I’ll leave it to the stock analysts to ponder whether Comerica paid too much (the deal is not accretive to earnings until 2013), but from a strategic perspective it is a good move:
- It leverages Comerica’s strengths. Sterling is primarily a business bank. That’s Comerica’s sweet spot, and it permits them to leverage their strong marketing and relationship management skills
- It is manageable in size and scale – Comerica is experienced at integrating banks of this size
- It improves Comerica’s distribution in key markets: their branch network in Houston will double, Dallas-Ft. Worth branches will increase 27%, and Comerica will gain entry to San Antonio (and Kerrville) where it does not have any branches
What does this mean for Texas banks?
It confirms that M&A is on the rise in 2011, and we should see many more opportunities for sellers and buyers
It creates opportunities in specific markets: 8 Sterling branches are in very close proximity to existing Comerica branches (less than a mile) and there will inevitably be some branch consolidation
It will create opportunities to target attractive customers. Risk management and pricing will convert to Comerica’s standards as soon as the deal closes, and this will mean changes in loan and deposit relationship management:
- Commercial loans: 69% of Sterling’s loans are real estate related (54% Commercial and 15% Consumer) – by comparison, 63% of Comerica’s Texas loans are C&I. Expect Comerica to reduce their exposure to real estate related loans, even those that are well performing. On the other hand, it will be a more formidable competitor in C&I.
- Deposit relationships: Sterling’s COF is 22 bp higher than Comerica’s and they are more dependent upon interest bearing accounts. Comerica may be less aggressive at maintaining deposit relationships that are price sensitive. On the other hand, the new entity will be more effective at acquiring non-interest bearing consumer and commercial deposits.
It will ultimately create a stronger competitor in Kerrville, but in the short run it will create opportunities to take share from Sterling, which is the market leader (29% share of deposits)
It will add another strong competitor to the highly competitive San Antonio market, as Comerica leverages its new distribution to build relationships.
No matter how effectively Comerica handles the conversion (and they are skilled at integrating banks like Sterling), there will be opportunities as personnel, products, pricing, risk management, and systems are integrated.
Comerica estimates that Sterling’s expenses will take a 35% haircut. Staff and customers may be nervous, unsure what this means to them – and willing to talk to a competitor just to hedge their bets. Some won’t be happy, no matter how well it is handled.
To take advantage of this opportunity it is important to have a plan. There will be a window of time when things are “unfrozen”, and represents the best time to recruit skilled staff and acquire strong new customer relationships. But the window will close: Comerica will work hard to identify and retain staff and customers. Once the full conversion occurs and uncertainty gives way to stability, the opportunity is lost.
Don’t assume that there will be disruption that works in your favor. It takes effort and discipline to capture profitable customers and top performing staff from a competitor that wants to keep them. Without a detailed plan, you risk missing the window of opportunity – and only capturing the customers and staff that Comerica was willing to lose.
Despite all the changes in the way customers use bank branches, and the talk about “death of branches”, the reality is they aren’t going away. Yes, consumers and businesses are writing fewer checks, and that means teller transactions are down. Yes, our customers are rapidly increasing their use of mobile and other electronic channels. But the branch network is still the key distribution channel, preferred by 68% of consumers and small business.
But branches will change:
- Branches will be designed differently. They’ll be smaller, and fit into typical retail footprints. There will be fewer free standing branches (less need for large branches with drive-ups).
- Branches will be staffed differently. There will be greater utilization of universal staff who can handle sales, service and transactions — we won’t need as many tellers.
- Branch managers will need improved market management skills. With fewer teller transactions, branches will be more like sales centers, and this means greater micro-market knowledge and calling skills to improve trade area sales penetration.
- Banks will implement tighter cross-channel integration with hub branches and call centers, especially for expert support and customer advisory functions. Leading banks are already experimenting with video conferencing and similar technologies.
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Successful financial institutions will have more robust front-line relationship management technology to enable staff to deliver better customer service, stronger profitable cross-sell, and achieve greater share of wallet.
What should you be doing now? The most successful financial institutions – large and small — are already working on their staffing, market management, and front line technology. Are you reviewing your teller staffing models? Have you already begun training universal branch staff? Have you upgraded your front line relationship management technology?
During any period of change, some wait for the fog to lift and the path to become clear, while others start testing new pathways forward. In many respects, the path is clear — we just don’t know how fast these changes will happen. Now is the time to start preparing for the changes you know are coming.
My wife is one of the smartest people I know. I’m not saying that just because it’s our anniversary in a few weeks, but I’ll admit to taking the opportunity to get a complement in when I can.
We were leading a strategic planning session for a bank – it was a large group, with the entire Board and all of senior management in attendance. The bank was having some issues achieving its’ plan, and there were various opinions about how to move forward.
I was facilitating the discussion and Colleen was taking notes, observing, and giving me feedback
& coaching on the dynamic in the room, especially the side discussions and body language that I couldn’t see when I was writing on the flip charts.
At the end of the first morning break she told me “Here’s the problem: they have Organizational Attention Deficit Disorder. They’ll never succeed unless they focus.”
There it was. An entire MBA course in Business Strategy summed up in one sentence.
And here’s the point.
Business strategy is not just about deciding what to do. It’s also about deciding what not to do. It’s about focusing on a few things that really matter — and having a disciplined management process to get them done.
So how did it all turn out? We’re on draft 4 of the Plan and it is coming together very nicely. What started as a seemingly unattainable goal
- increase capital and increase earnings – now seems firmly within reach. It’s all about picking a few things that matter, gaining consensus, putting in place Action Plans with specific accountabilities.
We use a Rapid Assessment Planning Model that starts by establishing the end-goal and then moves backwards, step by step, to ensure a successful outcome. It’s a disciplined approach that we’ve used with numerous financial institutions with great success. “Best planning session we ever had” was the feedback from a recent client.
Want more information: please contact us
- our experts can help you unlock the key to additional profitability and efficiency.
Guest article
by Catherine A. Ghiglieri, former Texas Banking Commissioner and President of Ghiglieri & Company based in Austin, Texas. She is co-founder of The Bank Directors’ College which provides training to bank directors
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Bankers are hearing horror stories about examiners’ demands and are confused as to how to plan for their next examination. What should they focus on? And will those things be the wrong things when the examiners come into their bank?
Here is a guide to preparing for your next examination and to know what the regulators want, so that you can have the best examination results possible. It is especially important because regulators want you to identify your problems before they come into your bank for an examination. This is not always easy since oftentimes what regulators view as problems, bankers do not. If the examiners identify problems that you don’t, they will come down harder on you. They will rate your bank more harshly, rate management more harshly, and take a harsher enforcement action against the bank.
Understanding what the regulators view as problems and looking at your bank objectively so you can identify the problems before the examiners arrive will allow you to prepare for your next examination for the best possible outcome.
Here is a formula that you can utilize to brace for your next examination: Continue reading
What’s on your examiner’s mind? Here’s what I heard recently from banking regulators. This should be no surprise
- Top of the list — commercial real estate and liquidity risk management
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Other hot topics include:
- Asset quality
- Past dues and nonaccruals
- Rapid growth
- Funding sources
- Overall exam rating, especially chain of events that can lead to improvements or deterioration in capital rating
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Expect to see:
- More full scope examinations
- More extensive request lists
- Examiners on-site longer
- Risk focused IT and BSA exams
I sat down recently with Cathy Ghiglieri, former Texas Banking Commissioner, who suggested it is particularly important to identify all of your problems before the examiners come to your bank for an examination. This is not always easy since oftentimes what regulators view as problems, bankers do not. But, if the examiners identify problems that you don’t, they will come down harder, will rate your bank more harshly, rate management more harshly, and take a harsher enforcement action.
Understanding what the regulators view as problems and looking at your bank objectively so you can identify the problems before the examiners arrive will allow you to prepare for your next examination for the best possible outcome. Need help? Contact us for more information.
This has been a difficult year for bank strategists. Over the past 12 months, market and competitive conditions have changed with dizzying speed. This has led some to question the efficacy of prior strategic planning efforts, or even suggest the annual strategic planning ritual be eliminated. But we believe the uncertainty of recent months only reinforces the need for a disciplined- but more flexible — planning approach. Continue reading
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