As I left the last part, something was about to happen to our region at the bank. We just did not know it yet. This will be the last background story leading into more recent times and experiences.
Time To Go – Again
Our region had rocked along with TVB for a few years in a bumpy climb to annual loan volume of just over $115 M at about 175-180 transactions per year. We were making the bank good money and were up to about 45% of the division’s total loan volume. However, loan closings were being delayed by slow funding of loans and there were signs the hot SoCal real estate market was cooling some.
During this time 9/11 had reared its ugly head and the country was reeling from the shock. I still remember where I was when it all began – in my vehicle on the Cumberland Plateau about an hour west of Knoxville heading to Nashville for a SBA lenders conference. My SCO called me on my Blackberry to let me know as he knew I listened to CD’s when driving. We both agreed that more of the prophecy of Revelation was underway.
Yet, the business world continued on. TVB continued to participate with developers and contractors with financing packages for residential development of lots and new homes. The homes were primarily built spec, no buyers on the hook. Their price ranged from $1 – $2 M per home. This was not unusual for that market while seeming otherworldly to us in the southeast. It also averaged about twice as many loan dollars committed per transaction than one of ours, of which at least 75-85% of our single transaction loan amount was guaranteed by an agency of the federal government that would be sold on the secondary market for a tidy premium while retaining servicing rights for an additional minimum 1% annually on the sold loan balance. We could make three or four $1 M loans for every one spec house construction loan while adding far greater income to the bottom line.
It typically would not take a genius to figure out that our division was the profit bell cow. Except it did at TVB where they were convinced that the reverse was better. Which perfectly illustrated the ego of the bank Chairman/CEO and his buds in executive management and the Board. They wanted to play the dog in the local area. They wanted bragging rights in their pond over bank stability and profitability, which would not be the desire of the national investor looking for value in bank growth stocks on the NASDAQ. One approach was for show, the other was for dough.
As an interesting educational experience for Goober and his SCO, we had difficulty grasping how subdivisions in the desert around the region were cropping up everywhere. There was no vegetation like in Tennessee and the ground was dry, sandy and rocky. Then as we drove in from LAX for meetings one time we saw a first for us. It was a dirt mine. A mine where decent soil was being extracted for use in the booming subdivisions for vegetation purposes. We knew at that point we had seen everything this old world had to offer. What we took for granted in the east was gold in them thar hills of Californ-I-a.
We noted that some of TVB’s contractor customers were beginning to default on those spec house loans and the loss of liquidity and the constraints on bank capital were making it increasingly difficult for our loans to fund in a timely manner. If the homes would not sell, the development financing would also fail. The credit committee began declining larger loan requests in our region that were of a type that were formerly approved. Production officers were beginning to complain again and rightly so. They worked hard to generate the flow of business that was being gradually undermined by the bank’s executive management and Board decisions. We also knew that sometimes management in any business will use that method as a way of downsizing without stating the obvious. There are no exit packages to pay if people leave on their own to take better opportunities. Regardless of the motive(s), the financial situation signaled major issues ahead for our division.
At this point I notified my division CEO of our concerns. He felt the bank would work out of it, not seeing there was a sense of urgency. His response was unusual. Normally he would shoot straight with me (I found out why later). I signaled to him and the Chairman/CEO that I disagreed with that assessment by selling a large block of my stock near the top in the $40/share range. At this point there were still ample buyers as the markets were not yet aware anything was amiss as regulators had given the bank a good rating in their last exam and reported profits and capital were still strong. Since I was not an executive officer, just listed as senior management, I had no legal constraints in doing so. I had only paid $5/share when executing my options. As a result I fully recovered my total investment plus made a profit while holding some additional shares for selling later in a different tax year. There was no mention of it by the Chairman and I expected it would fly under the radar since he and some Board members routinely bought and sold as well.
I was preparing without knowing exactly what was to come, just that “it” was coming. I could feel it.
While this was going on, I discussed the situation with my SCO and a key regional sales manager. We agreed it was again time to explore our options. This led to a long dance with a well established large community bank nearby before the Chairman/CEO, a man I greatly respected, informed me that he could not convince his Board and SCO to agree. He clearly saw the opportunity and recommended the venture to them along with another Board member we knew, but they did not as they did not understand the industry and were basically uninterested in working harder and smarter. Disappointed, but undeterred and facing no deadline, we continued looking and kept working. That Chairman/CEO was correct in his assessment. We could have been the profit generator that bank needed to pull out of a longterm downtrend in profitability, which was a shame. It simply scared them to being doing business all over the country in a line of business in which they had no real knowledge.
At this point it is important to state our industry’s reach during those days. In the eastern U. S. there were only a half dozen big banks and a few licensed non-bank lenders like GECC who did more volume of loans annually than my eastern U. S region of TVB did. Most of the industry’s loan volume was generated in the western U. S., with 40% of the total coming from California. Our region was providing the loan volume that ranked TVB as the #1 lender in volume in four states and in the top five in nearly all of other states in our eastern region. There was no real commitment to the industry by banks in the east. If a small business customer could not be financed conventionally they simply declined the loan rather than hire specialized staffing to process the government guaranteed loans. It seemed we were blazing a trail as it had never been done like this before in our region of the country. Even the big banks did not sell the loans as we did, they retained them in their portfolios. The benefit for them retaining on the books was the loan amount that was government guaranteed did not count against their capital, while also earning a higher rate of interest than a conventional loan. Even our state regulators and eastern region FDIC area bank examiners’ minds were blown with how our method worked. So, we understood why prospective banks would be nervous about the opportunity. We just needed to find the right situation.
We had made our team aware we were looking at options and that seemed to reassure them to hang in there with us. A month later the production officer who was assigned to TN walked into my office. He had a potential opportunity that had fallen in his lap that he thought we should pursue. He had contacts in the western part of the state that referred him business that owned a small community bank of about $250 M in assets there. The executive management was intrigued about how we did what we did. One of the four owners was a general contractor, another was an attorney/nursing home chain CEO, another was a mega wealthy businessman who owned a larger bank, and the fourth was the community bank’s Chairman/CEO. They were from the same area and lifelong friends. Even though their bank was small and unsophisticated, it was over twice as large in assets as TVB was when we started with them along with a stronger capital position. We knew it was sufficient to get the job done as well as how to do it.
I told my guy to go ahead and visit with them to tell them we were interested in talking. He was already working on a couple of referred loan requests of their clients for lodging type financing such that even if it amounted to nothing, his trip would be worth the time. Two days later the bank’s Chairman/CEO gave me a call and asked if they could fly over and visit in a few days, to which I was happy to oblige. We talked a bit and I told him to contact the Chairman/CEO of the area bank who had passed on the venture since he had offered to be a reference for us should we find another opportunity. He responded that they knew each other well from the Tennessee Bankers Association meetings and that he had a lot of respect for him.
When the day arrived I picked them up at the airport. My SCO and I had spent time reviewing their bank’s financial call report to verify they had the capital and liquidity to do the deal, which we confirmed. They had too much liquidity to be as profitable as they wanted as there was a limited amount of business activity in their rural markets. There were three of the four owners and their CPA present in the meeting. The wealthy businessman chose not to come. We gave the group a quick tour of our offices and made introductions since they were already referral sources of bank business. This was a normal practice with our customers and referral sources.
We then retreated to a business associate’s conference room in the same office building. I went through the business methods and gave them a five year financial projection to review for any questions. Their eyes fell out of their heads and huge grins crept across their faces. Their CPA became very engaged with me at that point. The others asked a few questions and wanted to know how a transition of our people would work along with timing. I asked about their missing owner. They said he was reticent about the opportunity, but stated he would not stand in their way if they wanted to do it. The three owners said that was not unusual for him as he usually dealt in larger endeavors and owned a minority share of 40% with the three of them owning the other 60%. They had the authority and Board control. The missing owner will be discussed again in a future story. But as a spoiler, he did not come because he would not understand it and his pride would not allow him to admit it.
We had a deal on the spot in one meeting. It was time to take control of our fates as a team and they were well past ready in their minds to accelerate the growth of their bank. The Chairman/CEO was a member of his hometown UMC, so we shared a common bond. I knew he was a well liked family man and respected banker as my friend, RB Summitt, had known him for years and verified it to me. The contractor owner was very entrepreneurial, which is important for our line of business. As a result they had no problem at all with expanding nationally in scope. They asked if my SCO, National Sales Manager (NSM) and I wanted employment contracts. I told them that we did not. We preferred to work from a position of trust in each other. If it did not work out for either side, we each needed to be free to pull the plug on it. They were shocked and agreed. I asked that each employee I approved for hire to receive an offer of employment from the CEO that stated a. job description, compensation arrangements, benefits and so forth. I would be titled the Division President with my SCO and National Sales Manager, who was my current regional sales manager, also becoming executive officers of the bank with asset procurement authority for new offices including the leases. They agreed to all of it. They wanted us to know they owned the bank’s computer operating system as a separate company that had a couple of dozen of other small banks contracted as customers. They wanted us to know it would need tweaking to accommodate us, so there would be no surprises.
All that was left was to implement the plan once the employment offers were signed by the three of us. Goober Gump and friends had arrived at our destination just like Goober’s brother, Forrest, did during his day.
Time To Peel Our Own Banana
Monkey see, monkey do. Figurative, but almost literally speaking. The whole small business journey since the equipment company fiasco had been just that. I had learned so much. My personal strategy to take one or more steps back in compensation and position to move forward three had worked to perfection as our growing team and I learned more and became more cohesive, thereby increasing our value in the industry. We were winning financially for our employers as well as for ourselves. We just had to remain flexible, open to change, and realize one important truth about our role with each bank employer. Which was…
We ignited insatiable greed within the hearts of owners and executive management everywhere we went. We were like cash cocaine they snorted. Seriously. Goober Gump had just become the head of a legal, figurative cash cartel.
Achieving 35+% Return on Investment (ROI) on each transaction does that in the banking industry, which typically has much smaller margins and ROIs in most lines of business while using OPM. We told them up front that economic downturns could sharply reduce our profitability, yet our recovery from it would be reasonably quick. They were informed to remain flexible and that the business worked in quarterly cycles. We could not do in reductions in force on a whim and be able to rebound quickly because the employees were specialists, training was time consuming.
Looking back, in the first two California bank employer situations, the bank’s executive management and Boards intended to sell out to larger institutions. We were just a contributing means to an end to that purpose and knew in advance of its likelihood. In the later TVB situation, we were means to a different end. They wanted to become a major player in SoCal as a traditional bank and were a long term hold as an investment. Which meant our division would have been deemphasizedexpendable just like the others if their primary goal had been achieved.
The exit strategy of selling the bank worked better for what we provided than for the later. Booms and busts of the economy highly affected its profitability and balance sheet management requirements. Being the primary driver of income would be a major issue for a small publicly traded bank wanting to be a bigger fish in the highly competitive SoCal pond. In contrast we could not afford to get caught with their financial issues messing up our delivery system because their egos would not allow them to properly manage their bank.
We knew as a team, we were never employed by the employing bank. We were employed by our industry. In essence we were contractors or even the non-violent mercenaries of banking.
I gave a heads up to my division CEO. He had been frequently absent in recent months and evasive about what turned out were his plans of starting his own loan origination, processing and servicing company in the industry that contracted to banks. I turned in my notice to him. He was very understanding and not surprised. He briefly discussed the new venture that he was starting as soon as his employment contract with TVB ran out later that year. He stated it would be a couple of years before he could offer me a role. He seemed relieved I had the new option and would be moving the eastern operation over time.
I came into work one morning as I worked out my notice and saw I had a voice mail. It was from the irate TVB Chairman/CEO who proceeded to denigrate my choice of future employer and asked me to reconsider in a strained, pissed off voice. He said the TN bank was too small and unsophisticated to do what we did. Ironic, since his bank was half their size when we started there. He then said some angry comments under his breath as he hung up the phone that I could not make out. 😎 I never returned the call. I considered it just another former ego maniac employer who disrespected the very guy and his team who had delivered serious profitability to their bank while not being willing to humble himself to admit he needed to make positive changes. He made it easy to move on and I would never be listing him as reference in the future anyway.
I left TVB in the spirit of Johnny Paycheck…
During the course of these stories I will periodically go back and update readers on what happened to people and employers from the past. That will be happening again in the the near future. In TVB’s case I will post a link to give readers a more technical picture of where their path of choice led and why. Coothie will be one of the few readers that would probably enjoy reading that financial and operational (spoiler alert) autopsy. 😀
I had reached a point in life that I was tired of the lies, manipulation, and ego trips of those who felt they had power and control of the lives of others through their employment. I guess age and experiences being what they were made me less tolerant of being dependent on azzhats.
It was time for me to step out of my comfort zone. It is really easy to blame others when things do not go the way you think they should or to your personal benefit. I tried hard not to do that, to recognize the good and value of each situation. Yet, when conditions soured to the point of harming our team, the Lord had once again opened the door for that to change.
In my humble opinion obedience was the reason.
Job 36:11 – If they listen and serve Him, they will end their days in prosperity, and their years in happiness.
Isaiah 1:19 – If you consent and obey, you will eat the best of the land;
II John 6 – And this is love, that we walk according to His commandments. This is the commandment, just as you have heard from the beginning, that you are to walk in it.
And the big one:
John 14:15 – If you love Me, you will keep My commandments.
And. Here. We. Go.