Building a Bank from Near Scratch

[Morgan]

You can take a look at Wilmington Trust (WL) as the bad bank model. They are being acquired by M&T at large discount to book, based on the amount of bad loans. WT did everything wrong on the banking side. Over 20% of loan book were in construction and development loans, concentrated to a small geographic area, and had large single borrower concentrations.

 

First thing I look at now in the small banks is what years did they grow their loan book, how large is their construction and development book, and do they have retail deposits to match loans.

 

I looked at M&T Bank and they have acquired quite a few banks (22) since 1987 (http://ir.mandtbank.com/acquisitions.cfm) and have gone from $2bn in assets in 1983 to $84bn today. Their stock appreciation hasnt been too shaby either - $1.20 in Jan 1983 to $115 today or about 16.5% annualized. That sounds like a pretty good business to get into.

 

Inspired by the history of M&T I'm wondering if anyone has here been involved in aggresively growing a bank starting from something decently small? Or gone through the merger or acquistion process of a smallish community bank?

 

Other questions:

What was your process for investigating banks to buy?

What made you reject a bank?

Once a bank was purchased, how did put your culture in place?

How did you decide which lines of business to expand?

[oddballstocks]

I have talked to people who can answer these questions, I know someone who started at zero and had grown it into a $3b bank from scratch.  Also know someone else who grew a small community bank.

 

I'm not sure what answers you'll get online but here's my recommendation.  Contact the CEO at a few community banks near you and ask if you can talk to them for 30m or get coffee with them.  People love to talk about themselves, and love to get advice.  The best advice and information you'll receive on this topic will be over coffee with a current CEO or former executive.  You'd also be surprised at how willing to meet many of these executives are, just make sure you can speak intelligently about the subject and you'll be fine.

 

This is networking 101, but once you have a few contacts ask them for contacts of other people they think you should talk to.  Pretty soon you'll have a whole list of names that you can call on.

 

As for a de novo bank in the current environment, I saw one was recently granted a charter, an Amish bank in Pennsylvania.  De novo banks are near impossible to start right now, although there are some discussions about loosening regulations.

[Morgan]

Great post oddball! I'll do some networking and more reading to learn more. Thank you!