Banker of the Year: BB&T's Kelly King
Kelly King of BB&T is an M&A trailblazer, but he isn't doing so intentionally. In announcing plans to buy Susquehanna Bancshares, King said he believes more bankers are becoming more confident maneuvering the choppy regulatory environment.November 12
Banks have faced increased scrutiny of their treatment of customers since the creation of the Consumer Financial Protection Bureau, and BB&T and others have proven that the process can be managed. Old fights with regulators can be put in the past if banks work hard at it.June 25
Kelly King had to think fast.
King, still years away from BB&T's corporate office, had invited a colleague to go boating on a lake near Charlotte, N.C. The men, with their wives, were out on the lake when King realized the boat was quickly taking in water.
Water gushed into the craft, threatening to sink it. King quickly revved up the engine, racing forward to keep the intruding waters at bay. Asking his friend to handle steering, King found a way to plug the hole, keeping everyone dry while saving the outing.
Henry Williamson, a former chief operating officer at BB&T and the colleague on the boat, loves to tell that story to illustrate King's ability to handle crises.
"That very much sums up Kelly and his modus operandi," Williamson says. "He identifies the problem and finds the solution."
King has been given ample opportunity to practice crisis management since becoming BB&T's chief executive in 2009 and chairman a year later, navigating the Winston-Salem, N.C., company through the aftermath of the financial crisis and an environment of low interest rates and heightened regulation. He has also returned to making traditional bank acquisitions, which many regional banks eschewed, to enter new markets and build revenue.
For steering the Winston-Salem, N.C., company through an extended period of industry adversity, while providing a blueprint for large-scale M&A, King has been named American Banker's Banker of the Year for 2015.
It is hard to fathom that King, who has spent more than four decades at BB&T, almost chose another path. In fact, he seriously considered offers for sales and marketing posts from the likes of Procter & Gamble and Johnson & Johnson as he wrapped up business school.
Those moves would have made sense for King, who helped pay his way through college by selling vacuum cleaners, men's clothing and hardware. Doing so was a necessity for King, who initially was raised in public housing before his family started renting houses on farms in eastern North Carolina.
"We were really, really dirt poor," he recalls. "My dad was kind of a farmer who worked for different people. When I was 13, we were still living in a plank house with no insulation or running water. You know what poor is when you go to use an outhouse in January when its 15 degrees outside."
King quickly took to sales, boasting that he once scored on 13 consecutive vacuum-sales pitches, even winning over a family with hardwood floors. It was an amazing feat; each cleaner cost about $500 back in 1971. That experience taught him an important lesson that he has carried with him ever since.
"You have to internally believe in what you're doing," he says. "That translates into passion, which translates into good execution and good results."
King only interviewed with BB&T because Williamson, his good friend and classmate at East Carolina University, persuaded him to do so. His college guidance counselor urged him to consider the people he would work with in making an employment decision. Realizing that Williamson was on board at BB&T — and feeling comfortable with the other people he had met — prompted King to go into banking.
It was a move that has defined his career for 43 years and counting.
Speaking Up to the Boss
King turned out to be a perfect fit for BB&T's sales culture. His keen interest in growth also played an important role on the management teams of his predecessors Vincent Lowe and John A. Allison.
"Kelly was always there pushing marketing, sales and growth," Williamson says. King often served as the "accelerator" in executive-team meetings, while other executives, such as Chief Credit Officer Ken Chalk, would serve as the brakes.
"It was an intentional balance," Allison says. "Kelly was certainly the most aggressive, though I think he has become more balanced today, partly because of the environment."
"I had the most natural inclination to invest in growth," King explains, noting he and Allison were viewed as BB&T's biggest change agents.
"We were more willing to make the investments and take the risk," King adds. "When we had conversations, John would bring up an issue and I was always the first one to comment and the others would follow. … After 30 minutes or so we would come to great decisions. Everybody knew their role, and they were comfortable with it."
Keeping that in mind, it is interesting to realize that Allison, King and the other executives once considered leaving BB&T.
By 1980, King was one of five up-and-coming executives who remained a level shy of senior management. The group had become increasingly frustrated with a staid pace of grow, and each had been considering whether to leave BB&T, which was still a small, rural bank.
One afternoon, King was walking to lunch with then-CEO Thorne Gregory, who asked the young executive how things were going.
"Things aren't going well at all," King recalls telling his boss. "I think that, if things don't change, some of the young guys on the team are going to leave."
Gregory, taken aback, instructed King to round up the "young guys," including Allison, Williamson and Chalk, to meet that day. They urged Gregory to pick a successor who would help create a more focused strategy built around growth. Within two weeks, Lowe — the group's mentor — was tapped as Gregory's future successor.
Lowe would become BB&T's CEO when Gregory died unexpectedly in 1982. One of Lowe's first acts involved promoting a group of 30-something bankers to his management team.
Lowe "took a big bet on us," King recalls. "We were smart but very inexperienced, and we were always talking about making changes. He believed that, when you have people who are intuitive, hard-working and achievement-oriented, you give them general guidance to get things done."
In 1989 Lowe, like Gregory, died suddenly, forcing the young executives to choose a successor. They selected Allison, who went on to run BB&T for 20 years.
Over that time, King often served as a frontline executive, responsible for boosting performance at the scores of banks BB&T bought as it transformed from a tiny bank to a regional powerhouse.
King was long considered the heir apparent Allison, and it was no surprise in August 2008 when BB&T made its succession plan official. King finally had his dream job, but he had no idea what challenges were waiting for him.
Opportunity in Crisis
King had not yet become CEO in September 2008, when Lehman Brothers collapsed, triggering the financial crisis. Wachovia, a North Carolina bank King knew all too well, cratered shortly thereafter, bought in a fire sale by Wells Fargo. Allison was still CEO when BB&T was pressed to participate in the initial phase of the Troubled Asset Relief Program.
Still, BB&T stuck with its plan to hand the reins over to King. Doing so might have been among the board's best decisions, says Tony Plath, a finance professor at the University of North Carolina at Charlotte.
"Kelly was ideally suited for that era," Plath says. "He is an operations guy, a details guy. He was a good inside manager who wasn't looking for glory and kept the bank out of trouble."
"I always wanted to be prepared to be CEO," King admits. "When I had my chance I was humbled and appreciative, but there wasn't any time to think about that because you're jumping on a treadmill going 40 miles an hour."
Looking back, King admits to feeling pressure but not giving into fear.
"I had complete confidence in our team," he recalls. "BB&T was relatively strong, and we were so intensely focused on doing what needed to be done. It never crossed my mind that we wouldn't be successful."
King's poise was apparent in management-team meetings, which took place almost daily during the crisis, as well as during board gatherings.
"Throughout the crisis he remained largely positive," Ron Deal, BB&T's lead independent director, says. "We all knew we were in the trenches together. He was an inspiring leader with his words and actions. We had some tough board meetings along the way, but he was always reality-based and optimistic, urging us to roll up our sleeves to get through this."
Importantly, King always kept his eyes open for opportunities — and a big one surfaced in the summer of 2009.
King the Dealmaker
BB&T's interest in Colonial Bank began while Allison was CEO, but management had longstanding concerns about the way the Montgomery, Ala., company was being run. When Colonial tried to sell itself months before its collapse, BB&T conducted due diligence merely as a fact-finding mission with no serious designs on making a bid.
"We figured it was probably going to" fail, King says. "We started a process we called continued evaluation where we had people going into the banks they had bought to evaluate the culture. By the time the Federal Deposit Insurance Corp. put Colonial up for bids, we knew the underlying bank was in good shape and that we'd be fine if we could just chop off the head of the old culture."
When Colonial failed in August 2009, King had more than 500 bankers at the ready to visit the bank's branches if he secured the deal. BB&T won out, gaining $22 billion in assets, scores of low-cost deposits, entry into Texas and one of the most accommodating loss-share agreements from the FDIC.
"The FDIC got tougher as it went on down the line, and that's why we didn't do another failed-bank deal," King says.
BB&T was created through M&A — at times almost viewed as its own line of business — so it was only a matter of time before King would follow in Allison's footsteps as an aggressive acquirer. He locked down a few small deals — notably the 2012 purchase of BankAtlantic's operations and agreements to buy dozens of Citigroup branches in Texas — before setting his sights on bolder transactions.
King made his big move in November 2014, agreeing to pay $2.5 billion for the $20 billion-asset Susquehanna Bancshares in Lititz, Pa. The deal was announced at a time when other big acquisitions — notably M&T Bank's purchase of Hudson City Bancorp and CIT Group's agreement to buy OneWest Bank — were facing regulatory roadblocks. (BB&T also had an agreement to buy the $1.9 billion-asset Bank of Kentucky when it announced the Susquehanna deal.)
BB&T, however, faced little regulatory opposition for either acquisition.
"BB&T has shown that the regulators aren't that harsh after all," Christopher Marinac, an analyst at FIG Partners, says. "A lot of that goes back to Kelly and his leadership."
King has a simple view when it comes to working with regulators.
"It is a dynamic, highly charged environment, make no mistake about that, but these folks are human beings," he says.
"You have to distinguish between regulations and regulators," King adds. "In many cases, the regulators would change the rules if they could. They didn't make Dodd-Frank; Congress did. … Regulators are getting enormous pressure from the political process, so I have some empathy for them there."
King offers one more piece of advice for banks.
"You also need to be very clear about what you're going to do and then do it," he says. "We try to treat the regulators with respect and listen to them. We really want their advice. We don't always like everything they have to say, but largely I've found that these are professionals who have looked at a lot of banks. When they bring us a recommendation, we listen because the odds are pretty good that it might make sense for us."
Other regional banks, including KeyCorp and New York Community Bancorp, have since followed BB&T's lead with large acquisitions, though both of those deals have faced criticism.
KeyCorp, for instance, has agreed to buy First Niagara Financial Group, taking on a bank that is 40% its own size. New York Community, meanwhile, plans to acquire Astoria Financial in a deal that seems to do little in terms of diversifying its geography and business mix.
King likes to tout the low-risk nature of Susquehanna, which represented less than 10% of BB&T assets. It also allowed BB&T to enter new mid-Atlantic markets that balance slow growth with good historical credit trends.
"Kelly is buying the kind of companies we have bought all through the years," Allison says. "These are solid — but not outstanding — performers that don't have problems. How do you add value to a high performer? How do you fix low performers? Instead, you aim for the middle of the road."
It is a proven formula, King says.
"I created a measurement system 25 years ago for our community banks — I still keep the sheet in my desk — that's based on quality, profitability and growth in that order," King says. "Growth is always third. When I look at a merger, it has to be strategically and culturally right and the economics have to make sense. That's why you haven't seen us do any stupid things."
King is quick to dismiss the notion that the company risks overreaching if it pursues any more deals soon.
"I take my responsibility to shareholders very seriously," he says. "It is a matter of honor and morality. They entrust their money to me as the CEO, at least I see it that way. They don't expect me to do wild, crazy, stupid stuff. They want me to run a conservative institution and give them a good, long-term return. To do some big deal just to get growth and get my name in the paper that turns out to be a bad deal two years later? I just don't think that way. It is immoral."
Learning from Mistakes
To be sure, King — and BB&T for that matter — is far from perfect, and he has learned from his missteps.
BB&T's most visible stumble under King took place in May 2013 when the Federal Reserve Board — as part of its annual Comprehensive Capital Analysis and Review — rejected a dividend and stock repurchase plan based on a qualitative assessment of the company's capital planning process. Yet BB&T's capital levels remained above regulatory thresholds as part of the stress tests.
Stung by failing the stress test, King and his team put their heads together, made the necessary changes and have produced solid CCAR results ever since.
"That first CCAR was a pretty dark hour, but so many people were determined to work their way out of it," Deal says. "I marvel that it was addressed in such a timely manner."
"Things went awry and they stumbled out of the blocks" with CCAR, Marinac says. "But they did what they had to do to overhaul the systems to get everything back on track. The fruit of that labor is that they can get acquisitions done, and they have a Fed that is willing to listen to their ideas."
Another key motivation has been a longstanding objective to increase BB&T's dividend, which the company had to cut in 2009 as part of its successful effort to exit Tarp.
"Kelly took it very personally when we had to cut the dividend, and one of his goals has been to get it restored," Deal says. "He's continuing to chip away at that."
BB&T has also drawn occasional criticism tied to fair lending. During its acquisition of Citi's Texas branches, a commenter criticized BB&T's lending record to low- and moderate-income neighborhoods and minorities, along with its branch distribution in Dallas and Houston. The FDIC required BB&T to provide semiannual reviews of its branching strategy, lending distributions and marketing efforts.
King, in hindsight, says the decision was justified.
"We're not perfect and if we make a mistake, we don't fight about it," King says, adding that BB&T had been planning to open more branches in Dallas, a market it entered via the Colonial deal.
"The protest was that we weren't making as many mortgage loans in Dallas compared to other banks," he says. "We had just gotten started and were building branches as fast as we could. We committed to adding more branches and doing more lending. But to be honest, we would have done the same thing whether there had been a protest or not."
King says he feels comfortable dealing with community advocates. King, for instance, used his meetings with community groups in Pennsylvania to share his own personal story and firsthand experience with near poverty.
"I told them a bit about myself," he says. "I wanted them to know that I came from a really poor background. I have being poor in my gut. I have nightmares about it. So I assured them that they didn't have to worry — that I would be doing everything I possibly could to help folks in their communities. Morally it's right. From a business perspective it's right, and it is personally aligned with my own feelings."
King "is clearly a humble guy who didn't forget where he came from," says Alan Jennings, executive director for the Community Action Committee of the Lehigh Valley and a former director of the National Community Reinvestment Coalition.
"We were willing to let BB&T off the hook for several new commitments … but they still wanted to take some actions," Jennings adds. "BB&T has not only demonstrated Southern charm wooing these Yankees, but they've also demonstrated a sincere commitment to making neighborhoods whole from an economic perspective."
King also has experience in personal improvement.
King is very tall and can appear intimidating at first glance. Early in his career, however, he also had a temper and reactive personality that made colleagues uneasy. Even worse, he was oblivious to the behavior.
"A lot of people were intimidated by Kelly early on, partly because he's a big strong-willed person," Allison says. "He eventually went through a self-awareness program that radically changed how he expressed his emotions. It isn't an easy process. Had he been unwilling to do it, he couldn't have been CEO."
King readily concurs with that assessment.
"We wouldn't be having this interview had I not had the opportunity to go through that," he admits, pointing to a sometimes rough childhood as one reason for his once-gruff personality. "When you're so insecure inside you overcompensate by developing a façade of domination and control. I became strong-willed but was but unaware of it."
As part of his self-awareness course, King was instructed to pose questions to his fellow executives, who then responded anonymously by pressing buttons. Green lights meant yes, while red lights indicated a no response.
"I had to ask them if they felt comfortable screwing up around me, and it was all red lights," King recalls.
"It brought me to my knees because I had never gotten any negative feedback," he adds. "So I sat down with the executives and they pointed out times where I would come into meetings and pound the table. For me, that was 180 degrees different than what I wanted to be. So I immediately started changing."
King's transformation was so thorough that even people like Plath were unaware of his past demeanor.
"That's a surprise," Plath says. "He comes across as very unassuming and a bit quiet."
Allison, who helped King with his transformation, is still blown away by the turnaround.
"Kelly's biggest strength has always been his willingness to learn," Allison says. "Of all the people I have worked with he grew more than anybody."
Leadership on Display
Allison heaps effusive praise on King in other areas.
"Kelly is a visionary and a mission-driven leader who is very committed to the principles that made BB&T successful," Allison says. "He's very assertive, but he's also a solid decision-maker who works hard to create consensus."
Fee income is another focus for King. BB&T has continued to buy insurance agencies — creating one of the nation's biggest broker networks — and it has developed a growing corporate banking operation that benefits from the company's increased size and scale.
In recent years, BB&T has also made significant technological advances. Earlier this year, the company rolled out its U platform, an in-house application that lets customers set color schemes, profile pictures and features they can access. The plan is to expand the site's optionality over time, including the addition of quarterly credit scores.
BB&T has also switched over to an SAP general ledger system, replacing antiquated technology with a platform that should remain up to the task even if the company doubles in size.
King's leadership goes beyond BB&T's growth and the bottom line. Soon after becoming CEO he created Project Lighthouse, a program designed to give BB&T's employees more hands-on experience in the community. Employees form teams, which select a community project to back with money and volunteerism. BB&T provides some funding, and employees are given paid time off to volunteer.
Since 2009, BB&T's employees have contributed more than 385,000 volunteer hours to local charities and participated in more than 7,700 community service projects.
BB&T has also been working with EverFi, an educational consulting firm, to develop a computer game that teaches financial literacy. The game administers a financial literacy test that moves through several modules. The company is committed to putting the game in 1,500 high schools in 15 states.
King is also working with a Texas company to construct a computer game that teaches the fundamentals of leadership.
"My real passion is leadership," King says.
BB&T's management team meets every two weeks, continuing a tradition that predates King's promotion to CEO. "We talk about everything," King says.
"We believe strongly in iterative thinking," he says, explaining that everyone gets a chance to discuss a topic in hopes that each comment works toward a solution and a better understanding of the task at hand. "We also want everyone to generally understand everything that's going on at the bank."
King has also expanded the size of BB&T's management team from five executives to 13 members.
"Too much credit goes to the CEO, but I deeply believe that we have a fantastic team," King says. "We have worked hard to build and develop a culture here."
How Long Will He Go?
Several BB&T executives have the experience to step in should King, who turned 67 in September, decide to retire. BB&T eliminated its mandatory retirement age in 2012 in a move that allows King to stay on. Allison, who retired from the board several years ago, was convinced that King would retire at 65.
Retirement is not front of mind for King, who focuses more on the fact that he has only been CEO for seven years. "I've been really blessed with a great marriage, great kids, great health and my faith," he says.
"I jokingly told someone that I just took the training wheels off last week," King adds. "Being CEO is more about how long you've been in the role rather than your age, with some exceptions. I believe that as long as the person is energized and has good faculty and focus, they tend to do a really good job."
"It surprises me some that he's still there," adds Williamson, who retired in 2004. "BB&T has always been very important to Kelly, and his desire for a chance to lead the bank was always important. … I think what you see here is his genuine desire to weather the storm and leave his own personal markers."
King, while maintaining BB&T's culture and preference for aggressive M&A, is finding a way to leave his own stamp on the company by moving into new markets and putting more emphasis on community service. A emphasis on technology has also prepared the company to react quickly to change.
"Kelly has executed on the BB&T game plan while making it better," Marinac says. "He figured out how to survive the financial crisis and thrive in the years that followed. I find that the bank is even more nimble today under his leadership."