You never would have been able to guess from the upbeat attitude of these community bankers that stocks would tank the next week.
A tone of hopefulness—some might say confidence—permeated the presentations at the bank investor conference that Keefe, Bruyette & Woods hosted in New York in early August.
Many bankers talked of expectations for attracting loans and making acquisitions. Such bold growth plans had been uncommon at this annual event in recent years.
"There seemed to be a little more excitement about the future, an optimism in the air," said Ronald Samuels, chairman, president and CEO of the $560 million-asset Avenue Bank in Nashville, Tenn., assessing the mood.
Bankers across the country agreed that loan demand remains weak and competition for good borrowers is intense. Steve Bangert, the chairman and CEO of CoBiz Financial in Denver, said new borrowing is just starting to outpace paydowns at his $2.4 billion-asset compay. He described loan growth as "tough," but said he expects some in the next six months.
Bankers reporting organic growth generally say they are picking off customers from larger competitors. Though the trend is encouraging for community banks, that's one takeaway Samuels finds less heartening from an economic perspective. "Growth in most markets is coming as a zero-sum game," he said.
But nearly every bank reported shrinking, or at least stabilizing, nonperformers. And they seemed far less reluctant than they had been previously to say that the trouble had peaked.
Dennis Hudson, the chairman and CEO at Seacoast Banking Corp. of Florida, said only minor "mop up" duty is left for his $2 billion-asset company, which struggled mightily after the implosion of the real estate market. "We think we have now successfully transitioned from a defensive position to an offensive position," Hudson said. "The credit cleanup work that we've been focused on the last several years is, in our view, largely complete at this point."
Building core deposits is the main goal at Seacoast, but Hudson hinted that lending activity could improve too. "We're seeing for the first time in this cycle our commercial and small business pipeline growing nicely. We have about a $60 million pipeline, which we're very, very pleased with," he said.
Other bankers likewise stressed their growth prospects. Carl Chaney, the president and CEO of Hancock Holding Co. in Gulfport, Miss., said the widening of the Panama Canal would have a significant impact on commerce at ports throughout the Gulf of Mexico. And with its recent acquisition of Whitney Holding Co., the $19.8 billion-asset Hancock has a sizable presence in every major port on the Gulf, from Houston to Tampa Bay, Fla. "So it's easy for us to say that Hancock and the Gulf region are poised for future growth," Cheney said.
Meridian Interstate Bancorp in East Boston, Mass., scooped up a commercial and industrial lending team from a competitor, and Richard J. Gavegnano, the chairman and CEO, said his $1.9 billion-asset thrift expects to gain "a significant amount of assets and deposits" as a result.
"We've got some serious punching power in East Boston," Gavegnano said.
Meridian has a mutual holding company structure, with 41 percent of its stock publicly traded. It has no immediate plans to do a second step and go fully public. Gavegnano said his focus is on absorbing mutuals, similar to the deal for Mt. Washington Co-operative Bank it announced in July 2009. "We've been in the running many times," he said. "But there's many a slip between the cup and the lip."
Talk of buying came up repeatedly throughout the two-day conference. With so many of the banks fresh from capital raises, investors pressed for plans on how the cash might get deployed.
Bankers generally said courting is active, though seller expectations on pricing remain too high and their take on credit quality too rosy. The general sense is that any major pickup in mergers and acquisitions is still several quarters away.
But a surge is coming, they agreed. Dwight Utz, the president and CEO of the $941 million-asset ECB Bancorp in Engelhard, N.C., said about 60 percent of the banks in his homestate are subject to some sort of regulatory notice. "That, in and of itself, mandates that the management and the board begin to discuss their options."
Several potential buyers pegged their pricing requirements for acquisitions at less than book value. Thomas Crowder, ECB's chief financial officer, said its starting point likely would be 60 percent of tangible book value, or 70 percent if it really liked the target.
David Gaines, the CFO of Park Sterling Bank in Charlotte, N.C., said a key issue when evaluating deals for his $611 million-asset company is the amount of classified assets a seller has. He said regulators are looking for companies to maintain a ratio $2 of capital for every $1 of classified assets—"if you want to keep strategic flexibility and be allowed to grow."
The bankers also expressed concern about how uncertain the outlook is in general, with so much economic and regulatory flux going on. The cold water came mostly after questions from the audience.
Hudson, when asked about the headwinds, characterized the environment as difficult. Unemployment is about 10 percent in Florida and in the low teens in most of Seacoast's markets.
In a sign that bodes well, "real estate is now moving," with transaction volume back to the level it had been before the crisis, he said. "Valuation has stabilized on the increase in volume. But there's no impetus for improvement beyond that. We still have a high rate of foreclosure. More than half of all mortgage loans in the state are well underwater."
Against such a bleak background, investors seemed skeptical of all the positivity they heard in the presentations. They often quizzed bankers on the mechanics behind the improvement in credit quality.
"I think investors are anxious to get back into financials, but they're very cautious," Damon DelMonte, an analyst who covers Northeast banks for Keefe, Bruyette & Woods, said after the conference ended. "They want to make sure there are no more surprises coming down the pike."
Several investors said privately that they deemed the bankers unduly optimistic-a sentiment the market validated the following week. After Standard & Poor's cut the U.S. debt rating, stocks plunged, with the financial sector getting especially hard hit.
