It's a Jungle Out There

January 10, 2011

Traveling Man

As I return from an amazing trip to South Africa, including the experience of a safari, I can’t help but make the comparison between the world of community banking and the jungle. Obviously, the Kings of the Jungle are the regulators who roared very loudly in 2010 with their bank closures and administrative actions. Many bankers must feel like they are lost in the jungle and are prey for regulators and others. It truly is survival of the fittest.

2010 in Perspective

Last year continued to be a very difficult and challenging year for community banks. Even those that managed to survive and avoid Consent Orders, found their earnings challenged, with good loan demand soft and some level of asset quality issues. Whole bank M&A was almost at a standstill, as FDIC-assisted deals still seemed to be the focus of most acquirors. The one bright spot was capital raises, ranging from private equity to community offerings to public offerings. The industry continued to consolidate with failures, some mergers and virtually no new bank formations.

What Lies Ahead

There appears to be a beacon of light at the end of this 3-year tunnel. Those community banks that survive will see a new order of banking. Back to basics banking, with sound lending practices funded by core deposits will be highly valued. At the same time, bankers will have to think a bit out of the box without taking undue risk. The pace of whole bank mergers should accelerate sometime in 2011, including some so-called “strategic alliances,” aka, little or no premium deals. Creative deal making, with holdbacks based on sellers' asset performance over some period of time gaining wider acceptance.

The Uncertain World We Live In

I am hopeful that as the economy recovers and real estate values stabilize, the overall relationship between banks and their regulators will gradually improve and return to some level of normalcy. The fear of failures and Inspector General Reports should dissipate, allowing more flexibility and tolerance as banks work their way through the aftermath of the down economic cycle.

When Will We Smile Again?

I am optimistic that the enormous pressure that banks have felt will be relieved a bit and that some enjoyment will return to banking. We all aspire to job satisfaction and to enjoying our work with a smile on our face and the sense of a job well done knowing that the Lion is not nipping at our feet.

If you should have any questions or wish to discuss issues specific to your financial institution please contact any of the following members of the Graham and Dunn Financial Services Team:

Stephen M. Klein (206.340.9648 or sklein@grahamdunn.com),
Kumi Yamamoto Baruffi (206.340.9676 or kbaruffi@grahamdunn.com),
Casey M. Nault (206.903.4808 or cnault@grahamdunn.com),
or Jane H. Kaufman (206.340.9663 or jkaufman@grahamdunn.com).

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Cyber-Graham® is published by Graham & Dunn as a service to clients and other friends. The information contained in this publication should not be construed as legal advice. Should further analysis or explanation of the subject matter be required, please contact the attorneys listed above or the attorney whom you normally consult.