The Three Levels of Business Bankers

Community bankers hunt aggressively for experienced lenders to grow their loan portfolios. I outlined a Business Banker job description in a prior post based on what I hear from bankers about what they expect from that position. 

You can't teach an old dog new tricks. If that job description represents our ideal, then we have a long way to go to develop the type of business bankers that will drive our bank forward. Instead of striving for our ideal, we continue to pluck old-school lenders from competitors because we need our pipelines filled now, not two years from now. So I opined to a community bank client what I thought was a healthy composition of business bankers.

Note I mention banker composition, not loan composition. For risk management purposes, we are accustomed to managing the mix of loans on our books. We may not be as accustomed to managing the mix of employees responsible for generating those loans. I put Business Banker composition in three categories.

1.  The Fat Cat

Don't contact my HR department. This is not commentary on his or her body composition. It's more a testimony as to the size of the Fat Cat's portfolio. It's usually large (typically > $50 million). And size does matter. Because of the large portfolio, this lender comes with a high number of relationships, and little time for meaningless meetings and all of your chatter about "total relationships" and "core deposits". Their portfolio is large and profitable, and they know it. Their salary is high and the bonus pool is flush. They are not as concerned about growing their portfolio as they are about maintaining it. They might be open to sharing smaller relationships with more junior business bankers, but not because they are the best team players. They simply don't have time to deal with lower balance customers, and they know that balances drive their bonus pool. They are also hesitant to bring other bankers into their relationships, for fear they may screw them up.

2.  The Builder

This person has a mid-range portfolio, somewhere in the $25-$50 million range. They take their growth goals seriously. Because they see the Fat Cats reaching critical mass and milking those portfolios into retirement. They want that too! So they leverage their relationships into more relationships such as calling on COI's they met at the latest Chamber mixer. This group may also be willing to take the junior business banker under their wing. They are not so far removed from the "junior" status that they lack empathy for the Up and Comers. Unlike the Fat Cats, this group tend to be better team players, because they may have greater organizational ambitions other than to be a Fat Cat.

3.  The Up and Comer

This person came from the branch manager, credit analyst, or portfolio manager ranks. They received a taste of the life of a business banker in their former position and they liked it. They have small portfolios, typically well under $25 million. Community banks frequently have inadequate support structures to nurture the Up and Comer. They have no mentoring programs, little in terms of formal training, and even less in terms of patience and the ability to carry "non-producing" producers for any significant period. But the Up and Comer can be the Builder and Fat Cats of the future, if the community bank thought farther than the current budget into the future. Another benefit of populating your Business Banker ranks equally with Up and Comers is instead of taking more experienced ones from competitors and inheriting their way of doing things, this group grew up in your way of doing things. 

If your Business Banker ranks were built by you, first as Up and Comers, steeped in your bank's way, that grew into Builders and Fat Cats, would you be better capable of moving your bank forward?

~ Jeff

Why Are Bank Net Interest Margins Under Pressure?

Industry analysts are beating the drum of net interest margin (NIM) decline. Irrational pricing by competitors is often cited in strategy sessions.

But in picking through the numbers, there appears to be something else at work. Factually, NIMs were actually greater in 2013 than in 2007 for Bank and Thrifts, according to the financial institutions included in SNL Financial's Bank & Thrift Index (2.91% in 2007 versus 2.94% in 2013). But NIM has been on the decline since 2010 when it stood at 3.31%.

Is it irrational pricing by the competition? I think all bankers will attest that at the forefront of the financial crisis, credit spreads worked their way back into pricing decisions. Banks were not only more cautious about the quality of the credit, but the yield on the loan too. And this partially explains why the NIM rose from 2007-2010. But has irrational loan pricing driven the NIM south since that time? The below chart shows differently.

                        Source: The Kafafian Group, Inc.

The largest loan categories on bank balance sheets actually showed spread gains during this period, until they finally began to wane in 2013.  This analysis measures loan spreads by taking the actual yield of the loan portfolios, and charging a transfer price for funding the loans using a market instrument with the same repricing characteristics. In plain English, it removes interest rate risk from the spread, often called co-terminous spread. 

How do we explain rising loan spreads, combined with decreasing NIMs? Well one reason can be the reduced benefit of deposit repricing. Financial institutions have benefited by the significantly reduced funding costs brought about by the historically low Fed Funds rate. But that benefit has been mostly exhausted. Leaving re-pricing of loans to be offset by, well, nothing.

The second culprit behind NIM decline since 2010 is the continued decline in loan to deposit ratios (see chart). Perhaps you hear talk of this in your FIs senior management meetings over the last couple of years. "We don't need more deposits because we have no place to put them." "We have tons of cash to lend." Etc.

But loan pipelines are getting fuller as the tortoise-like economic recovery grows deeper roots. With many FIs still mopping up excess liquidity, competition remains strong for those "good" credits, whatever that means. Presumably it means borrowers who will pay you back. This will continue to put pressure on NIMs. Once rates rise, there will likely be additional pressures as the least liquid FIs start pricing up their deposits to keep funding their pipeline. 

Will deposit rates rise faster than the loans those deposits will fund? Time will tell. 

Do you think NIMs will continue to decline, even when rates rise?

~ Jeff

Guest Post: First Quarter Economic Review by Dorothy Jaworski

Spring-At Last

We are all thankful to leave the brutal winter of 2014 behind, especially the polar vortex! The constant barrage of snowstorms was mind numbing. The ice storm that hit our region (Philadelphia Region) with damage and over 700,0000 power outages was perhaps the worst storm. I missed being on the eastbound Pennsylvania Turnpike by 30 minutes on February 14th. For that, I am truly thankful. The lost productivity cost our local economy greatly. and the lasting legacy of potholes will keep drivers on their guard for months!

But it is pring and a new beginning. The equity markets are reaching new highs, expecting the economy to emerge from the deep freeze in the first quarter. GDP is expected to rebound from 1% to 1.5% in the first quarter to its "normal" mediocre growth rate of 2% to 2.5% in the second quarter.

Long term interest rates remain near their highs of last year, with the 10 year Treasury trading around 2.75%, as a result of the Federal Reserve tapering of their QE bond buying program. The bond markets unwound the benefits of QE during 2013, so it quickly became apparent to the Fed to reduce it. Rates would be much higher today if the economy was expected to grow more than the rates I indicated here. Markets are ignoring would events, such as Russia's annexation of Crimea, further unrest in Ukraine, earthquakes, and the missing Malaysian Airlines Flight 370.

We have a new beginning at the Federal Reserve, too.  Janet Yellen was sworn in as the first female Fed Chairwoman and she is expected to rule an empire in the same traditions as her two predecessors, the Maestro and Big Ben.  She worked for both men and is a fan of each.  She is a proponent of studying the data and is not fooled by numbers that do not provide the full picture of economic health, such as the unemployment rate.  She learned her first lesson at her first press conference.  When asked to define “considerable time,” she blurted out “six months or that type of thing” without thinking.  What?  “Considerable” is that short?  Bernanke always implied it was years!  Bond markets quickly adjusted to rate hikes sooner than expected.  I don’t think she meant that at all.  Nearly five years into our “recovery,” she knows that she must keep short term rates low to improve employment and prevent inflation from getting too low.  She knows if she tightens too soon, economic growth could stall.

Cautious Growth for 2014

We still expect that GDP growth for 2014 will be between 2% and 2.5% nationally.  Once the country recovers from the brutal winter in most parts of the US, growth will resume but uncertainty will remain, as businesses and consumers adjust to the new healthcare laws, regulatory burden, and general discomfort with the economic outlook.  Many of our bank customers remain reluctant to borrow and spend on large projects.

The Federal Reserve released their updated economic projections on March 19, 2014.  Generally, they lowered their GDP projections for this year and the next two slightly, kept their inflation forecasts about the same- still at 2% or below, and lowered their unemployment rate projections due to structural problems with the rate falling from persons exiting the labor force and lower paying jobs being added.  They slightly raised their Fed Funds projections, including an earlier increase of the Fed Funds rate from the prior December projections.  The market interpreted this as tightening sooner than had been built into the term structure.  Janet Yellen, when asked directly about this change in the scatterplot, stated that we should “ignore” it and pay attention to Fed statements released after their meetings.  Here we are- back to the good old days when everything the Fed says is vague!

Fed QE Programs

I am of the opinion that the QE bond buying programs served to reduce long term rates and were initially successful.  During 2012 and 2013, long term interest rates, including mortgage rates, fell and contributed to an improvement in the housing markets, allowing home price increases to gain some momentum and prompt the new construction markets to improve.  Then, the Fed mishandled their message on QE early in 2013 and the markets abruptly removed its favorable impact, sending long term rates soaring over 100 basis points.  This type of increase is very rare in a declining inflationary environment, but we live with it.  With the markets having removed the benefits of QE, the Fed began “tapering” the program, which started at $85 billion per month last year and is now at $55 billion per month.  Markets expect the Fed to continue reducing purchases by $10 billion per month until it is down to zero- in October or November, 2014.  So our question to Janet is:  What will you do if the economy stalls and you need to ease?  Her answer:  More QE!

By the way, Europe is about the start up a QE bond buying program for the first time- to the tune of $1 trillion Euro to help the struggling economies, where growth turned positive, but only by about +.5%.  Mario Draghi, the head of the European Central Bank, is revealing his plans to the International Monetary Fund for buying sovereign debt, or maybe even private debt!  Later, he will make a public announcement.  The European markets are abuzz with speculation, but it will not be the first time Draghi has proposed something big and not followed through on it.  Yeah, like negative interest rates, Mario!  Stay tuned!

Discovery of the Waves

Albert Einstein predicted in 1915, in the general theory of relativity, that the universe contained gravitational waves, left over from the Big Bang billions of years ago.  A second theory developed in the 1980s predicted these waves as part of a process known as cosmic inflation.  An instant after the Big Bang occurred 13.8 billion years ago, the universe expanded exponentially, inflating in size trillions and trillions of times.

An announcement by the Harvard-Smithsonian Center for Astrophysics in Massachusetts on March 18, 2014 stated that researchers have discovered the gravitational waves, confirming both theories, by looking through telescopes on the South Pole.  This is another monumental breakthrough in understanding the universe, after the discovery of the “God particle” by the Large Hadron Collider team in Switzerland last year.  Yeah, now we know!  Now, if we could only predict interest rates!

Thanks for reading and Happy Spring!  DJ 04/07/14

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.

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

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!

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

Bankers: Is your strategy the same as your competitor?

It is annual report season, meaning publicly traded financial institutions are finalizing their 2013 numbers and submitting their 10k's to the Securities and Exchange Commission (SEC). In preparation for meetings, I frequently read 10k's. If you haven't read a 10k, it will win no literary awards, especially for originality.

This was abundantly clear while I was reading a 10k and forgot the bank. Don't believe me? Give it a try. Two sections of the 10k I scroll to is the "Business" section and the "Business Strategy" section. This, one would think, would give me a feel of the bank's differentiation strategy, it's perceived competitive advantage, if you will. 

Well don't get too excited. More often than not these sections affirm my belief that most financial institutions follow a "me too" strategy. To exemplify, here are three Texas bank's "Business" and "Business Strategy" sections to their most recently filed 10k. I picked Texas because of their perceived independent streak. Independent? Read on...

T Bancshares, Inc. (OTCQB: TBNC)

"The Bank is a full-service commercial bank offering a broad range of commercial and consumer banking services to small- to medium-sized businesses, single-family residential and commercial contractors and consumers. Lending services include commercial loans to small to medium-sized businesses and professional concerns as well as consumers. The Bank offers a wide range of deposit services including demand deposits, regular savings accounts, money market accounts, individual retirement accounts, and certificates of deposit with fixed rates and a range of maturity options. The Bank also offers wealth management and trust services. These services are provided through a variety of delivery systems including automated teller machines, private banking, telephone banking and Internet banking.

We believe we can effectively compete as a community bank in our market area and the niche markets we serve. We focus our marketing efforts in three areas. We serve our local geographic market which is the Dallas - Fort Worth metropolitan area. We serve the dental and other health professional industries through a centralized loan and deposit platform that operates out of our main office in Dallas, Texas and serves clients in 30 states. Since the fourth quarter, 2012, we have expanded to serve the small business community by offering loans guaranteed by the Small Business Administration as well as the U.S. Department of Agriculture. We are registered in Colorado and Oregon as a lender and our employees maintain home offices in those states from which we originate and underwrite those loans. We anticipate that these loans will also be originated nationwide.

We offer a broad range of commercial and consumer banking services primarily to small to medium-sized businesses and their employees. Because our of technological capabilities, including worldwide free ATM withdrawals, sophisticated on-line banking capabilities, electronic funds transfer capabilities, and economical remote deposit solutions, we believe we can be the primary bank for most customers no matter where they are located. We believe that meeting the needs of our customers and making their banking experience more efficient leads to increased customer loyalty. In addition to our traditional banking services, we offer trust services to individuals and benefit plans.

We are able to utilize relatively low cost deposits provided by our trust activities to fund additional loan growth. The amount of deposits available to us while maintaining full FDIC insurance protection for our trust customers has consistently exceeded $30 million for the last three years. We anticipate the trust custodial deposits to be relatively low cost and comparable to the rate we pay non-trust customers on money market account balances.

The Bank’s goals are as follows:

• sustain profitability;

• maintain controlled growth by focusing on increasing our loan and deposit market share by providing personalized customer service;

• closely manage yields on earning assets and rates on interest-bearing liabilities;

• continue focusing on noninterest income opportunities including our trust business;

• maintain our positive working relationship with our regulators;

• control noninterest expenses; and,

• maintain strong asset quality."

Texas Capital Bancshares, Inc. (Nasdaq: TCBI)

"We serve the needs of commercial businesses and successful professionals and entrepreneurs located in Texas as well as operate several lines of business serving a regional or national clientele of commercial borrowers. We are primarily a secured lender, with our greatest concentration of loans in Texas. We have benefitted from the Texas economy since our inception, producing strong loan growth and favorable loss experience amidst the challenging environment for banking nationally.

Drawing on the business and community ties of our management and their banking experience, our strategy is to continue building an independent bank that focuses primarily on middle market business customers and successful professionals and entrepreneurs in each of the five major metropolitan markets of Texas. To achieve this, we seek to implement the following strategies:

  •Targeting middle market business and successful professionals and entrepreneurs;

  •Growing our loan and deposit base in our existing markets by hiring additional experienced Texas bankers;

  •Continuing our emphasis on credit policy to maintain credit quality consistent with long-term objectives;

  •Leveraging our existing infrastructure to support a larger volume of business;

  •Maintaining stringent internal approval processes for capital and operating expenses;

  •Continuing our extensive use of outsourcing to provide cost-effective operational support with service levels consistent with large-bank operations; and

  •Extending our reach within our target markets of Austin, Dallas, Fort Worth, Houston and San Antonio through service innovation and service excellence."

Prosperity Bancshares, Inc. (NYSE: PB)

"Prosperity Bancshares, Inc.®, a Texas corporation (the “Company”), was formed in 1983 as a vehicle to acquire the former Allied Bank in Edna, Texas which was chartered in 1949 as The First National Bank of Edna and is now known as Prosperity Bank. The Company is a registered financial holding company that derives substantially all of its revenues and income from the operation of its bank subsidiary, Prosperity Bank® (“Prosperity Bank®” or the “Bank”). The Bank provides a wide array of financial products and services to small and medium-sized businesses and consumers. As of December 31, 2013, the Bank operated 238 full service banking locations; 63 in the Houston area, including The Woodlands; 26 in the South Texas area, including Corpus Christi and Victoria; 35 in the Dallas/Fort Worth area; 22 in the East Texas area; 36 in the Central Texas area, including Austin and San Antonio; 34 in the West Texas area, including Lubbock, Midland-Odessa and Abilene; 16 in the Bryan/College Station area and 6 in the Central Oklahoma area. The Company’s headquarters are located at Prosperity Bank Plaza, 4295 San Felipe in Houston, Texas and its telephone number is (713) 693-9300. The Company’s website address is www.prosperitybankusa.com.

The Company’s market consists of the communities served by its banking centers. The diverse nature of the economies in each local market served by the Company provides the Company with a varied customer base and allows the Company to spread its lending risk throughout a number of different industries including professional service firms and their principals, manufacturing, tourism, recreation, petrochemicals, farming and ranching. The Company’s market areas outside of Houston, Dallas, Corpus Christi, San Antonio, Austin and Central Oklahoma are dominated by either small community banks or branches of large regional banks. Management believes that the Company, as one of the few mid-sized financial institutions that combines responsive community banking with the sophistication of a regional bank holding company, has a competitive advantage in its market areas and excellent growth opportunities through acquisitions, including acquisitions of failed financial institutions, new banking center locations and additional business development.

Operating under a community banking philosophy, the Company seeks to develop broad customer relationships based on service and convenience while maintaining its conservative approach to lending and sound asset quality. The Company has grown through a combination of internal growth, the acquisition of community banks and branches of banks and the opening of new banking centers. Utilizing a low cost of funds and employing stringent cost controls, the Company has been profitable in every year of its existence, including the periods of adverse economic conditions in Texas.

The Company’s main objective is to increase deposits and loans internally, as well as through additional expansion opportunities and acquisitions, while maintaining efficiency, individualized customer service and maximizing profitability. To achieve this objective, the Company has employed the following strategic goals:

Continue Community Banking Emphasis. The Company intends to continue operating as a community banking organization focused on meeting the specific needs of consumers and small and medium-sized businesses in its market areas. The Company provides a high degree of responsiveness combined with a wide variety of banking products and services. The Company staffs its banking centers with experienced bankers with lending expertise in the specific industries found in the given community, and gives them authority to make certain pricing and credit decisions, avoiding the bureaucratic structure of larger banks.

Expand Market Share Through Internal Growth and a Disciplined Acquisition Strategy. The Company intends to continue seeking opportunities, both inside and outside its existing markets, to expand either by acquiring existing banks or branches of banks, including FDIC assisted purchases, or by establishing new banking centers. All of the Company’s acquisitions have been accretive to earnings within 12 months after acquisition date and generally have supplied the Company with relatively low-cost deposits which have been used to fund the Company’s lending and investing activities. However, the Company makes no guarantee that future acquisitions, if any, will be accretive to earnings within any particular time period. Factors used by the Company to evaluate expansion opportunities include (i) the similarity in management and operating philosophies, (ii) whether the acquisition will be accretive to earnings and enhance shareholder value, (iii) the ability to improve the efficiency ratio through economies of scale, (iv) whether the acquisition will strategically expand the Company’s geographic footprint, and (v) the opportunity to enhance the Company’s market presence in existing market areas.

Increase Loan Volume and Diversify Loan Portfolio. While maintaining its conservative approach to lending, the Company has emphasized both new and existing loan products, focusing on managing its commercial real estate and commercial loan portfolios. The Company’s loan portfolio increased $2.60 billion during 2013 of which approximately $2.30 billion represents the remaining balance as of December 31, 2013 of three acquisitions completed during the year. During the one year period from December 31, 2012 to December 31, 2013, the Company’s commercial and industrial loans increased from $771.1 million to $1.28 billion, or 66.0%, and represented 14.9% and 16.5% of the total portfolio, respectively for the same period. Commercial real estate (including multifamily residential) increased from $1.99 billion to $2.75 billion, or 38.3%, and represented 38.5% and 35.2% of the total portfolio, as of December 31, 2012 and 2013, respectively. In addition, the Company targets professional service firms, including legal and medical practices, for both loans secured by owner-occupied premises and personal loans to their principals.

Maintain Sound Asset Quality. The Company continues to maintain the sound asset quality that has been representative of its historical loan portfolio. As the Company continues to diversify and increase its lending activities and acquire loans in acquisitions, it may face higher risks of nonpayment and increased risks in the event of continued economic downturns. The Company intends to continue to employ the strict underwriting guidelines and comprehensive loan review process that have contributed to its low incidence of nonperforming assets and its minimal charge-offs in relation to its size.

Continue Focus on Efficiency. The Company plans to maintain its stringent cost control practices and policies. The Company has invested significantly in the infrastructure required to centralize many of its critical operations, such as data processing and loan processing. For its banking centers, which the Company operates as independent profit centers, the Company supplies complete support in the areas of loan review, internal audit, compliance and training. Management believes that this centralized infrastructure can accommodate additional growth while enabling the Company to minimize operational costs through economies of scale."

To be fair, I was impressed with T Bancshares' niche (note it is by far the smallest of the three). But if you can cut and paste these sections into your 10k, replacing geographies and bank names with yours, do we really need your bank?

~ Jeff