When I travel around the country and share conversations (and hopefully beers) with bank executives, I am consistently asked, “What banks are having success out there?” or “Who are the banks we should be learning from?” With their heads down in their company’s daily operations, bankers find themselves hungry for knowledge about “what’s going on?”
In this week’s Gonzo, I’d like to share some observations about winners and losers based upon the 100+ days I spend on the road with bankers each year. Specifically, I’m going to take you Gonzomongers on a whirlwind tour through five of the largest metro areas in the country to illustrate some key trends occurring in our industry.
These days, growth for most banks centers around the 361 metropolitan statistical areas in our country with populations of 50,000 or more. Why is all the action in MSAs? Because an amazing 82% of the entire U.S. population is sitting in these markets and more than 100% of population growth is being generated from these areas (translation: the smaller towns and rural markets tend to be flat or shrinking). This is why banks in North Dakota look to Minnesota or Colorado for growth, and banks throughout the South have headed to Florida as the land of milk and honey for new business. And in these MSA battlegrounds, one can draw several important conclusions about our industry:
Trend #1: Mega banks tend to struggle with market share gains. Any “scale” advantage appears highly suspect.
Trend #2: Entrepreneurship lives. Many banks gaining share are mid-size institutions full of commercially focused go-getters having a ton of fun.
Trend#3: Strategy and niche win. The most common thread of those gaining share have either a clear retail operating template or a specific niche that helps them drive new business growth.
Trend #4: De novos are a mixed bag. While some stars are breaking out into unprecented growth rates, many others tend to stall out at the $100 million mark.
Trend #5: Using acquisitions as a “beachhead” for organic growth sounds great on paper, but fails as much as it succeeds.
So strap in, GonzoBankers, for a quick tour around the country. We’re landing at JFK and starting our tour in the nation’s largest MSA:
New York-Northern New Jersey-Long Island
This MSA touts a remarkable 19 million residents and has long been the battleground of global money center banks that dabble a bit in local retail banking. What’s the story here? The uppity money center banks got their tails kicked by the entrepreneurial likes of Commerce Bank and North Fork Bank.
In the past five years, Commerce has gone from a near-standing start to a remarkable $13 billion in deposits and 1.7% of the huge New York-No. NJ-Long Island MSA. Many pundits (including me) were skeptical about Commerce’s march into downtown Manhattan, but the results speak for themselves. Commerce has opened 18 new branches and amassed $2.5 billion in deposits in only a few years.
New York City has also seen the great roll up of John Kanas’ North Fork Bank. Through a string of acquisitions (the largest being Greenpoint Savings) and gutsy branch and commercial sales growth, North Fork went from $8.7 billion in deposits to $37 billion from June 2000 to June 2005. An execution leader, North Fork recently sold for a mere $14.6 billion to card giant Capital One.
We now welcome you on the GonzoExpress flight today from New York City to…
The Windy City has seen its fair share of hits and misses as banks attack this market of 9.4 million.
There have been a lot of “trench warfare” market share shifts in the Chicago market. JPMorgan Chase has actually gained share from its predecessor Bank One (now Chase), moving from 13.5% to 15%. Folks like Harris, Charter One (Now Citizens) and Fifth Third appear to be holding their own while longtime player LaSalle has dropped a point or so of share. Commercial player MB Financial has shown strong loan growth but hasn’t made a huge amount of noise in the deposit share battle. It’s really a tough market in which to make a big move.
Clearly, Washington Mutual’s aggressive entry into Chicago has been Waterloo-like. Can the FDIC information really be correct – 147 branches and only $711 million in deposits? Better hope the new television ad campaign with the aging bankers works here, guys.
Ladies and gentlemen, you may now turn on your portable electronic devices; we have just landed in….
One of the hottest branching markets in the country has been the good ol’ Peachtree city of Atlanta, an MSA of 4.7 million that will be one of the nation’s fastest growing over the next decade.
Entrepreneurial commercial focused banks have made some real noise in Atlanta. The Bank of North Georgia, a subsidiary of the super-community powerhouse Synovus, has jumped from $500 million to $2.2 billion in deposits in the past five years, through a combination of strong organic growth and the folding in of two other Synovus community bank subsidiaries. (You go, Don Howard!)
Cinderella upstart Main Street Bank went from $176 million to $1.6 billion in the past five years through the combination of a few smaller community banks and the active recruitment of experienced banking “refugees” who were attracted to Main Street’s highly entrepreneurial culture. (Relationship managers can earn up to 100% incentive bonuses at Main Street). All this entrepreneurship paid off – Main Street was recently acquired by BB&T for a cool $623 million.
Regional player Suntrust, in the midst of heated competition on its home turf, has held its own pretty well, notching up market share from 16% in June 2000 to 25% in June 2005. However, a great deal of this uptick occurred in 2004 when Suntrust appears to have consolidated a chunk of deposits from its major NCBS acquisition.
For all the great PR spinning around about Wachovia’s sales culture and service quality, it doesn’t seem to be translating in Atlanta. The combined 33% market share of Wachovia and merger partners First Union and Southtrust in June 2000 dropped all the way to 22% by June 2005. At today’s size of the market, that’s billions of lost deposits for Wachovia.
Regions Bank has lost nearly half its market share in Atlanta in the past five years, from over 5% to 2.75%, and the bank has actually shrunk in total deposits – probably not a nice topic to discuss inside the walls of Regions.
Please make sure your tray tables are in the upright and locked position and don’t hide all your damn trash in the seat pocket, GonzoExpress is now landing in:
The Dallas-Fort Worth market, boasting a whopping 5.7 million residents, has seen a 34% explosion of new branches in the past five years (roughly 75 new branches each year!). While a slew of out-of-staters have headed into the Longhorn state, it’s fair to say that rugged individualism still reigns in Texas.
The biggest winners in Dallas appear to have been fast-moving community banks with the word “Texas” in their names. TexasBank grew deposits more than $650 million in the past five years with the addition of only five branches. The market took notice of this success, as CompassBank of Alabama recently closed on its purchase of TexasBank. Texas Capital Bank, a bank birthed just eight years ago with $80 million in capital, now boasts $1.3 billion in deposits in Dallas, up a mere 123% or $700+ million in the past five years. Not to be outdone, longtime competitor Bank of Texas branched aggressively to add more than $500 million in deposits in the past five years, now topping over $1.5 billion in the market.
Behemoth JPMorgan Chase seems to be proving that New York pinstripes don’t bode well in “W’s” home state. The combined Chase/Bank One market share of 26% has fallen a full 5% to 21% in the past five years. Hey Jamie Dimon – better buy a Southwest direct flight into Love Field to shake things up!
Bank of America, while holding its own in many large markets, has also seen a market share drop from 24% to 21% from June 2000 to June 2005(1). Maybe a Six Sigma whoopin’ is due here as well.
We hope you have enjoyed traveling with Gonzo tours. Our final stop is home to GonzoBanker’s worldwide headquarters…
Ahhh, Phoenix – the cactus-infested mecca for aging athletes, Midwest retirees and Hummer-driving, silicone-enhanced, bling bling-clad beauties. This MSA of 4 million has also become the most popular place for out-of-state banks to build a branch or two to raise deposits and have frequent “strategic” executive meetings (translation: golf with ol’ college buddies).
While Washington Mutual is getting slammed in Chicago right now, Phoenix has proven to be a much rosier picture. With only 48 of its new “Ocasio” branches, WaMu has amassed close to $1 billion of deposits since 2001. No malo, Señor Killinger.
Entrepreneurship has also reigned in Phoenix with the rapid growth of the 1st National Bank of Arizona, a new bank from Minnesota entrepreneur Ray Lamb. In only seven years, this bank has grown to $1.5 billion in deposits, fueled in part by a niche play: Community Association Banc. “CA” Bank is a brand name and division of the bank that caters to homeowner community associations with cash management and other customized services. One again, the power of niche is evident.
The biggest loser in Phoenix over the past five years has been JPMorgan Chase and its former owner, Bank One. Bank One was the market leader with 35% deposit share in June 2000. Five years later that share had sunk to 26%, an opportunity loss of $2.75 billion in deposits. (It’s sad to see what happened to the once independent Valley National Bank franchise.) Jamie, Chicago’s hangin’ in there but after you kick Texas’ butt, head to Phoenix!
Many de novos have also seemed to hit the wall in Phoenix. While the 1990s saw a slew of startup banks, most of the deposit share gains in the past five years have been at the hand of an unstoppable gaggle of out-of-state banks with CEOs holding golf bags.
Well, Gonzomongers, it’s time for everyone to hit the “strategic” peer sharing session at the Phoenix TPC course. We hope you enjoyed this quick tour around the country. I hope you take one important lesson with you from this trip: no matter how many times you hear that the game is rigged to favor “the man” at the behemoth banks, remember to take a look at who’s really moving market share and who’s selling to who for big shareholder gains and glory. A timeless truth: banking is still about skill and innovation and not about scale.
(1) Dallas MSA market share numbers have been adjusted over the past five years to eliminate the 2005 #1 market share leader in deposits Treasury Bank, a specialty operation of Countrywide Mortgage.
“He not busy being born is busy dying.”