Looking back at 2020's community bankers to watch

The community banking team at American Banker convenes this time each year to identify five executives we think will make headlines in the year ahead.

We had no clue as we debated candidates a year earlier that the coronavirus pandemic would be the dominant force over our 2020 coverage. COVID-19 really has been the story.

Still, we managed to keep an eye on the bankers we selected as potential newsmakers and, it turns out, most delivered.

J. Myers Jones III struck a deal in January to sell Franklin Financial Network in Franklin, Tenn., to FB Financial then guided the merger through the various challenges presented by the pandemic until it closed in late summer.

Tom Lopp abruptly resigned as CEO of Sterling Bancorp in Southfield, Mich., just months after taking the helm at a company burdened with compliance issues and struggling to replace revenue lost when it abruptly ended a lending program.

Paul Murphy Jr. has been grappling with a number of credit issues at Cadence Bancorp., including the Houston company’s exposure to energy companies and restaurants. Susan Riel continued to add depth at Eagle Bancorp in Bethesda, Md., bringing in new executives and directors.

Clint Stein, who we thought would be on the hunt for acquisitions in his first year as CEO at Columbia Banking System, kept a relatively low profile, though the Tacoma, Wash., company stepped up during the Paycheck Protection Program by making nearly $1 billion in PPP loans.

What follows is a detailed recap of each of their stories. Stay tuned for the 2021 list, and profiles of each banker on it, over the coming days.

Jones sells the bank

The calendar had barely flipped to 2020 when Jones made news by agreeing to sell the $3.6 billion-asset Franklin to FB Financial in Nashville, Tenn., for $620 million It was a textbook in-market deal, since Franklin was headquartered in a Nashville suburb.

The deal ended up being among the year's 10 biggest bank mergers, in part because of the general slowdown in consolidation during the earliest days of the pandemic.

Franklin had a highly regarded commercial real estate lending business, but it had taken financial hits in 2019 because of dealings in shared-national credits. It was that exposure that led us to put Jones on our 2020 watch list.

FB Financial said when it announced the deal that it planned to shed those loans as quickly as possible. By midyear, Franklin had also reduced the size of its shared-national credit portfolio by 57% from a year earlier, to $99.6 million, or just 3.6% of outstanding loans.

Despite operational and organizational challenges presented by COVID-19, each company’s shareholders approved the merger in June. FB Financial completed the acquisition on Aug. 15 to reach $11 billion in assets.

While Franklin participated in the Paycheck Protection Program, it sold its $77 million in PPP loans to a third party before the sale to FB Financial closed.

Murphy confronts credit issues

Cadence was already dealing with credit weakness tied to the restaurant, supply management and energy industries when we decided to keep a closer eye on Murphy, the Houston company’s chairman and CEO.

The pandemic widened the $17 billion-asset company’s credit cracks.

Cadence was one of the first banks to take a big financial hit tied to coronavirus-related shutdowns, and Murphy provided a sobering economic outlook after the company booked a $412.9 million goodwill impairment charge and reported a $399 million loss in the first quarter.

“We expect to be dealing with credit stress" tied to COVID-19 "for a meaningful period of time,” Murphy said during a conference call to discuss those results. “That will be our primary focus.

The company would go on to lose another $56 million in the second quarter before posting a $46 million profit three months later. Loans under deferral on Oct. 16 were down 52% from Sept. 30 and 87% from mid-2020, to $181 million.

But criticized loans remain a concern, increasing by 10% in the third quarter from a quarter earlier, to $1.1 billion, largely because of downgrades for loans tied to energy, hospitality and other commercial borrowers.

While Cadence’s big splash in Atlanta — a product of its $835 million purchase of State Bank Financial that closed in early 2019 — has been overshadowed by credit issues, the company noted that Georgia accounted for roughly 40% of the $1.1 billion in loans it made under the Paycheck Protection Program.

Murphy has struck a more optimistic tone in recent months, telling analysts in October that he had seen some positive trends with some nonperforming energy credits as oil prices began to inch back up. He said several energy clients were paying down debt to curb expenses and offset revenue challenges.

Stein holds off on M&A

We thought Stein, who became Columbia’s CEO on Jan. 1, would end the $16.2 billion-asset company’s three-year break from acquisitions.

Stein certainly sounded upbeat about deals when he was interviewed a year ago, discussing a “decent amount” of targets across the Pacific Northwest. But the company remained on the sidelines in 2020 as its home state was among the first to feel the sting of the coronavirus pandemic.

Columbia has remained profitable this year, and deferrals fell from $1.6 billion on June 30 to $114 million on Sept. 30. And Columbia made nearly $1 billion in loans under the PPP.

Stein also recruited the veteran bank analyst Aaron James Deer to become its chief financial officer in April.

Riel deepens Eagle's bench

Riel was chosen for our list after succeeding Ronald Paul as Eagle’s CEO early last year.

She inherited a company that was dealing with a series of probes into its treatment of related-party transactions and ties to Jack Evans, a former Washington, D.C., city councilman who resigned after accusations of ethics violations. Eagle overhauled its board shortly after she took the helm.

But Riel has not allowed those issues, or the pandemic, to deter her from strengthening the management team at the $10.1 billion-asset company.

Eagle announced in June that it had hired Sam Pepper, former president and CEO of UFS Bancorp in Massachusetts, as its chief operating officer. It also brought in Jeff Curry, a former managing director at Deloitte, as its bank’s chief risk officer.

Pepper is handling controls, administrative and reporting procedures, while Curry is responsible for risk identification, mitigation and compliance. All of those areas have taken on greater importance in the midst of the pandemic.

Eagle, based in Bethesda, Md., also added two directors — Ernie Jarvis, a commercial real estate broker, and Steve Freidkin, CEO of an IT consulting firm. The board now has 10 directors, including eight that are considered independent.

But Eagle continues to struggle with legal issues; it recorded more than $14 million in legal expenses through the first nine months of 2020. The amount was 15% higher than the $12.2 million in legal expenses Eagle had for all of 2019.

The company disclosed in its Nov. 9 quarterly filing that it had “received various document requests and subpoenas from securities and banking regulators,” along with the Justice Department, tied to ongoing investigations into its dealings with Evans.

Despite ongoing legal matters and the pandemic, Eagle has remained profitable. And it made more than $450 million in PPP loans.

Lopp suddenly departs

Tom Lopp, like Riel, was chosen after taking the helm at a company dealing with myriad issues.

Lopp became CEO of Sterling Bancorp in Southfield, Mich., in late November 2019. Soon after his promotion — he had been chief operating officer and chief financial officer — the $3.9 billion-asset company abruptly hit the brakes on its Advantage Loan program following an internal compliance review. The program, which allowed applicants to use nonstandard forms of documentation, accounted for 83% of Sterling's mortgage production during the first nine months of 2019.

The mortgage issue spurred a big first-quarter loss, subpoenas from the Justice Department and a class-action lawsuit. Sterling, which is operating under a formal agreement with the Office of the Comptroller of the Currency requiring improvements to its Bank Secrecy Act and anti-money-laundering compliance, has also disclosed that the OCC is conducting a formal investigation of its bank.

More than 100 Sterling employees were fired or resigned between October 2019 and November 2020, with some departures tied to the internal review, the company disclosed in its most recent quarterly filing.

Lopp’s tenure ended in May when he resigned, citing health reasons for his departure.

Sterling acted quickly, hiring Thomas O’Brien in June as its third CEO in less than a year.

O’Brien, a former president and CEO of Sun Bancorp, was one of American Banker’s community bankers to watch in 2016. He took on massive profitability issues at Sun, setting up the New Jersey company’s 2018 sale to OceanFirst Financial.

Sterling agreed in December to sell its wealth management business to Lido Advisors (the price was not disclosed). It also proposed adding Tracey Dedrick, a former head of enterprise risk management at Santander Holdings and former chief risk officer at Hudson City Bancorp, to its board, pending OCC approval.