Looking back at 2018's community bankers to watch
The community banking team at American Banker huddles up this time each year to name five executives we think will emerge as newsmakers.
Most years our bankers to watch deliver, and 2018 was no exception. Sometimes the news is good, and sometimes not so much.
Jay Sidhu’s ambitious plan to spin off Customers Bancorp’s digital bank hit a brick wall, while Litz Van Dyke absorbed a large third-quarter loss at Carter Bank & Trust to tackle legacy loan exposures and address a regulatory order.
Daryl Byrd at Iberiabank and David Becker at First Internet Bancorp continued their efforts to win over skeptical investors, while Doug Bowers looked for ways to move Banc of California forward. In many ways, these three executives could have made our watch list for next year.
What follows is a detailed recap of each of their stories. Stay tuned for the 2019 list, and profiles of each banker on it, over the coming week.
Litz Van Dyke spent much of 2018 reinventing Carter Bank & Trust in Martinsville, Va.
Those efforts include purging legacy loans in areas such as commercial real estate and upgrading Carter’s IT systems so it can add digital banking next year. The bank is also tackling a regulatory order tied to its Bank Secrecy Act compliance.
Carter Bank took a hit in the third quarter as a result of the effort, reporting a $7 million loss after charging off $10 million tied to a CRE loan and recording a $2.5 million loss from selling foreclosed real estate.
“These activities, while painful in the short-term, significantly improve our credit quality metrics and our overall risk profile, Van Dyke said an October press release announcing the third-quarter results. “These efforts also get us closer to our goals of to becoming a best-in-class performer with lower long-term credit costs.”
Still, the bank earned $8.5 million over the first nine months of 2018.
Carter Bank upgraded its IT systems last month, which should put it on schedule to introduce digital banking in the first quarter. The bank has said it is making progress on the BSA-related order, though no time frame has been set for the order’s termination.
Van Dyke also formed a new mortgage and commercial lending division and implemented a new fee schedule.
The premise is that all these changes will make the bank, which recently celebrated its 44th anniversary, a stronger institution for years to come.
“We believe the initiatives we have begun, the investments we have made, and the steps we have taken will all result in long-term success for your company,” Van Dyke said in this year’s letter to shareholders.
Jay Sidhu was hopeful that spinning off its digital bank would put Customers Bancorp in Wyomissing, Pa., on track to return to growth mode.
The $10.6 billion-asset company had been intentionally stunting its growth to avoid caps on interchange fees tied to the Durbin amendment. The caps are expected to be particularly harsh for BankMobile.
Customers put a plan to transfer BankMobile to Flagship Community Bank in Florida on ice in October, citing complications with the regulatory process. Another concern was that BankMobile may have remained subject to interchange fee caps even after the spinoff.
Those developments are forcing Customers to again shrink below $10 billion in assets.
The company also disclosed last month that it will restate its financial results for 2017 and the first half of this year after identifying a material weakness in its internal controls. The restatement will correct how Customers classified cash flow activities tied to its commercial mortgage warehouse lending activities.
Sidhu is trying to end 2018 on a positive note, though.
Customers disclosed on Nov. 27 that its fourth-quarter results should be consistent with analysts’ expectations, adding that its net interest margin should expand in the quarter. Despite the BankMobile setback, Sidhu said, Customers is on pace to increase earnings in coming years.
“We will get there through [margin] expansion, capital management, expense discipline and continued improvement in profitability at both Customers Bank and BankMobile,” Sidhu said in the release.
Doug Bowers, CEO of Banc of California in Irvine, was finally able to go on offense after spending most of 2017 tackling issues in the wake of the abrupt resignation of his predecessor, Steven Sugarman.
The $10.3 billion-asset company spent much of last year improving corporate governance, cutting corporate jobs and arranging the sale of its mortgage business. Those efforts allowed Bowers to shift gears and focus on growth initiatives in 2018.
Hiring was a big part of that plan.
Bowers recruited Kris Gagnon, a former chief credit officer at CIT Bank, in February to fill the same post at Banc of California. A month later, he brought on Leticia Aguilar, a former executive at MUFG Union Bank, to oversee the company’s branches in southern California.
Over the summer, Bowers poached executives from MUFG, Luther Burbank Savings, Opus Bank and City National to take over leadership roles in commercial banking, treasury product management, business banking and middle-market banking.
Banc of California also hired lenders for San Diego and Los Angeles.
There are some early signs of traction. Total loans increased by 16% in the third quarter from a year earlier, to $7.2 billion, while salaries fell by 18%, to $24.8 million.
But the turnaround is far from complete.
Profit fell 67% from a year earlier, to $3.8 million, when taking into account costs associated with redeeming, and paying dividends on, preferred stock. Funding costs are also rising; the net interest margin narrowed by 22 basis points from a year earlier, to 2.93%.
Eye to the future
David Becker, chairman and CEO of First Internet Bancorp, was busy setting the stage for future growth at the Fishers, Ind., company.
The $3.2 billion-asset company, highlighted because of efforts to sell clients, analysts and investors on his branchless, internet-only bank, raised $54 million in June through an oversubscribed public offering. The move came nine months after First Internet raised $45 million in a prior offering.
While First Internet didn’t disclose the purpose for raising capital, it has been making a concerted push in commercial lending. It has been hiring commercial lenders in recent months from competitors such as PrivateBancorp and PNC Financial.
Commercial loans have increased 20% from the end of last year, to $1.8 billion. As a result, net income through the first nine months of 2018 rose by 56% from a year earlier, to $18 million.
Despite a successful offering, First Internet’s stock continues to languish, declining 43% since the June offering. Shares are off by about 51% this year, consistently hitting new 52-week lows in recent weeks.
The swoon has perplexed some analysts who cover First Internet, including Michael Perito at Keefe, Bruyette & Woods, who asserted in a Dec. 19 note to clients that the company’s shares are undervalued.
“As we look to 2019, First Internet’s margin trends should be more stable, while loan growth should continue given the bank's robust loan pipeline,” Perito wrote. “While funding remains a relatively weak point of the story, we still believe the bank is well positioned to add new talent and business verticals … which should help improve the fundamental momentum of the story from a low-point today.”
To be continued
Daryl Byrd, president and CEO Iberiabank, was hopeful that a pair of acquisitions would give the Lafayette, La., company — and its stock price — a boost.
The $30 billion-asset Iberia paid more than a $1.2 billion last year to buy Sabadell United Bank in Miami and Gibraltar Private Bank & Trust.
The good news was that the deals are padding Iberia’s financial results. Earnings over the first nine months of 2018, including preferred-stock dividends, rose 87% from a year earlier, to $232 million.
The company’s stock price hasn’t benefited.
In Byrd’s defense, stocks overall, and particularly those of banks, were pummeled over the second half of the year due to concerns about trade, the economy and rising interest rates, among other things. Through Dec. 24, Iberia shares were down 22% in a year where the KBW Nasdaq bank stock index has fallen by 26%.
Iberia also stands out as one of the few banks to rev up energy lending in the past year. Loans in the company’s energy group increased by 73% in the third quarter from the end of 2017, totaling $317 million.
As a result, oil prices, which recently fell below $46 a barrel for the first time since August 2017, remain an important consideration.
So it seems as though the Iberia story is one to keep monitoring in 2019.