On January 29, 2011, Bryan Cave partners Jim McAlpin and Walt Moeling presented at the 2012 Bank Director Acquire or Be Acquired conference in Phoenix, Arizona. Their presentation was titled, “The Path to Recovery – Building Value in a Changing Environment.”
The presentation includes an overview of the results of the 2012 Bryan Cave Survey of investment bankers and bank consultants to assist in providing strategic advice to clients. A sampling of results include:
- “In my opinion, the calendar just needs to turn another 3 to 6 more months and more signs of credit stabilization just need to naturally occur. We think folks will be pleasantly surprised to see the natural “mating process” happen on its own in 2012. [This will] start really slow but moderately gain momentum as 2013 unfolds, and by 2014 it will be a great deal different.” – Chris Marinac, FIG Partners
- “Failed bank opportunities need to disappear (still two more years of this in the Southeast); more healthy buyers need to appear; private equity will become much more involved; buyers prices need to improve; Banks with TARP will likely have to sell as capital markets will not open up in time.” – Bill Wagner, Raymond James
- “Dominate its ‘micro’ market as it relates to deposits and their lending competency and try to achieve critical mass (~$750m).” – Jeff Brand, KBW
- “Sometimes the blocking and tackling basics are a competitive advantage – provide the services desired on par with the big banks with care and concern.” – Phil Moore, Porter Keadle Moore
A copy of their PowerPoint presentation is now available online.
Bryan Cave is pleased to once again serve as a sponsor of 16th Annual Southeastern Bank Management & Directors Conference, hosted by UGA’s Terry College of Business on February 9, 2012. The conference’s theme for this year is “Banks & Emerging Retail Payments Systems: Opportunity or Threat?” and this year’s keynote speaker will be E. Robinson McCraw, CEO and Chairman of Renasant Bank.
Topics will include Regulations in Payment Systems, Monetizing Payments and Non-Lending Activities, the Retail Landscape, Getting Management and Your Board to think about Payments, and Evolving Accounting Standards and Compensation Policies. Download the conference agenda or information sheet.
The long-term impact of payment systems on community banks remains unpredictable, but one fact is indisputable – change is coming and banks need to be nimble, embrace technology and understand their customers’ preferences if they want to thrive in the new environment. This conference addresses an approach to extending the vitality of your bank.
With offices all over the world, Bryan Cave attorneys are often quoted in the news. Recent Media Mentions of Financial Institutions Group attorneys include:
Hightower on BankDirector.com
Atlanta Associate Jonathan Hightower authored an article Nov. 18 for BankDirector.com concerning the pitfalls for banks negotiating lease renewals with insiders. “During the mid-2000s, it was commonplace for a bank, particularly a de novo bank, to lease some or all of their bank facilities from an entity controlled by the bank’s directors,” he wrote. “Most bank directors understand their duty to act in the best interests of the bank, but they are also facing personal financial exposure if the lease is not renewed on terms that allow the [director-owned] entity to continue to service its debt obligations. In addition, given public scrutiny of directors and officers who are perceived to have profited at the expense of the bank they serve, creating a proper process to manage these situations has never been more important.” Click here to read the full article.
McAlpin on BankDirector.com
Atlanta Partner Jim McAlpin authored the second article in a series on “best practices” for bank directors Dec. 2 for BankDirector.com. ”A bank board is like any other working group in that the direction and decisions of a board can be heavily influenced by members who dominate the conversation, or by members who actively discourage discussion or dissent,” wrote McAlpin, who offers tips to help all board members achieve meaningful participation. Click here to read the full article.
Moeling in Bank Director
Atlanta Partner Walt Moeling was quoted in the fourth quarter 2011 issue of Bank Director on challenges facing new directors now and in the near future. “Business plans become much more realistic when they start out with the big picture rather than “do we really want a Wal-Mart greeter in the lobby?” Moeling said. ”Are we going to build for five years and sell? Are we going to acquire? Are we going to stay local or expand?”
With offices all over the world, Bryan Cave attorneys are often quoted in the news. Recent Media Mentions of Financial Institutions Group attorneys include:
McAlpin on BankDirector.com
Atlanta Partner Jim McAlpin authored the first in a series of articles concerning best practices of bank boards Oct. 25 for BankDirector.com. McAlpin said “there has never been a greater need for well-functioning, informed and courageous boards of directors of banks and bank holding companies. There has also never been a more important time for board members to keep in mind that their responsibilities can be boiled down into one simple goal: the creation of sustainable long-term value for shareholders.” This also was the lead article in the BankDirector November e-mail newsletter. Click here to read the full text. The second installment in the series will be published by BankDirector in early December.
Moeling in American Banker, Atlanta Journal-Constitution
Atlanta Partner Walt Moeling was quoted at length Nov. 17 by American Banker regarding the new perception businesspeople have toward serving on a bank board. “Most of them joined because it is one of the great clubs in an area and there is an opportunity to help people in your community. But after four years of foreclosing on your neighbors, watching your friends lose their jobs and seeing your investment lose its value, you’re done,” said Moeling, adding that banks still can find local people to serve, but those directors will have to be prepared to roll up their sleeves a lot. “The compliance burden is huge. Regulators are going to expect directors to be on top of things. The meetings will be longer and more detailed. It will be a lot more demanding than it ever was in the past and it is not going to be as much fun.” He also was quoted Nov. 7 in The Atlanta Journal-Constitution concerning the reasons for the failure of Decatur First Bank in Decatur, Ga. The bank’s quest for growth (it opened subsidiary banks in the mid-2000s in the once-booming Lake Oconee area, about 80 miles east of Atlanta) provided a windfall for a few years until the housing market crashed.
ReVeal on BankDirector.com
DC Counsel John ReVeal was interviewed for two videos now being used on the BankDirector.com Web site. One video focuses on the Bank Secrecy Act (BSA) and how violations are perceived today by regulators. The other, which outlines what a bank board should know about BSA, has become the group’s official training piece concerning BSA and is located in a password-protected section. Click here to view ReVeal’s video on BSA and regulators.
On August 22, 2011, the FDIC filed a complaint in the U.S. District Court for the Northern District of Georgia against the former directors and executive officers of Silverton Bank, N.A. Silverton was declared insolvent and placed into FDIC receivership on May 1, 2009.
Silverton, formerly known as The Banker’s Bank, was not a traditional banking institution. It provided correspondent and clearinghouse services, among other financial services, to community banks only. Silverton was owned by investor banks, and its board was comprised entirely of experienced community bankers.
The FDIC’s account of Silverton’s failure contains many of the same hallmark allegations present in its prior D&O lawsuits:
- overly-aggressive growth goals;
- compensation that incentivized loan production regardless of asset quality;
- expansion of lending into unfamiliar geographic markets;
- heavy focus on risky CRE and ADC lending;
- significant weaknesses in loan underwriting and credit administration;
- ignored warnings from state and federal banking regulators; and
- complete disregard of deteriorating economic conditions.
As it has done in prior lawsuits, the FDIC has identified several failed credit transactions that it contends are examples of negligence, gross and a breach of fiduciary duty by the directors or officers who approved them. In total, the FDIC seeks damages in excess of $61 million for fifteen (15) specific credit transactions.
Although it contains some familiar allegations and case themes, the FDIC’s complaint against the Silverton D&Os is unique, both in substance and tone. For the first time in the current downturn, the FDIC seeks to hold directors liable for instances of what it describes as “corporate waste.” Specifically, the complaint recites several examples of Silverton’s “extravagant spending” while the economy was in decline, including: (i) the purchase of two corporate aircraft for the bank holding company; (ii) the construction of a new airplane hangar for the holding company on leased property; (iii) the construction of a “lavish” new office building, which Silverton occupied 20 months before the expiration of its then-current lease. The FDIC alleges that the directors who authorized these specific expenditures are liable for more than $10 million of “corporate waste.”
The tenor of the FDIC’s allegations against the Silverton D&Os is more strident than in its prior lawsuits. The FDIC is particularly critical of the Silverton board, which was comprised of CEOs or presidents of other community banks. That experience and specialized knowledge, the FDIC contends, imposed a heightened duty on the directors to discharge the duties owed to the bank.
With attorneys and staff worldwide, Bryan Cave often makes the news. Recent media mentions of attorneys in the Financial Institutions Group include:
Walt Moeling in SNL
Walt Moeling was quoted August 11 in an SNL blog post, a product of SNL Financial, regarding the slow down in bank failures (even as the problem bank list has shown no signs of shrinking). Moeling said a number of banks have nonperforming loans on their books that are current, but they have had time to write down the loans to levels closer to market values. In addition, some banks with a high likelihood of failing have recapitalized and should survive. “I think it’s strengthening. Banks that were really clamped down are coming out,” he said. “Not that all the problems are over. Some have bled so much that they’re not going to get a transfusion.”
John ReVeal in Bank Safety & Soundness Advisor
John ReVeal was quoted August 1 by the Bank Safety & Soundness Advisor concerning the final rule on preemption issued recently by the Office of the Comptroller of the Currency (OCC) — a last statement on what has been an opaque, legalistic debate carried out between the U.S. Treasury Department and the OCC. At stake were OCC powers that allow the agency to exempt (or preempt) national banks and thrifts from state consumer finance laws. Dodd–Frank legislation codifies what many consider to be a new, stricter standard. But does the Dodd-Frank standard compel the OCC to change its preemption standards? “What community banks can do is breath a momentary sigh of relief,” ReVeal said. “Preemption still exists. Everything we believed about preemption before Dodd-Frank is still true.” Now the OCC’s view will be tested in the courts. “We just need to watch the new laws and see how that plays out,” ReVeal noted.
With attorneys and staff worldwide, Bryan Cave often makes the news. Recent media mentions of attorneys in the Financial Institutions group include:
Walt Moeling in American Banker
Atlanta Partner Walt Moeling was quoted July 5 by American Banker regarding the recent drop in bank consent orders, formerly called cease-and-desist orders. Since the beginning of 2008, the Federal Deposit Insurance Corp. has issued 851 consent orders. The issuances peaked in November 2009, when the FDIC issued 51 consent orders. In May, just 10 banks entered into consent orders with the FDIC. “At this point, these banks should be getting a “Hallelujah” instead of a consent order,” Moeling said. “These are the survivors that are making it in a lousy market. It isn’t a reflection of the board’s performance, it’s a reflection of the market.” Click here to read the full article.
Judie Rinearson in PaybeforeLegal
New York Partner Judith Rinearson authored an article for the July edition of Paybefore Legal regarding key provisions of the Durbin Amendment to the Dodd-Frank Act. The Federal Reserve Board issued its much-anticipated final rule implementing the amendment on June 29. “And now the real work begins for the industry and its participants “changing programs, business models, disclosures, contracts and more to bring thousands of affected programs into compliance,” she wrote. “But before you can dig in, you need to know if your organization and its prepaid programs are covered by the Fed’s final rule. And if they are, what that means.” Rinearson’s article poses 13 questions to help clients identify whether their prepaid card program is eligible for the interchange exemption, fraud prevention adjustment and routing or exclusivity exemptions. Click here to read the article.
With attorneys and staff worldwide, Bryan Cave often makes the news. Recent media mentions of attorneys in the Financial Institutions group include:
Andreassen on Moneylaundering.com
DC Associate Kristine Andreassen was quoted June 7 by Moneylaundering.com regarding a report from the U.S. Senate Caucus on International Narcotics Control in which lawmakers criticize the U.S. Treasury Department for failing to adequately implement a portion of the Credit CARD Act of 2009. The lack of regulations governing the cross-border transportation of prepaid access products has hamstrung American efforts to combat Mexican drug-trafficking organizations, according to lawmakers. Andreassen said that the Financial Crimes Enforcement Network (FinCEN) ultimately must decide whether to require individuals carrying prepaid access devices to declare the actual or potential maximum value the products have before crossing the border. “One of the issues FinCEN has to account for is cards that cross the border empty, and are then reloaded on the other side,” she said.
Moeling in Atlanta Journal-Constitution, Bank Investment Consultant
Atlanta Partner Walt Moeling was quoted May 27 in The Atlanta Journal-Constitution regarding Georgia Rep. Greg Morris, who has been fined $5,000 by federal bank regulators after he made overdrafts not allowed because of his role as a bank director. Moeling said it’s a relatively minor violation. “Director overdrafts seldom impose any threat to the safety and soundness of a bank,” he said. “Nonetheless they are clear violations and the regulators will act when they find repeat offenders.” He also was quoted May 25 by Bank Investment Consultant regarding a growing group of acquisition-minded community banks, for whom fee-based businesses are looking like a more attractive way to bolster revenue than are traditional bank deals.
Rinearson in Franchise Law News
New York Partner Judith Rinearson authored an article in the current edition of Franchise Law News with tips on how to avoid the legal traps of promotional certificates. A spate of class-action lawsuits claim that the short expiration dates popular with “Groupon-like” gift certificate programs violate applicable laws. “Just because you are compliant with federal law, don’t think you are off the hook,” she cautioned. “With care in structuring these programs, and with good, clear disclosures in all marketing materials, these Groupon-like gift certificate programs can be a true win-win for both consumers and retailers.”
With attorneys and staff worldwide, Bryan Cave often makes the news. Recent media mentions of attorneys in the Financial Institutions group include:
Moeling in The Atlanta Journal-Constitution
Atlanta Partner Walt Moeling was quoted March 5 in The Atlanta Journal-Constitution concerning the high number of failed banks in Georgia, many of them concentrated within 70 miles of Atlanta. For the most part, the failed banks were heavily tied to the state’s once-booming housing market. “The banks that failed are a direct reflection of the economy that supported them,” Moeling said. Click here to read the full article.
Custer and Dempsey in The Atlanta Journal-Constitution
Atlanta Partner Bill Custer was quoted March 10 in The Atlanta Journal-Constitution for his representation of a syndicate of banks that held an $89.3 million loan on a large Arizona development that failed. Following a one-week arbitration last December in which Custer and Atlanta Partner Jennifer Dempsey represented the banks, a panel of arbitrators entered an award on Valentine’s Day against longtime Atlanta developer W. Harrison Merrill in the amount of $43.6 million. Unfortunately, the decision does not clear the way for banks, located primarily in the Southeast, to collect the money any time soon. A trial in the Superior Court of Pinal County, Ariz., later this year ultimately will be required to resolve the matter. Click here to read the full article.
A Letter to our Clients and Friends in the Financial Institutions Industry
Walt Moeling and Jim McAlpin spoke at the recent Acquire or Be Acquired Conference sponsored by Bank Director Magazine. Their topic was “The Path to Full Profitability by 2013.” In advance of their talk at the conference, Walt and Jim sought input from a group of industry observers on what they foresee as likely developments over the next few years. (A printer-friendly version of the Letter to Clients is also available.)
We thought you would be interested in what we heard in response to these questions, and the following is an excerpt from Walt and Jim’s presentation at the AOBA Conference:
Background
- There are more than 6500 commercial banks in the U.S. Only 500 of these banks have assets of more than $1 billion, and only 110 have assets of more than $10 billion. In other words, over 90% of U.S. banks have assets of less than $1 billion. Also of significance to this discussion, one third of U.S. banks have less than $100 million in assets.
- In connection with this presentation we sent a survey to a number of our contacts at investment banking firms and also to a group of bank consultants. We asked them to look forward over the next few years and project what the landscape will look like in community banking. We received responses from over 30 industry observers from across the country, and our respondents have allowed us to share their comments either with attribution or anonymously.
“What will the ideal community bank look like by year end 2013?”
- Adam Aspes of Sterne Agee provided an answer that sums up most of what we heard in response to this question: “The ideal community bank will either: (i) have a dominant market share in a rural slow growth market, or (ii) if located in an urban market, have enough scale and product offering to compete for deposits with the larger banks.”
- Jennifer Demba of SunTrust Robinson Humphrey responded: “Investors will value concentrated market share community banks, not fragmented networks.”
- One community bank consultant wrote in response “$1 billion in asset size will not be a large bank by 2013.” We consistently heard in response to this question that, in all but rural markets, a minimum necessary asset size will be $500 million.
- Chris Marinac of FIG Partners wrote: “While not universally applicable, in general we think the regulatory costs of operating a bank have increased such that it is difficult to produce adequate long-term returns for a bank below $500 million in assets. There are exceptions, and some private bank investors find a single-digit Return on Equity to be acceptable. However, we think the demands for 11% to 14% ROEs create a $ billion+ size threshold for surviving banks.
- Another investment banker told us that his firm has modeled the impact of increased compliance costs on smaller community banks: “If you assume an increase of [direct and indirect] compliance costs of $100,000, and then factor in growth of only 5% to 8% per year, it is hard for a smaller bank to get to 1% ROA, much less double digit ROE.”