The Elephant in the Room: Branches

In keeping up with industry reading it is clear to me that we, as an industry, are perplexed at what to do about branching. The recently released FDIC Summary of Deposits showed the second year of branch decline. The most recent ABA study on delivery channel preference showed online banking eclipsing branch transactions for the 55+ set. That's right... old people letting their fingers do the walking.

But the #1 or #2 reason cited by small businesses and individuals as to why they select their bank remains branch location. When I ask executives what makes a branch successful or not, the top two reasons continue to be branch location or personnel, not necessarily in that order. Confusing? Yes.

But the progressive talk about the future of the branch at times lacks common sense, in my opinion. This dates back to an interview I did with American Banker about a community FI that was opening coffee shop branches. I gave a twofold comment: 1) I saluted the FI for being creative; and 2) I doubted it would work, particularly in the locations and relatively conservative markets where they tried it. AB published the first and the second didn't make the editorial byline. The coffee shop experiment turned out to be a disaster, and the FI was later sold.

I recently had a Twitter conversation with a banker about branches that lack tellers. According to feedback from bankers that tried this concept, customers were confused when they walked into the branch. That made sense to me. We like the familiar... i.e. the teller line. But branch transactions have fallen off of the proverbial cliff. Do we need a long line full of bored tellers reading Nora Roberts novels? No. But perhaps we need a couple teller windows to process transactions and bring comfort to those of us that like familiarity.

As we evolve, I envision the comfort of knowing there is a branch nearby to continue. But the people who occupy those branches should evolve to those that can open accounts, troubleshoot problems, advise customers, develop business, and occasionally process transactions. This branch will probably be smaller, and less expensive to build out. Smaller is certainly a theme I am hearing from bankers and industry professionals. If you are of a mind to continue trying to make the branch into a destination to drive traffic, let me introduce you to Sisyphus. Going to the bank is a chore. Boom.

So what about these big branches that we all have? An industry stock analyst told me that big banks have advantages over small banks because they can pay for increased compliance expenses by closing branches. The community FI may not have this luxury. But big banks have challenges here, in my opinion. Many have built palatial branches that have no discernible value except as a bank branch.

The poster child of this concept is Commerce Bank of Cherry Hill, New Jersey which was acquired by TD Bank (see photo). Their brand is wrapped around their number of branches, the primo locations of their branches, and the look of their branches. But if branches become less important, and big banks can consolidate one branch with the one in the next town over, what are they going to do with the palace? These branches are very expensive, are fixed assets on the bank's books, and are 100% risk-weighted for capital calculation purposes. In other words, you have to carry more capital against the branch than a bond in the investment portfolio that might be 20% risk-weighted.

The pictured TD branch is about 100 yards from the Wells Fargo branch pictured below. Sorry for the poor focus but I took the picture with my phone while walking so cut me some slack! If Wells decided to consolidate this branch, it could easily be converted to an office, a hair salon, or a coffee shop. In other words, Wells could sell it and, current real estate market woes aside, can probably sell at a gain. The buyer can convert it to whatever they want. TD, on the other hand, may have to devalue their branch because they can't sell it. Or if they can, it would be for the land and the buyer may have to raze the building to something more functional. Think of all the empty gas stations dotting the landscape.

To be fair, the Wells branch had $52 million in deposits and the TD branch $130 million at June 30th. But the old Commerce was known for large branch deposit sizes because they aggressively pursued municipalities for their banking business. So aggressive, indictments were involved. But I digress. The TD branch does have more deposits, and perhaps this is partially due to the palace.

But as we determine our next step in branching, we can't ignore the trends that are telling us that transaction processing in branches is becoming secondary to something else. As branches decline in prominence, we should plan our next branch with the gas station in mind. We don't want to manage multiple properties of former branches that sit stale on our books eating our capital.

What is your opinion of what the "next" branch should look like?

~ Jeff

Guest Post: Third Quarter Economic Update by Dorothy Jaworski

Another Volatile Quarter

I know I risk sounding too negative, but we cannot seem to shake the crisis mentality that keeps whipsawing bond and stock markets. The crisis du jour originated in Europe with crushing debt levels in Greece, Italy, Portugal, Spain, Ireland and who knows where else. Germany remains fairly strong but sometimes appears to be coming to the rescue, sometimes not. Rumors of Greek bankruptcy surface every other day. French banks are the largest holders of sovereign debt, but, out of the blue, a Belgian bank, Dexia, has become the first to fall.

Liquidity is becoming a problem for these banks, and with their stocks battered daily, they have no ready sources of capital. There has been a lot of talk about rescues from the European Union, but the markets want action. The US is not of much help as the economic recovery is stalling and the debt ceiling/deficit debate/fight caused a great deal of harm to both consumer and business confidence.

In an environment like this, volatility rules. Stocks have taken the brunt of investor frustration, selling off steeply in the third quarter for the worst quarterly loss since the height of the financial crisis in late 2008 and early 2009. The Dow Jones Industrial Average was down -12.1% to just below 11,000 in the quarter, while the S&P 500 fell -14.3% and the Nasdaq fell almost -13%. And gold had the wildest price action of the quarter—beginning at $1,500 an ounce, soaring 27% to $1,900 on September 5th, and then selling off steeply by -14.5% to end the quarter at $1,624. Oh, the fortunes won and lost!

Enough about gold, and all I will say about stocks, because I always fear being a jinx, is that the forward price earnings ratio is not even 11 and the dividend yield is currently 2.3%, which exceeds the yield on the 10 year Treasury bond. This does not happen often.

Back to Back Historic Moves

The Federal Reserve made two historical easing moves during the quarter and still the markets are not happy. In August, for the first time since the 1940s, the Fed made a two year “promise”—to keep short term rates at their current exceptionally low levels until mid 2013. If you believe the expectations theory of interest rates, that long term rates are simply the compilation of the expected path of short term rates, then you believe that long term rates will stay exceptionally low too. Maybe this will not affect the really long term rates, such as the 10 year to 30 year range, which are so heavily influenced by inflationary expectations and the international flow of funds, but most other longer rates, such as 2 year to 9 year maturities, will be affected. So why were the markets disappointed in the Fed’s forward guidance? Why did the Fed have to act again in September?

Perhaps it is that the Fed did not tie their promise to economic performance, as I thought they should have, but they only chose an arbitrary period of time. By performance, I mean the unemployment rate, number of jobs created, or GDP growth. The Fed could have, and in my opinion should have, promised to keep rates low until unemployment falls to 7% or less, until we are creating 3 million jobs a year or more, or until real GDP grows at and stays above the 3.3% average growth rate of the past 60 years. Only then will inflation even hint at being a permanent risk.

We can only assess the Fed’s performance in terms of their dual mandate—maximum employment and stable prices—and not in terms of a two year waiting period.

So, disappointment in the “promise” to keep short term rates low until 2013 led to another historic action in September. In another easing action dubbed “Operation Twist,” the Fed stated that they will sell $400 billion of their shorter securities (less than 3 year maturities) and buy the same amount of longer securities (6 to 30 year maturities) by June, 2012. They haven’t tried a “twist” since the 1960s. They also added that they will reinvest cash flows from their mortgage backed securities from their Quantitative Easing QE1 Program into more mortgage backed securities, rather than into Treasuries.

Ben Bernanke was quoted as saying that Operation Twist is the equivalent of a 50 basis point cut in the Fed Funds rate. Hey, when Fed Funds is near zero, you have to try something. And don’t forget the cumulative actions they have taken to date—Fed Funds to 0%, QE1’s purchase of $1.5 trillion of Agencies’ bonds and Agency mortgage backed securities, QE2’s purchase of $600 billion of Treasuries, and now the “promise” and the “twist.” These actions someday will push consumers, businesses, and banks out of the liquidity trap.

Don’t Give Up on the Economy

It is not time to give up on the economy. The data has been weaker in recent months and GDP is stubbornly low, at 1.3% in the second quarter of 2011. Many forward looking indicators are showing positive signs, including the index of leading economic indicators, building permits, industrial production and survey measures, such as the ISM series. We have the full support of the Fed until at least 2013.

Companies are sitting on $1.9 trillion of cash on their balance sheets and banks have at least that amount in reserves at the Fed earning next to nothing. It will take time, but eventually, companies and banks will seek higher returns and invest and lend. We probably do not have much in the way of fiscal support from the government as high debt and the deficit make that unlikely. All companies lack the confidence to invest, to hire, or to move forward.

What is on the horizon to shake up the economy? For one, the original culprit of the economic weakness, in my mind, was the spike in oil prices to $115 per barrel and in gasoline prices to near $4.00 per gallon. Oil prices have slipped back by -30% to $80, while gasoline prices have only fallen by -15% to $3.39. Gas prices clearly have room to move downward. This will act like a tax cut at just the time when it seems Washington DC will not provide one.

Another positive is the beginning of another refinancing wave by consumers as the Fed has pushed down long term rates, including mortgage rates. Companies can take advantage by issuing debt at lower interest costs. Stay tuned!

Thank You, Steve

As I was writing this, I saw the announcement by Apple that Steve Jobs had died, after battling illness for eight years. He had a profound influence on so much of the technology that we use in our daily lives. He made computers easy to use and gave us the iPod, the iPhone, and the iPad. Fifteen years ago, these were products we did not even know that we wanted and needed. I have the iPhone and iPad and cannot imagine life without them. He will leave a huge legacy in the company he co-founded and the products he helped invent. I will miss his brilliance. Thank you, Steve!

Thanks for reading! DJ 10/05/11

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 First Federal of Bucks County since November, 2004.

Brand Leadership: What does it mean? What should it mean?

I am a student of my industry: consulting and banking. If bankers tell me their institution has a superior brand, I want to know what that means. Too often I am told that the FI has a superior brand because customers come up to senior executives and board members on the street and tell them so.

I am no statistician or expert on human behavior, but I have to believe that people willing to approach senior executives or board members of the local financial institution are probably going to say something positive by an overwhelming majority. A polite neighbor does not make for a statistically significant study.

What I do find in many FIs that claim the throne of brand leadership is higher cost deposits, and lower yielding loans. I hear how the FI keeps deposit prices high so customers don't leave, or runs deposit pricing specials to bring new deposits in the door. I find lenders loosening covenants, waiving fees, and lowering rates to "get the deal done".

Is this our perception of brand leadership? I say no.

Mike Schultz and John Doerr, in their 2009 book Professional Services Marketing, identified traits of brand leaders in the consulting industry. Here is what they found:

"Brand leaders:

• Priced their services at a higher level than their competitors in the market; and
• Realized higher actual hourly rates compared to the lesser-known firms in all categories of professionals."

In other words, according to Schultz and Doerr, brand leadership translates to real money as buyers of consulting services are willing to pay more. See the chart below:

I frequently cite such studies, plus life experiences we see everyday of how brand equates to either 1) getting more customers faster than competitors; 2) keeping customers longer than competitors; and/or 3) charging more than competitors. Take Mac users versus PC users. Mac has clearly created a brand that evokes loyalty, even at higher price points. How about Marriott customers, citing Marriott Rewards and the superior quality of the hotels? Remember the old axiom, "you will never be fired for hiring IBM" when it comes to hiring a technology solutions firm? Brand, brand, and brand.

My firm recently lost a small strategic planning engagement because of our price. The price was not particularly high, but it wasn't Wal-Mart low either. We work hard to build an environment for robust dialogue that results in a well thought-out strategy. Background work to bring together the data and prepare to create that environment takes time. This FI was not willing to pay for that time and shame on me for not building a brand that this CEO was willing to pay for. I will work harder to do so in the future.

But my colleagues and I should not be alone in building brand. If community FIs believe they bring greater talent, faster responsiveness, and tailored solutions to their customers, then customers should be willing to pay for it. If not, we run the risk of building Four Seasons expenses that we give away at Econo Lodge prices.

Your brand should mean more than that. What do you think brand leadership should result in?

~ Jeff

Link to the Fees and Pricing Benchmarking Report: Consulting Industry 2008

http://www.raintoday.com/product/52_fees_and_pricing_benchmark_report_consulting_industry_2008.cfm

Note: I have no relationship with the authors of the report or the firm(s) that conducted the study. I cite it hear because it demonstrates, in clear terms, the value of brand.

Our Finest Hour

Things look grim for us: community financial institutions (collectively, "banks") and those that serve those august institutions.

We lost the mortgage business a generation ago to category killers like Countrywide, Golden West, Fannie Mae, and Freddie Mac and the mortgage brokers that fed the beast. When the beast collapsed, we inexplicably donned the bullseye of blame.

But we faltered in our own right. We bought the bonds that kept that mortgage machine running. Those bonds cost us dearly. We lent to one another in the form of Trust Preferred Securities, and our investment portfolios choked as these banks faltered under the weight of poor decisions.

When the economy took its nosedive, we found ourselves over-invested in construction and investment property commercial real estate that were one or two bits of bad news away from disaster. The result: a rapid need to recapitalize. With no investor appetite to invest in us, the government stepped in.

We immediately regretted it. We were encouraged to take government capital, only to have the government change the rules on us afterward, and the public decry "government bailout". Even though the government made a significant return on its investment in us, the public thinks they gave us the money. Yet, the only losses the government suffered from TARP is because of AIG Insurance and General Motors. We still bear the badge of shame.

Now our politicians are doing everything in their power to get us to lend, while their examiner surrogates are doing everything in their power to criticize our loans. Regulations are nipping at our revenue, and piling on our expenses. The Fed, under the guise of helping the economy, is doing what it can to keep long and short term rates low, wreaking interest rate risk havoc on our balance sheets. Much is working against us these days.

But in our darkest hour, I envision tremendous opportunity. Our industry is changing. Excess regulation and costs are driving weak competitors such as mortgage brokers out of the market. Can we re-ascend as the place our customers get a mortgage? I think so.

Large banks, that own a significant part of the banking market, move farther and farther from the customers... turning them to self-service delivery channels to chart their own path in a complex financial world. Can we help our customers navigate turbulent and complex times? I think so.

We don't have the resources to make large technology investments to develop efficient processes, comply with the myriads of regulations, and deliver products and services to today's tech-savvy customer. But community FIs have access to robust, vendor-driven solutions that are on par with our larger brethren. Can we have competitive products and delivery channels delivered with similar efficiency to the large banks? I think so.

In times of great strain, opportunity rises from the ashes like a phoenix. We are closer to our communities, our customers, and our employees. Decisions are made in the office down the street, or the next town over. We don't have to navigate a bureaucracy in a different state or across the country to get to the closing table. Local depositors provide the capital to local borrowers and businesses.

Can we be different, more local, faster, friendlier, better?

We are a community bank. What we do next, is up to us. This can be our finest hour.

~ Jeff

Top 5 Total Return to Shareholders: #1 BofI Holdings Inc.

I was recently moderating a strategic planning discussion with a multi-billion dollar in assets financial institution. During the discussion, the President of one of the bank's most profitable divisions opined that less than $10 billion in assets was the "dead zone". They had to grow to survive.

I challenged the thinking. But he held firm that the regulatory environment, changing customer preferences, and the pace and expense of technology were driving the market towards bigger is better. In that, I thought, he has a point.

But I'm always looking for support. This blog has dug deep into the numbers to support the notion that bigger is better. I wrote about the best performing FIs in ROA (see link here), and how growth impacted expense and efficiency ratios (see link here). Neither supported this regional president's opinion.

This time, I searched for the top five best performing FIs by total return to shareholders over the past five years. After all, what is the point of becoming big if you cannot deliver value to shareholders? I used two filters: the FI had to trade over 2,000 shares per day so there is some level of efficiency in the stock (this created a larger FI bias in so doing); and the FI could not have a mutual-to-stock conversion during that period, which muddies the waters.

I have reviewed my top five in descending order. Last post was dedicated to the #2 Signature Bank of New York, New York (see post here). The rest of this post goes to our number 1 bank and winner:

#1: BofI Holdings Inc. (Nasdaq: BOFI) of San Diego, California

Old school bankers are rapping their fists on mahogany desks, mumbling under their breath, and turning over in their graves at the notion that the best performing FI based on five-year total return to shareholders is an Internet bank. Yet here we are.

Bank of the Internet was formed in 2000 and went public in 2005. Over the past five years, it has returned over 80%, compared to -4% for the S&P and -66% for SNL Bank & Thrift Index (see chart). As Mel Allen would say, "how about that".

In spite of the stellar five-year performance, the stock currently trades around book value, and a 9x earnings multiple... low by industry standards. The trading multiples are in spite of a 1.26% ROA and 14.83% ROE year-to-date. Why such low multiples for such high performance? I'm not sure, but I have to think some high-brow snobbery regarding Internet banks is involved, much like fine wine drinkers' attitudes while quaffing a Sam Adams.

Not sure why you would have a high-brow attitude towards this bank, since its management team is made up of investment bankers, blue-chip consultants, and engineers (see here for management bios).

BofI prides itself on process discipline, delivering the best technology at the lowest cost, without the millstone of branches dragging down performance. Their efficiency ratio was 40% for their fiscal year 2011 (ended June 30, 2011).

They collect deposits primarily through three online brands, and are seeking affinity relationships to expand their brands. At June 30, 2011, the online bank had 32,000 accounts being served by nine CSRs (see below). BofI has also launched BofI Advisors, giving financial planning firms the ability to offer banking to their clients through a self-branded portal. In other words, the financial advisory firms serve as the point of entry to the bank, with BofI providing the back end banking services.

Vietnam, a communist country, did not develop the infrastructure for a nationwide telephone system. When cellular technology advanced to the point that telephone lines, poles, and in-home wiring wasn't required, they embraced it. The result: Vietnamese can talk to one another as easily as we can in the U.S., but don't have telephone poles delivering outdated technology. BofI is Vietnam, without the beef noodles. Bankers should take note.

Congratulations to BofI Holdings Inc.. They are the best performing financial institution nationwide in total return to shareholders over the past five years. Here is our list of winners:

#1 BofI Holdings Inc.
#2 Signature Bank
#3: ESB Financial Corporation
#4: Bank of the Ozarks, Inc.
#5: German American Bancorp

~ Jeff

Note: I make no investment recommendations in my blog. Please do not claim to invest in any security based on what you read here. You should make your own decisions in that regard. FINRA makes people take a test to ensure they know what they are doing before recommending securities. I'm sure that strategy works out.

Top 5 Total Return to Shareholders: #2 Signature Bank

I was recently moderating a strategic planning discussion with a multi-billion dollar in assets financial institution. During the discussion, the President of one of the bank's most profitable divisions opined that less than $10 billion in assets was the "dead zone". They had to grow to survive.

I challenged the thinking. But he held firm that the regulatory environment, changing customer preferences, and the pace and expense of technology were driving the market towards bigger is better. In that, I thought, he has a point.

But I'm always looking for support. This blog has dug deep into the numbers to support the notion that bigger is better. I wrote about the best performing FIs in ROA (see link here), and how growth impacted expense and efficiency ratios (see link here). Neither supported this regional president's opinion.

This time, I searched for the top five best performing FIs by total return to shareholders over the past five years. After all, what is the point of becoming big if you cannot deliver value to shareholders? I used two filters: the FI had to trade over 2,000 shares per day so there is some level of efficiency in the stock (this created a larger FI bias in so doing); and the FI could not have a mutual-to-stock conversion during that period, which muddies the waters.

I will review my top five in descending order. Last post was dedicated to the #3 ESB Financial Corporation of Ellwood City, Pennsylvania (see post here). The rest of this post goes to our number 2 bank:

#2: Signature Bank (Nasdaq: SBNY) of New York, New York

 

Signature Bank is a very interesting story. Started in 2001 with a significant investment from Bank Hapoalim, Israel's largest bank, it has been on an upward trajectory ever since. Signature has been so successful that it's growth was beginning to put strains on Bank Hapoalim's capital. So in 2004, Signature went public and in 2005 Bank Hapoalim divested its controlling interest.

From 2006 through the second quarter of 2011, the bank's assets grew from $5.4 billion to $13.1 billion. It made no acquisitions. During that period return on average assets went from 0.72% in 2006 to 1.15% year to date. It did not lose money during the financial crisis. This superior performance led to superior total return to shareholders (see chart).

How did Signature do it? As stated, they did not do it through whole bank, branch, or asset acquisitions. Instead, they do it by attracting high performing private banking teams. This strategy started from the very beginning by wooing former Republic National Bank of New York  bankers. Republic was acquired by HSBC in 1999. Apparently, HSBC's treatment of key bankers created fertile ground for their recruitment by Signature.

But it is not the disenfranchisement of HSBC bankers that is fueling their current success. It is their commitment to building a bank designed to support private bankers serve their clients extraordinarily well. Read their vision statement, which is different than any I have ever read or helped design:

"Signature Bank was created to provide talented, passionate, and dedicated financial professionals a supportive environment in which they can conduct their practice to the maximum benefit of their clients.

The result is a special feeling clients associate with Signature Bank professionals and, ultimately, the Signature Bank brand: the experience of being financially well cared for."

How many vision statements have we read that takes great strains to offend no one, and commit to nothing? In this alone, Signature stands tall.

If you roll your eyes at the thought of a vision, don't lose track of Signature because they may roll over you.

Another key differentiator of Signature's strategy is their single point of contact delivery system. Banks that try to deliver multiple products and services to customers often have different customer touch points. For cash management, call John, for a loan, call Jane, etc. But Signature simplifies for their clients, and lets their relationship manager find the resources necessary to serve client needs. In fact, in an era where it's difficult to tell one bank from another, Signature prides itself in how it is different. See the below slide from their investor presentation.

Congratulations to Signature Bank. They rank #2 in total return to shareholders over the past five years. So far, our list is:

#3: ESB Financial Corporation
#4: Bank of the Ozarks, Inc.
#5: German American Bancorp


~ Jeff

Note: I make no investment recommendations in my blog. Please do not claim to invest in any security based on what you read here. You should make your own decisions in that regard. My bank stock broker chuckles when I phone in trades. Get the picture?

Top 5 Total Return to Shareholders: #3 ESB Financial Corporation

I was recently moderating a strategic planning discussion with a multi-billion dollar in assets financial institution. During the discussion, the President of one of the bank's most profitable divisions opined that less than $10 billion in assets was the "dead zone". They had to grow to survive.

I challenged the thinking. But he held firm that the regulatory environment, changing customer preferences, and the pace and expense of technology were driving the market towards bigger is better. In that, I thought, he has a point.

But I'm always looking for support. This blog has dug deep into the numbers to support the notion that bigger is better. I wrote about the best performing FIs in ROA (see link here), and how growth impacted expense and efficiency ratios (see link here). Neither supported this regional president's opinion.

This time, I searched for the top five best performing FIs by total return to shareholders over the past five years. After all, what is the point of becoming big if you cannot deliver value to shareholders? I used two filters: the FI had to trade over 2,000 shares per day so there is some level of efficiency in the stock (this created a larger FI bias in so doing); and the FI could not have a mutual-to-stock conversion during that period, which muddies the waters.

I will review my top five in descending order. Last post was dedicated to the #4 Bank, Bank of the Ozarks of Little Rock, Arkansas (see post here). The rest of this post goes to our number 3 bank:

#3: ESB Financial Corporation (Nasdaq: ESBF) of Ellwood City, Pennsylvania

ESB started in 1915 as the Ellwood Federal Savings and Loan in Ellwood City. It converted to a public company through a Mutual Holding Company conversion in 1990 and performed the second step conversion in 2001. Since its humble beginnings, it has grown to 24 offices and $2.0 billion in assets. Since 2006, it has returned 32% to shareholders as the industry returned -62% (see chart).

How has ESB done it? Upon reviewing their financial performance and reading their annual report and website, it appears as they do it through plain vanilla banking, a style that this blogger has expressed concerns about its future viability.

But you can't argue with results. ESB operates like many other thrifts... i.e. low net interest margins (currently 2.75% at the bank level), accompanied by a low non-interest expense to average assets ratio (currently 1.44%/the "expense ratio"). The expense ratio is extraordinary, as typical commercial banks hover around 3% and thrifts register in the 2.50% range.

ESB does traditional mortgage lending, with some commercial real estate too, funded by retail deposits with a heavy dose of CDs. Whether you like this model or not, it has delivered tangible book value and earnings per share growth that has driven its total return to shareholders (see table).

If you believe traditional thrifts currently trade on book value, as I do, then 12.42% compound annual tangible book value per share growth should deliver superior returns, all things being equal. Add a 3.68% current dividend yield, and the "plain vanilla" thrift is delivering to their shareholders.

Part of the secret sauce may be management longevity, as most senior managers, including CEO Charlotte Zuschlag, have been with ESB for 20 years or more. This gives employees comfort in management consistency, management a deep understanding of bank operations, and customers comfort in seeing familiar faces at the bank and in the community.

The CEO describes their success in the 2010 annual report as follows:

"Throughout our 95-year history, ESB has continually and successfully responded to change. However, we believe that sticking to basics and maintaining our commitment to the strategies that have made us a leading financial service provider remains a solid roadmap for continued growth and success. In this regard our priorities have not changed and remain:

• Focusing on per share results and working diligently to maintain our reputation as a company that creates superior shareholder value;

• Being financially conservative and managing our Company to the highest ethical standards;

• Growing the Company in a controlled and safe manner;

• Maintaining strong credit quality;

• Continuing to strive to exceed our customer expectations for quality products and services;

• Continuing to make investments in human capital, technology and physical infrastructure to ensure our long-term success;

• Continuing to provide a productive work environment that maximizes the alignment of customer and employee objectives and

• Seeking and consummating acquisition opportunities when practical."

She didn't say anything about economies of scale, regulators, or leading edge technology. The first bullet is very telling. Perhaps other bankers should take note.

Congratulations to ESB Financial. They rank #3 in total return to shareholders over the past five years. So far, our list is:

#3: ESB Financial Corporation

#4: Bank of the Ozarks, Inc.

#5: German American Bancorp

~ Jeff

Note: I make no investment recommendations in my blog. Please do not claim to invest in any security based on what you read here. You should make your own decisions in that regard. My year to date return on bank stocks... negative. Need I say more?