Insight on Business

April 2013

Issue link: http://www.insightdigital.biz/i/119013

Contents of this Issue

Navigation

Page 37 of 60

nationally from 2006 to 2011. While the pace of failures has declined, and the St. Louis Fed research cited many benefits of locallyfocused community banks, industry watchers forecast that economic and regulatory pressures will prompt investors in smaller institutions to sell to larger banks. Associated Bank, headquartered in Green Bay, has assets of more than $23 billion, and is one of the top 50 publicly-traded banks in the U.S. While the bank has been performing well since the damage inflicted by the financial crisis, CEO Philip Flynn won���t tip his hand whether the bank is in the market to buy. ���An acquisition takes two parties,��� says Flynn, who joined Associated as president and CEO in 2009 and helped it dig out from $600 million in nonperforming loans, mostly in construction. Flynn agrees market conditions favor consolidation and acquisition in the industry. ���As time goes on and the smaller banks realize they will have a hard time getting a reasonable return for shareholders, they will have to think whether it is better to trade their stock for the stock of a larger bank,��� Flynn says. ���In the older days, folks who started and owned community banks expected to grow and sell for threetimes book value. The new reality is that bank stocks are trading barely over book.��� Banking analysts have been impressed with the steps Associated took in the wake of the financial meltdown and recover from the losses it sustained in real estate and construction lending. The bank accepted TARP funds, which have since been repaid, cleansed its portfolio and hired new management, including Flynn and Christopher J. Del MoralNiles, who joined the bank as executive vice president and chief financial officer in 2010. Flynn���s arrival in December 2009 triggered a blitz of activity at w w w. i n s i g h t o n b u s i n e s s . c o m Associated. The bank sold off $600 million in nonperforming assets, closed its books for 2009 by Jan. 11, 2010 ��� nearly two weeks early ��� and did a $500 million secondary stock offering that got it out of trouble. ���It was fast action,��� recalls Flynn. ���I was impressed by how hard my colleagues are willing to work. To close the books two weeks early on a $20 billion bank ��� people just killed themselves to get this done. But that allowed us to turn the franchise around.��� Analysts and industry watchers have taken note. ���Associated today is in a very good place,��� says Christopher McGratty, a banking analyst at Keefe, Bruyette & Woods, a New York-based investment bankers��� realism. Robert Atwell, chairman and CEO of Nicolet Bank, says many community bankers are tired and looking for a buyer. While some community banks are strong, with more than 250 in Wisconsin, the state is ripe for consolidation, he says. ���The banks with a strategy that is durable and adaptable are perhaps 20 to 25 percent of the total in the state,��� he says. ���Then there are the tweeners with enough capital strength not to make a decision for several years, and then there are some banks that have no room to move.��� But before the expected wave of mergers and acquisitions can take place, community bankers have ���A lot of these community banks should be exploring their options. It���s a tough operating environment with interest rates at zero and regulatory pressures, but it���s an ideal environment for M & A.��� ��� C hristopher McGratty, a banking analyst at Keefe, Bruyette & Woods, New York bank that specializes in the financial services sector. ���They had a lot of the assets (going into the financial crisis) that everyone else did, but it was a concentration issue. The street (Wall Street) really likes them and the bank is doing much better than in 2008.��� A lesson for others McGratty says Associated���s ability to use the capital markets is an advantage that community banks just don���t have, making it harder for those institutions to repay TARP funds and fully recover. ���A lot of these community banks should be exploring their options,��� McGratty said. ���It���s a tough operating environment with interest rates at zero and regulatory pressures, but it���s an ideal environment for M & A.��� Other analysts suspect McGratty is overly optimistic about community to recognize that the economy has changed, says Robert Cera, CEO of Baylake Bank. He agrees with Flynn that the prices community bankers expect are far too high. ���Some community bankers would like to get out, but there is a disconnect on ultimate valuation,��� says Cera. ���There is a cavern between buyer desire and seller expectations. Bankers remember when the price was two to three-times book and now prices are getting closer to book or book-and-a-quarter.��� Finding balance In addition to an expected wave of consolidations, another key trend in the banking industry is finding the right business mix of asset balance. The days of plowing 12 percent of a portfolio into [continued] �� A p r i l 2 013 ��� Insight | 33

Articles in this issue

Archives of this issue

view archives of Insight on Business - April 2013