeling at a time like this.

We wanted to remind you that Radius is a leading-edge digital bank prepared to handle situations such as this, and as a Radius client, you can handle all your banking needs at anytime, anywhere from your computer or mobile device. Our convenient digital tools give you 24/7 access to your accounts.
Once signed in, you'll be able to:
  • View transactions and check balances
  • Make payments
  • Make a mobile deposit (from the mobile app only)
  • Transfer funds
  • Update your contact information
  • See your account and routing number
  • Find an ATM
  • Send us a secure message
Make sure you have the correct website address bookmarked and the most updated version of our mobile app by following the links below:
Personal Account Clients
Business Account Clients

We're Here to Help!
  • Visit our FAQ page
  • Start a live chat on our website
  • Give us a call at 1.800.242.0272 – you can activate your debit card or reset your PIN, check your balances, hear recent transaction history, and transfer funds all from our automated system, as well as speak with a representative
  • For our business/commercial banking and lending customers, you may also contact your portfolio or relationship manager
As always, the health and well-being of our customers and team members is our top priority. We will continue to monitor this situation and will be available to assist our clients as needed.

Please visit as the situation evolves for the latest updates.

For additional information about COVID-19, visit the Centers for Disease Control and Prevention at CDC.GOV.