"Hold Still." "Don't Rock the Boat." "Steady as She Goes."
For bankers looking to create new share value, this talk of procrastination and timidity will be replaced with a new boldness. The "old normal of banking" is fading quickly. New leaders will surface.
As we look into the future of our industry, most will agree that there are some significant unknowns that are creating indecision and hesitation in the minds of bankers. Will the long talked-about consolidation materialize; is it "if" or "when"? Will the cost of increased regulation drive smaller banks to sell or further to mediocrity? What technologies will we implement next, and will any of the current technology go away or change dramatically? Where do we continue to build market share? Where will we find loan growth?
For action-oriented bankers whose strategy includes expanding their market and share value, two primary growth strategies are ostensibly simple: expand by acquisition, or through organic market penetration. Our prediction is that the most successful banks will include both strategies in their future plans.
Cultural issues aside, expanding through acquisition sounds like a practical means to increase assets and resources. With asset quality largely improving, organizations looking to acquire would seemingly find a rich array of banks for sale. But today's due diligence requires a new set of questions, focused on the target bank's market footprint, existing technology infrastructure and the relative ease of conversion, compliance and regulatory history, and growth history and future potential. Are its product offerings complementary? Does it have market niches that can be leveraged?
The successful bank has to be nimble, willing to respond to changing market conditions, demands for technology and shifting customer demographics in its primary markets as well as those markets acquired. Missteps can be costly. Taking a year or two out to fix a problematic or challenging conversion could potentially set an acquiring bank back further than they were pre-purchase.
Given a slow growth economy for the foreseeable future, as well as the current levels of excess banking capacity, growth by acquisition may be the strategy of choice for the well-managed, well-capitalized bank, especially one that has a vision for the future of banking.
Organic growth can be a slower process than growth via acquisition, but often is accompanied by improvements in efficiency. Effective marketing, sales and loan growth require efficient technology and reporting, both of which contribute to the bottom line and improve the overall profitability of the organization.
We believe that one of the most successful growth strategies will be to prioritize organic growth as a starting point, cleaning up processes and improving infrastructure and efficiencies before purchasing another institution. The more streamlined and established the acquiring bank's processes, the easier and faster a potential acquisition.
As you get your house in order, approach sales and marketing in an organized, fresh, aggressive fashion to bring in new streams of revenue. Simultaneously, a committee of board members and executives can begin the process of identifying potential acquisition targets that would fit with the bank's market goals. Management may also look at other asset purchases, including bulk loan sales and business lines or companies with complementary offerings.
Obviously, to the extent possible, having organic growth precede growth via acquisition will position banks as stronger and more efficient organizations with market penetration and numbers that will set the tone for a strong future.
These concepts are largely comprised of common sense earned through the school of hard knocks, but the devil is always in the implementation. Getting it right, not compounding existing inefficiencies or operational problems with expansion, having the right people in the right place doing the right things to the benefit of your customers, employees and shareholders is absolutely critical to long-term value creation in our dynamic (or strangely and frenetically evolving) financial services industry.
Think change, growth, innovation, limitless boundaries and potential. Move with a new vigor and purpose, and lead your way into the future of banking.
L. T. "Tom" Hall is president and CEO of Resurgent Performance Inc., a bank performance advisory firm.