Reaching $10 billion in assets is a major milestone for growing banks.
That's when many are finally viewed as regional banks. Caps on interchange fees kick in and, until recent legislation intervened, stress testing was mandatory.
For a number of banks, the threshold has proven to be an opportune time to switch leaders. Such was the case at Renasant in Tupelo, Miss.; Heartland Financial in Dubuque, Iowa; and Eastern Bank in Boston. Glacier Bancorp in Kalispell, Mont., swapped out CEOs just before it hit the mark.
The moves are far from arbitrary and are worth watching, industry observers said.
“That milestone triggers the search for a different kind of CEO," said Anthony Plath, a finance professor at the University of North Carolina at Charlotte. "The organizational challenges change as you grow past the $10 billion level."
Renasant, under previous CEO Robin McGraw, spent several years investing heavily in technology and infrastructure as it approached the $10 billion threshold. The company agreed in March to buy Brand Group Holdings in a deal that will take it up to $12.5 billion in assets.
Mitchell Waycaster, who succeeded McGraw in May, is expected to focus more on long-term strategy, including additional acquisitions, now that the company has positioned itself to be a bigger institution.
Waycaster said he intends to mostly stick to the growth strategy laid out by McGraw, though he would like to accelerate the pace of growth by tweaking internal processes and leveraging technology.
"How do we continue to improve in this process of continuing that vision?" Waycaster said in an interview.
The same can be said for the serial acquirer Heartland, where Bruce Lee succeeded Lynn Fuller as CEO last month.
"In many ways, it’s steady as she goes, even though we do have a transition of leadership," Lee said in a recent interview. "I believe in the strategy we’ve had. My role is to make sure we continue on that path."
Operating a larger bank in a heightened regulatory environment requires certain skills. The executives who got the bank to $10 billion are sometimes reluctant to stick around to adhere to the new rules and stipulations, industry observers said.
Smaller bank CEOs tend to be more entrepreneurial and hands-on, Plath said.
Leaders of bigger banks must be willing and able to delegate daily tasks to spend more time with constituents such as institutional investors, analysts and the media. Relations between a CEO and the board also become more formal and scripted when a bank hits a certain size.
“There's more public pressure on larger, publicly traded companies to present consistent financial performance and a consistent corporate image to the public,” Plath said. “It’s really difficult to get things back on track" once that goes wrong. "That makes corporate governance more important — and more rigorous — for senior-level managers.”
Some CEOs may make reaching $10 billion in assets a career goal, said Greyson Tuck, an investment banking adviser at Gerrish Smith Tuck. Once that milestone is met, the CEO may decide it’s time to retire or pursue another venture.
“A lot of times, you’ll hear bank presidents, particularly later in their careers, say, ‘I'd really like my lasting legacy at this bank after so many years to be the guy who took the bank from $6 billion in assets to $10 billion,' " Tuck said.
Many banks start planning for enhanced regulatory scrutiny well before they reach $10 billion in assets, said Michael Cohn of the consulting firm Wolf & Co. He said a bank usually needs to add positions such as chief risk officer, chief information security officer, chief audit officer and chief compliance officer well before passing that threshold.
“Regulators start whispering to you between $7 billion and $8 billion, asking you what your plan is,” Cohn said. “That’s code for, ‘We expect that person to be in place soon.’ ”
Leaders of bigger banks also face more pressure to increase profitability to compensate for the increased compliance and risk management costs, Cohn said. Often that requires adjustments from the bank's prior business model.
“Typically it is a new strategic plan that’s different from what got them to $10 billion that is usually required,” Cohn said. “That’s when a lot of changes come into play.”