Sign Massachusetts Banking Forbearance Agreement Online

Industry sign banking massachusetts forbearance agreement online

[Music] hello everyone i'm brian love the head of depository search at the trevillian group a boutique financial services based executive recruitment firm outside of philadelphia but working nationally my division specifically covers community banks and i myself spent 10 years within the community bank space in the trenches and joined trevillion five years ago to expand our depository executive recruitment and talent advisory divisions we work with banks generally under 10 billion in assets on engagement centered around board and leadership teams succession planning and bolstering bench strength love to hear from any of our viewers out there if you have any thoughts on the industry or ideas for future webinars and you can find us at www.trevilliongroup.com or visit us on linkedin or youtube where you may be watching this today so we're always looking for intriguing perspectives on the community bank space whether it be from operational digital or investor standpoints and in today's webinar we're joined by two industry experts from private private equity in a discussion uh about their perspective of the industry and outlook for the future so before we introduce our distinguished guests let me first hand the ball off to my trivilian colleague um he's our head of community bank strategy brett rabiton thanks brian uh good afternoon everyone i joined your billion a few months back to help build out the bank strategy platform after being a sell side analyst uh the past 20 years covering banks and have a passion for community banking and strategic thinking so um let's go ahead and give the guys a chance to introduce yourself fully uh david why don't we start with you sure thanks guys thanks for uh hosting and glad to be here i'm david honell i'm a principal with patriot financial partners um i've been with the firm almost six years started out my career as a bank regulator with the federal reserve bank of new york and then from there i went to sell side equity research spent some time at keith bretton woods a firm that's probably well known to most folks here uh as a specialist in the in the bank space and then moved to uh equity investment manager turner investment partners where i spent uh nine years uh prior to joining patriot so thanks again for having us look forward to the discussion thanks david tony yeah my name is tony scavuzzo i'm a partner at uh castle creek capital appreciate you guys um asking me to join this call i've been at castle for about 11 years and prior to that actually worked at a community bank in chicago and spent time in credit and wealth management and absolutely management and corporate finance before coming to uh before coming to castle creek so my only working uh my only working experience is in community banking awesome great thanks guys so um i'll start with you david what what do you think the overall state of the bank industry is you know kind of where are we today and what is the longer term outlook you know giving you guys have a longer term pe investment horizon yeah thanks well uh it's it's very different than it was six months ago right we're in uh very different times the the impact of the pandemic has been far-reaching and deep um certainly the the banking industry isn't immune we're all we're all dealing with challenges that it's created um uh any everything from how we interact with uh with employees at our banks and customers to how we're dealing with our borrowers who need some form of payment to pearl um and in thinking about the longer term in terms of strategic planning potentially uh considering you know more digital forms of banking uh into over instead of uh physical uh branch location transactions you know obviously branch traffic is down significantly um so all these things are challenges but hopefully are presenting opportunities as well for for banks to streamline their operations uh and address some of these longer term issues um you know from our perspective it's it's an attractive time to be deploying capital in the bank space given where valuations are i think a lot of banks have been proactive already in terms of raising forms of capital including subordinated debt and preferred capital and and equity issuance may be on the way as well uh time will tell but uh you know when we think about this crisis that the pandemic has created compared to the the great financial crisis so you know over a decade ago you know it seems at this point we have uh bank balance sheets that are very strong in terms of loan loss reserves and capital i think the regulators are being very accommodating in terms of what they're allowing the banks to do in terms of various forms of deferrals and forbearance etc so we think that you know although this is a challenging time for a variety of reasons the bank group is the industry overall is going to emerge stronger as a result on the back of this and and so from a longer term outlook perspective david are you bullish on the sector in terms of it you know returning to some positive returns and having you know more towards this historic level of profitability or do you think this the structural interest rate outlook is just going to be too hard longer term how do you how do you sort of gauge what uh what banks might eventually look like yeah well so yeah in addition to the uh the headwind created by the need to build loan loss reserves for potential credit issues caused by the uh the recession um i think the the flattening of the yield curve and the absolute low level of interest rates is a significant challenge as well so you know the net interest margin compression that the industry is facing is in some ways unavoidable um but you know i think it's it's hopefully not long-lasting that we do get eventually some form of relief in the form of higher interest rates as the economy recovers and there's less uh intervention from the fed into the into the credit markets but that's going to take time and in the meantime you know net interest margin compression is a headwind that the industry faces and we just try to work as best we can with the companies in which we've partnered and invested into to manage through that nice david tony um i had a question for you although i wanted to just uh see if you had any uh further thoughts on that first question yeah i think david david covered it awfully awfully well i mean we view things very similarly i think in the short run though we are we are still concerned and our crystal ball is foggy i think it's very early to declare victory yet there's still a ton of headwinds that we need to work our way through but you know longer term we still think that this is a great sector and community banks will survive and will thrive but they're going to have to change the way they do business and they're going to have to maybe get a little bit smarter or sharper the pencil a little bit more because the the structural issues with interest rates are real and so rated at x pre this environment it's going to be some fraction of x that you're going to trade at you know once we get through the credit related covid stuff you still have this interest rate problem sure well let me let me change the subject for you tony so considering talent and executive search is my you know sweet spot my you know my belly wick so to speak i'm curious how do you evaluate leadership at your banks um what characteristics are important to you and what have you seen pre and during covid around the leadership yeah you know i think you know picking the right management team is is is maybe probably the most important decision that we can make as investors because you know we are in control uh investors and community banks and so we need to find the right partners that can help execute and and drive you know drive value so finding the right ceos and cfos is is really critical and what we typically look for is you know someone has a shared vision of the future um whatever that future may be for that particular company um on a commitment to to be high performing and if you're not high performing you want to be high performing so people that care that are interested in and want to succeed are generally the folks that we look for and you know we're very lucky um very lucky over time we've been in business for 25 years and we've got a decent rolodex and so when we background check folks it's usually through our network that we can do that background check and so we get you know friends to opine on folks that we're looking at investing in you know we're one or two degrees separated away from someone so we've got a really good process for that um but we've seen tremendous leadership through through covet it's really been incredible and you know the smallest bank that we are invested in is probably 300 or 350 million and the largest is 7 billion so pretty wide asset size swath and and people have just stepped up it's it's really been incredible you know whether it's organizing calls from home with 500 employees or you know going into the office early because you have to to just get something done and take take risk by going in but people have done some really tremendous things for each other and really for the banks uh through covet we've been incredibly impressed yeah and considering everyone is you know scattered um yeah everything is virtual and having to mobilize an entire workforce basically overnight it's been an amazing life and it's funny one ceo i talked to was getting his hair cut in the driveway by his uh wife so that's the that's the world that we're living in real quick though kind of on talent i did a non-scientific survey last week with 120 community bankers and 63 thought there would be executive turnover either gradually or even more rapidly over the next year or two um david i'll kind of go to you what are your thoughts on that survey um yeah i mean not sure what to make of that one survey i think you know that there's always sort of turnover at senior levels of the banking industry you know part of that is due to consolidation right part of it is due to just sort of folks moving up through the ranks and organizations and perhaps moving on to some more significant roles at other banks um but you know fortunately the bank industry is always regenerating talent you always have new folks coming up uh up the ladder if you will i know a lot of the positions that trevillian works with like um are people moving you know up from a sort of operating role into the c-suite so uh i think that's uh that's the nature of the banking industry ryan one thing i can tell you is you know i'm not sure turnover in the traditional sense you know we're seeing very much of that but what i can say is you know you've got an executive your ceo that's early 60s you know got a five-year plan forward before retirement pre-k hits covet and we're seeing a draw hearing a drum beat now for those folks saying hey you know maybe when we on the other side of this we should sell the bank or hey tell me more about this moe concept right and so i think there's been tremendous work done in tremendous leadership folks are that have been a lot and i think are exhausted so it may lead to turnover but in a very different way i tend to agree that there's not gonna be a mass exodus but over time as things recoup some people that have been through multiple crises are probably gonna you know punch their ticket at that point thanks guys so tony we obviously know talent's important just given everything you guys have said about it but what other characteristics excites you about a bank when you're looking to uh invest you know what are the things that you look at that kind of make you the most excited about looking looking at a particular institution yeah so i think from you know from a fundamental standpoint you know there's really really three things that we look for and there's a lot of factors but the three most important like i mentioned number one is management team right picking the right partners is is really critical number two is is being high performing or having desire to become high performing is really important and then number three core deposits are very important to us and you know this interest rate environment is different and the economics are different but over over a long run or over a full cycle we really believe in the value of core deposits so so really management performance and deposits and then is is is value right i mean we we fall on the value side philosophically more so on the growth side and so you know buying things that it um prices that may not reflect full value is is something that you know gets us interested as investors as well and david i'm curious you know how do you how do you invest what are the return hurdles and you know how do you think about eventual exit and and the companies you get involved with yeah sure so first of all i'd echo uh everything that tony said uh you know he hit all the high points you know definitely alignment of interest with a management team a strategy that we think makes sense and that that can be executed uh upon valuations critical and agree that the real value of a bank is in the right side of its balance sheet and those core deposit relationships i guess that's why we uh we're in a number of investments with castle creek through the years right um so i think um you know in terms of return hurdles you know we're we underwrite everything to a five-year investment horizon our funds have a 10-year life some investments take longer some take less but you know our goal is to get to uh you know two and a half times money 25 internal rate of return uh so you know again to echo what tony said it you know we are very disciplined on valuation and on our entry price knowing that you know our ultimate exit is typically going to be in the public equity markets we're going to have a private company that we invest in that ipos that ultimately we're able to sell for a premium in the market or or that that will ultimately the board of directors will choose to uh do what's in the best interest of shareholders if that's the case and sell to a larger institution thanks for that david um i i was going to just mention something we see in the news quite a bit over the last several weeks uh seems that you know a lot of banks are announcing branch closures for cost savings and a lot of those were maybe already planned but now are validated due to the pandemic um david i'll go to you first but i'd like both of your responses what are your views on m a as it relates to the need for branch consolidation sure yeah i could start so i think uh you know if you're to look at you know the entire landscape of the u.s banking industry i think you know what the pandemic has has shown is that you know ranch traffic can be down and has been down significantly as you would expect across the country but you know banking is still occurring right transactions are taking place there's you know checks are getting deposited uh remote deposit capture various forms of online banking and bill pay people are still taking advantage of you know fewer and fewer transactions uh are taking place using cash or check and that is going to only increase from here as as many vendors choose to do contactless forms of payment right um so all those things are accelerating the trend towards uh reduced requirements for aggregate branch capacity united states and i think that will be potentially among the catalysts for continued uh consolidation in the banking industry in the years ahead you know about three percent of the industry consolidates each year and and uh you know wouldn't see any sign of that abating once we get out of sort of the the stall that we're in the midst of for bank m a because of it yeah i agree i mean kovit's just going to accelerate branch m a or i'm sorry branch branch closures and m a in general um there's still massive amounts of excess square foot in branches in the banking industry and obviously the advent of technology too that that that changes things but it's pretty interesting because across our our portfolio i don't know david what you guys are seeing but by and large i'd say transaction volumes aren't down as much as you would have thought given the environment so you know again the star sed for for more rationalization of branching yeah i absolutely agree um you know the the interruption for most banking customers has been really minimal because of uh the ability to utilize the digital forms of transacting if you can finally get you know that elderly community or whatever to adapt digitally maybe you can close that one branch that's you know close to them potentially um you know cost save uh in that regard thanks for that response both of you just thinking about m a there's already been uh as many sub debt uh raises in just the second quarter this year as it were all of last year so i'm curious what you guys think will be the capital raising environment you know it's hard to tell with deferrals and stimulus masking you know loans that might otherwise be a bigger problem but what do you think there will be will there be a lot of banks needing capital for defense or offense over the next two years what is your view on the capital raise environment you want to go first david uh sure yeah i think um you know the subordinated debt market's been a really good option for a lot of banks to issue i think proactively at attractive rates um i think that uh the banks that have availed themselves of that earlier likely doing it to be more proactive and potentially offensive um in thinking about m a among other things in terms of going out and acquiring potentially cash rather than stuff that is probably trading at a depressed level right now but you know subordinated debt has a role in a bank's capital structure but it only goes so far i mean is the highest quality uh form of capital it's what the regulators like to see the most of and um you know depending on the path that the recession due to the pandemic takes we we very likely could see uh additional capital raising that is more to shore up balance sheets and bolster loan loss reserves and in the quarters ahead yeah i i really agree with david i think you know the sub debt issuance now is explainable because it's incredibly incredibly cheap optionality right both for liquidity and for potential loss absorption so it's not surprising to us um that there's an issuance but you know there's several paths for none of none of us know which path is going to play out otherwise we'd all be very rich but there are there's a path or two from here forward where you could see considerable opportunity equity issuances as well and i think it's too early to rule that out um you know but banks came into this with more capital and and fairly decent you know pre-pre-provisioned earnings it's a little different than the last cycle um but but we could see you see a path or two four here where there there's reasonable equity issuance so uh tony i had a question for you a little a little bit of a different route in our conversation we talked about it last week about fintech and some of the disruptors in the space and i think your opinion was that fintech disruption is still way down the line um not a lot of a lot of folks think it's happening right now um although i was just reading about uh customers bank bank mobile um just uh announced a collaboration with google to offer digital accounts which kind of blew my mind um so the question is you know how far do you think we are from fintech disruption and what matters to you from a bank tech or fintech perspective yeah so i you know i'll start by saying i don't you know i don't have anything too elaborate to say about fintech in general i mean fintech is such a broad broad concept you know i think technology as it relates to improving efficiency of banking i think is is is very real very helpful and will continue to be an important part of how how people bank at community banks fintechs as a company a fintech is a company disrupting community banking is years decade away before there is any material disruption to get some on the fringe and you know some will come up with a good idea and it'll it'll have legs but but the broad industry truly being a disruptor we we just don't see that right now and then the third angle i'd add is fintech is an investable company for us it's almost completely uninvestible for two reasons number one it's very it's much more like venture you know early stage as opposed to private equity and number two for for one of the main reasons why we like community banking you know the liability side of the balance sheet the core deposits um the liability side the funding side of fintech is is completely broken completely also and so until they figure that piece out you know from a pure investment standpoint that's not something that we would you know proactively do and i know you didn't really ask exactly that but that's my view you know leon on fintech um great one last question for me i'm curious you know this is kind of a once in a generational time where there's you know so many strange things going on and not sure about the future with with with the economy i'm curious you know is there any big thing that you're working on your banks with in this difficult time is it you know sort of the the customer retention is there a big topic besides obviously you know being safe with capital um is there anything that's like bigger monumental that you guys are kind of really keyed in on with your banks i yeah i think it's something tony uh mentioned earlier which is now yeah you know now is really the time for community banks to shine right there they're taking this opportunity to work with their borrowers to you know implement forbearance that makes sense to get them back on uh you know regular payments ultimately here's a lot of banks are coming off 90 day uh deferrals with a lot of their commercial borrowers currently you know showing that the banks aren't a commoditized business that they actually understand the borrowers and their needs and especially the community banks right that's where they can add a lot of value so hopefully you know that's one of the uh the outcomes from from the the pandemic is that it strengthens a lot of the customer relationships and really shows the value proposition of the community thanks that's a great answer david don't don't if you want to add anything to that yeah just real quick i'd say you know first and foremost i think folks are focused on you know stressing the balance sheet and making sure that they can you know withstand multiple scenarios of you know potential credit loss but you know i think the folks that are ahead and they're maybe a little bit more progressive are really questioning the business model right what what is our value proposition how do we deliver on that how many branches do we need to deliver on that how many people do we need to deliver on that you know is our time horizon two years is it five years so i think just really questioning who they are and what their value proposition is and what's strategic plan look like you know some some folks are starting to turn to those more offensive uh you know type issues as they become more and more comfortable with with what's on the balance sheet and tony on that you mentioned offense and we talked about defense is there anyone doing anything right now offensively that you're you know that you've seen that resonates with you yeah i i you know admittedly it's a lot more theory and concept right now but but there are one or two transactions that that we have at our portfolio companies that are real that are offensive so um it's not robust uh but there are some shoots some shoots offense good okay well that's that's actually good to hear um on that note i think we are we're all finished uh today um i can't say thank you enough to david honor from patriot partners and tony's cavuzzo from castle creek for joining brett and i today uh on this webinar thanks so thank you so much guys happiness glad to do it yeah very exciting right all right well it's all it's our pleasure thanks for joining all the viewers out there as well and uh have a great day take care guys thank you take care