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Bank CEOs John W. Allison, Ed Wehmer and David Zalman blended good-natured banter with insights on breaking the $10 billion-asset barrier, the danger of bank buyers paying too much and changing attitudes about M&A at an industry conference this week.
September 18 -
The acquisitive Prosperity Bancshares in Houston is set to slow its growth following a deal for Tulsa's F&M.
August 29 -
Many banks are aggressively closing branches to cut costs. Those banks must be mindful about branches in moderate- and low-income neighborhoods or risk downgrades after their next Community Reinvestment Act examination.
August 26 -
The Chicago-area company has shown a willingness to pursue small branch deals and expand in nearby Wisconsin as it looks for liquidity and lending opportunities.
April 16 -
The company will soon exceed $50 billion in assets, which will bring with it added scrutiny and possible pressure to lower its dividend. CEO Joseph Ficalora is hopeful that he can preserve a high dividend, even though regulators appear to have a preference for repurchase activity.
May 5 -
Private equity, new regulatory costs and declining benefits from failed-bank deals are some of the big factors that will determine who buys and sells in the coming year.
December 31
Larger community banks that are eyeing acquisitions might want to consult the chief executives of Prosperity Bancshares and Hancock Holding before crossing the $10 billion-asset threshold.
While Prosperity's David Zalman and Hancock's Carl Chaney said they knew that their banks would lose significant interchange income when they hit the $10 billion mark, they were not quite ready for the increased regulatory scrutiny that came with that growth.
Speaking at an industry conference in Boston Wednesday, Zalman said that crossing the $10 billion-asset threshold has increased the Houston company's expenses by an estimated $25 million a year. Chaney, the co-CEO at Gulfport, Miss.-based Hancock, said that his bank has gone through such growing pains since its acquisition of Whitney Bank in 2011 that he sometimes wishes his bank were a credit union.
"I wouldn't have to pay taxes and I would have a fraction of the oversight," he said at the RBC Capital Markets conference, where he sat on a panel with Zalman, Ed Wehmer, the CEO at Wintrust Financial in Rosemont, Ill., and Randy Sims, the CEO of Home Bancshares in Conway, Ark.
The Dodd-Frank Act created delineations between asset sizes, with specific things like the capping of interchange fees
With a few years passing since the law was enacted, executives at banks approaching those thresholds have adopted the reasoning that they can more or less quantify the costs of things like the interchange income loss and can therefore make smart acquisitions to offset it.
Prosperity, for example, had estimated it would lose between $8 million and $10 million annually from the interchange cap, which is known as the Durbin amendment. So it embarked on an aggressive acquisition spree, buying banks in Texas and Oklahoma looking to offset it.
Similarly, Bob Jones, chief executive of the $9.6 billion-asset Old National in Evansville, Ind., quantified the Durbin offset in June as he discussed the company's agreement to acquire LSB Financial, one of several deals the company has announced it would buy in the last year.
The recent deals give "you a range of 17 cents to 19 cents of accumulated accretion," Jones said. "Durbin, on a full-year impact, after tax, is 4 cents to 7 cents, so you can see the 17 cents to 19 cents, even on a full-year basis, is more than covered."
While Jones and other bankers anticipated there would be additional scrutiny, some, like Zalman, still seem shell-shocked by the cost of it as regulators required banks to constantly revise their models. Banks with $10 billion of assets or more are also subject to regular exams from the Consumer Financial Protection Bureau.
"It's like someone [taking] a baseball bat and hitting you between the eyes," Zalman said about the additional regulation he encountered as Prosperity grew from $9.5 billion of assets in mid-2011 to $21 billion at June 30. "The burden is so great."
At the same panel last year,
"Given all the money we've put in, we are in a good position to grow, but we are getting treated like a $50 billion bank," Zalman said. Chaney agreed.
Still, Wehmer said that regulatory burden isn't going away and that banks need to do their best to deal with it.
"When the biggest risk to your business plan is the regulators, you put money at it," Wehmer said. Quoting from the "The Godfather Part II", he added, "It is like when Hyman Roth tells Michael Corleone, 'This is the business we've chosen.'"
