Ep. 150 - 12 words for community banks to live by

Speaker A: Welcome to Street Talk S and P Global market intelligence podcast that offers listeners a deep dive into issues facing financial institutions and the investment community. I'm Nathan Stofal and in this episode we're going to share the views of a veteran bank investor who closed our annual Community Bankers conference with a fireside chat that I moderated on May 7th. That investor, Joe Stephen of Steven Capital Advisors, has 40 plus years of experience in the banking space and discuss what he believes drives value in the sector, his view of margins, efficiency and credit quality, how AI could impact bank performance, and how community banks will remain relevant over the next decade. Here's the conversation. Joe is a veteran investor in the space. I think I've known him my entire career covering the bank space and have learned from him. And now I get to try to pull some of that out, uh, some of his knowledge for all of you to hear. We're gonna look to the audience. Uh, please feel free to jump in. Joe has assured me he wants this to be interactive as well.

Speaker B: But you did not give me the questions.

Speaker A: No, no, no. And he told me, don't worry about it, don't worry about it. I think, you know, you could do this in your sleep. So, you know, one of the things that we've talked about in the past, and I think it's a good place to start, is the idea that community banks really have three different stakeholders that they're serving. Customers, employees and shareholders. And maybe four, if you think about regulators too. You know, how do you see the best management teams balance serving all of those stakeholders and being successful in doing so.

Speaker B: Okay, well, before I answer that, I want to thank both Maureen and Nathan for asking me to come on down. There is a great group of banks here, and when I was watching the awards last night, you don't know how many of those banks we either own in our, that we own already shares of or we have in the past. So you got a great group of banks, and so I compliment everybody here on that. I, uh, also just thank S and P for doing this because there are no new problems in banking. They're typically small changes to delivery channels, small changes. But you've got the best people to talk to and uh, for example, the people from Bridgewater Bank. Okay, I met you last night and if you've got a question about tech and a first financial out of Abilene, if they got a great tech stack, it's unbelievable how happy people are to share information when they're not competitors. So you've got the best consulting groups sitting in this group. So back to your question. There is a balance that has to happen. Your three legal constituents are your employees, your customers and your shareholders. Whether you're private or public doesn't matter because if any one of those constituents is getting too big a piece of the pie, or I'm Italian, so I say too big a piece of the pizza, it's not fair. And it all has to be done under the watchful, regulatory, approved lens. So if you're giving too much away to your employees, it's not right. You're giving too much away to customers and you're making loans at. Let's say if you're making credit card loans at 10% like Liz Warren wanted to do, you're going to go bankrupt. Okay? You have to balance everything. And shareholders can't take too much, but they deserve to be compensated because they're the only ones with the risk capital. The best companies that I've watched for, uh, this is my 44th year. My first three years was a bank examiner. My next 20 was at Stifel Nicholas where I ran their entire financial institutions research group. And the last 20 on my own at Steven Capital, which a, uh, private investment advisor specializing in banks. The best companies I find they understand this balance, but there's a lot of other traits. But I won't get into that yet

Speaker A: while pursuing that balance. I've talked about this with many people too. I think that you should also strive to be about as profitable as you can while maintaining that balance. I don't know if you agree with that, and I've made the case many times that it gives you optionality for each one of those stakeholders that if you're more profitable, people want to work for a winner. You know, you're more likely to attract customers because you can invest in technology and your shareholders are going to be happier. Do you agree with that?

Speaker B: I totally agree with that. Uh, I'll take it out of banking for a second. So I'm from St. Louis, so to use a baseball term, do you want to play for the Cardinals, who've won the second most number of world championships besides the Yankees? Do you want to play for the Cardinals or do you want to play for the Cubs? It's just like, come on, just tell the truth. You want to play for the team that wins more. Well, that's the same way with banking. You want, your employees want to be with a winning team. Okay. And a winning team has your scorecard is profitability. And there's so many different metrics to look at on profitability but let's just say strong profitability. I don't want to try to define it too importantly but strong profitability allows you to invest more in technology, it allows you to look at other businesses, it allows you to try to stay at least uh, be a very fast copier of technology. I don't think you want to be on the leading edge of technology as a community or regional bank. You just want to be a uh, very, very fast adopter.

Speaker A: We saw, speaking of profitability, we saw good results. Q1 Mid market volatility. It felt like the group was just chugging along. 70% or so beat estimates, estimates are going up and one of the drivers we saw was deposit cost, continued decline supporting nims. We talked yesterday about the challenge of how long will that NIM tailwind remain and really over the longer term could a lot of our spreads get competed away from non banks? What do you think about that? And several people made the case that community banks who make most of money on spread, some made the case about fee income. But more and more folks came back to you need to think about net overhead. You really need to think about growing with what you have on the expense side, on the, on the headcount side. Do you agree with that? Do you think that's critical?

Speaker B: You put five questions in there. He's got every, he's got every topic under the sun covered with this. So let's just make it simple. The average community bank, about 80% of revenues is net interest income, maybe sometimes even a little bit higher. Maybe it's 85, but the vast majority is net interest income. So understand where your bread gets buttered. The other comment that I will make is that I'm going to weave in overhead and pricing all in one. But it's like when you go to your doctor and your doctor says, you know, Mr. Or Mrs. You know your weight is good but they don't want you. If you're supposed to weigh, I'm going to use a make believe number, 175 pounds. If they want you to weigh 175 they don't want you going to 250, then 100 and vacillating bath and fork. They want you to stay at 175. That's how you have to look at your overhead. We do not want companies who let their overhead get really fat, then they cram it down and cut and then they come back and forth. Overhead has to be a uh, discipline you live by. And if you don't live by that, you Won't earn your right. And this is, I think, uh, a concept we talk about. You have to earn your right to be independent, whether you're public or private. If you're private, you've got one investor still or a number of investors, they want to earn a return. And the reason you have to be efficient, and I didn't say the most efficient, but just efficient, is that the money that you are lending is green and the money that the bigger banks lend is green. It's the same green. The question is, if they want to beat you on pricing, they can. So the only way you can compete is to have better service, better delivery. But you gotta keep your overhead tight and that's the only way. So if, and I say this, customers will give you, local customers will give you the last bite at the apple. They'll typically love you for 25 basis points. If you're really good, they might love you for 50 basis points. But, uh, most of the time it's down to about 25 basis points, whether it be a loan. You know, one of the biggest banks might say, we'll lend, uh, it at six. You might be able to get six and a quarter to your customer because they love you, but you're not going to be able to get six and three quarters. You got to get your overhead down.

Speaker A: And in that case, I mean, not only get your overhead dim, but you'd rather your portfolio company walk if they lose that deal, right? I mean, don't try to meet them on price, maintain that pricing.

Speaker B: I can't give you a carte blanche answer because there are some customers you just don't want to lose, period. And sometimes you have to cut certain deals. But in general, I hear bankers say this all the time. They get into a cycle, they say, well, you know, we are not cutting our standards. And they typically mean their underwriting standards. However, if you're cutting your pricing, aren't you really cutting your risk adjusted standards? You are cutting them. So it is a, it's a slippery slope. It's a very slippery slope.

Speaker A: How do you balance growth and maybe a better way to frame it? Uh, what are some of the best management teams you see out there doing when they balance growth and maintaining that overhead? Keeping the idea that we see good organic growth opportunities, we see opportunities to hire lenders, whatever it is. How do you think about the best operators balancing those two things?

Speaker B: I'm going to throw in my own question now because if you look at the cornerstone of banking, it's not overhead. The cornerstone of banking is risk management. That is your life. And there's 2 risk inside of a bank. 90% of the risk is loan quality and say 10% is interest rate risk. Now, unfortunately, 2022 taught us a, uh, really hard lesson on interest rate management because duration extension caused the second and third largest bank failures in history in 2023 in Silicon Valley and First Republic. But the cornerstone of any bank, your bank, is risk management. Overhead is important, but those first two can never be sacrificed. So overhead is something you have to live, eat and breathe every day. But risk management is the most important and to me, the culture of an organization, and the only way to learn culture is to sit out here and meet face to face with these CEOs, CFOs, the chief lending officers. That's the only way to understand their culture. And when you, as I said, My 44th year, maybe after the first 20, I finally figured it out. And you could figure it out pretty fast. It's no different though. I do a lot of coaching for youth athletic teams. You could notice little kids who are six or seven or eight who just get it, who just get it faster than other people. It's just God given. I will tell you, in culture, looking at banks, there is a very similar culture with all the top performing banks. It's led by the CEO. They're energetic, they're disciplined, they're ethical. Uh, that's a term that boy, politicians don't want you to use that term. But let me tell you, remember the four Cs of banking. Character is one of the Cs, okay? We absolutely believe in ethics and character when we're looking at banks and bank

Speaker A: stocks, don't own ethical operators, pass on bad deals, pass on bad borrowers, pass on bad customers.

Speaker B: More often, I would assume most important word in banking has two letters. No. Somebody walks in, says, hey, I got a great hotel I want to finance. I want, you know, I just want to put down 10%. You're my buddy Billy Bob, whatever, and your answer is no. I could give you, uh, thoughts how to do it, but you have to say no. And the other aspect about banking, which is so important to really good regional and community banking, is that you're trying to make sure your customers never commit financial suicide. You're not being somebody's friend giving them a 90% LTV on a hotel loan because it's cyclical and it chances are very high it'll go down. So you want to prevent that financial suicide because that's your community. Every good regional community bank, they Want their communities to be healthy and making sure loans don't go bad by making sure the equity invested is proper, the structures, the cash flows. That's what helps you prevent financial suicide for some of these customers.

Speaker A: And we're thermometers of our economy. So if we're creating problems in our economy, it's going to come back to roots.

Speaker B: That's the one thing people say, oh, all these non bank lenders are going to, you know, this and that they're going to. And I go go ask some of the commercial borrowers that have had their loans put into securitizations, into CDOs and closing and if they have a little nick here or there, ask that borrower if they have any way to try to work it out. The answer is no. Once it gets put into one of these pools, it's gone, goes to special

Speaker A: servicer and it's blown out. And that's it.

Speaker B: Uh, that's it. And that's the value that, that's part of the value proposition of what we call community or regional banks.

Speaker A: Mhm. You know one of the things you talked about. Most important word. No, I feel like something that one of the most important principles I've learned in this business is the best operators have money when no one else makes money. And we will have a cycle and sort of two parter there. I mean one, do you agree with that? Two, how do you feel about credit broadly and where we are in the cycle?

Speaker B: So again I'll answer uh, it in a different way. There are so many metrics inside the banking industry on how do you determine long term value. I would say we have 12 words that we live by, which is the corner of our bible. My team calls it the banking Bible. According to Joe, 12 words. And when somebody comes up with an idea, you ask how does this impact our earnings and tangible book value per share? That's your question. And then shut up and make somebody take that concept and answer it in fundamental terms. Somebody says, hey, I think we should put chimneys in all the uh, fireplaces and all the executive suites. You know it's stupid but don't say it's stupid. Ask them the question and that will guide the answer. So that's how we look at value. We look at people who compound tangible book value and earnings per share at the most consistent, predictable rates.

Speaker A: They get the best multiples, 5 to 7% a year. And if you do that at a decent price point, it pays off every time.

Speaker B: Actually it's even better. So bank loans and Deposits should grow at nominal gdp, approximately. Money supply should grow at nominal gdp, which is core GDP plus inflation. And if you're watching your overhead, you should be growing expenses lower than you're growing your revenues. And if you have strong capital, you should probably be repurchasing 1 or 2 or 3% of your shares a year. And all of a sudden what that math turns out is that you're probably compounding earnings per share, probably somewhere between 8 to 12%. And that's quite attractive. So that's how you get there. You don't have to grow loans 12% to have earnings per share go up 12%. You might grow loans 6%, maybe 7%, something like that, 6%, you might grow overhead a little bit lower than your revenues and you might repurchase 2% of your shares each year. And boy, all of a sudden you're 10%, 11%, 12% EPS growth, uh, on loan growth.

Speaker A: One of the things we've heard over the last few years is it's been harder. We talked about this yesterday. More competition from non banks, whether Specfin, Fintech or private credit. My flip side to that is, if true, maybe some risk has moved out of the system, maybe some of the stricter underwriting standards post Dodd Frank have allowed that risk to move out of the system. How do you think about that? Do you think that's the case, uh,

Speaker B: when people complain, uh, so I was not a football player, but I love to use the term, it's like when the coach has to grab the kid, the kid comes off the field like coach, it's a tough game out there, it's, it's muddy, it's cold, you know, they're big and coach has to grab them by the face mask and say, I know it's tough out there, but you got to get back out there. So I look at, it's the same thing. I watch people complain about how competitive it is and I'm like, oh my God, I've heard this for 44 years. I go, quit telling me how competitive it is. I go, it's nuts. So one of the, when I got into the industry, 1982, one of the things that was going to go away immediately were checks. I don't know if you, some of you people haven't been in, you're not 42 years old. But I got into the business or 44 years ago, checks were supposed to be non existent in like three years. And I was looking at a chart, did you know the volume of checks that were actually written? Finally Peaked, I think it was last year.

Speaker A: Wow.

Speaker B: We were doomed. The industry was doomed because check writing was gonna stop in 1984 or five or six. Then we had another one. Remember in 1999, Y2K was gonna kill you. You were dead. Your IT servers were. Could not handle going from 99 to double zero. It's going to wipe you out. Bank stocks got killed. I go through all these different things. Covid hit people said commercial real estate was going to bust every bank. And it didn't happen.

Speaker A: A thousand failures. I remember seeing that happen.

Speaker B: Oh my God.

Speaker A: We did get one last week. So I think we had five.

Speaker B: I hear these, uh, and uh, the best management teams that I see, the best. They don't tell me they know where the industry is going. They tell me they listen to their customers and they make sure they get their customers what they need as fast as possible. That's what they do. And they spend money on things that they don't understand. For example, I'm 65. Do I understand the AI revolution? Nope. But I've got young people who are AI geeks who absolutely understand it. And I'm letting them run. And then they have to explain it to me though. I tease them. I go, they take the nuclear powered vitamins and they jump in and they do all this AI stuff. I go, okay, now get it down to Flintstone chewables, come talk to me, explain it in terms of that A. And I forced myself years ago to get Venmo, to get Zelle and to learn these things. And it's awesome. And I'm learning more and more on AI now and it is a phenomenal tool. So we do a lot of, we have a lot of mergers uh, in the banking industry. And we wrote our own merger model years ago and we always update it. But for us to run that, it would take one of my analysts two hours. Now I had my AI geek, which is compliment, but I have him, he rewrote our model. And it takes two minutes to run any merger now. It's awesome. So there are technologies, the people with gray hair in this room, you gotta get these, these young kids and let them and learn from them. Force yourself to learn from them.

Speaker A: Different take on um, models. But something you and I spoke about, that going back to credit a bit, that I thought was a really interesting point that I want this group to hear that I keep hearing. And I've said we haven't been through a cycle since 13 or something like that. You immediately jumped on me on that and said the industry has been stress tested a bunch of times since then. Please, please, please.

Speaker B: Oh my God. So I wrote about this in my letter. Since this decade began, 2020, we had Covid. Okay, March. And March has just been like March Madness. We have the NCAA tournament for March Madness. No, we have the banking March Madness every March. So 2020, we had Covid. 2022 was the beginning of the Federal Reserve rate hiking cycle. Along with the Russian invasion of Ukraine, the Fed ended up raising rates 500 basis points. 2023 of March, Silicon Valley and First Republic hit the wall. Okay, 2025, we have the largest announcement in history of United states tariffs ever. 2026, we have, we have the joint Israeli United States fighting war, whatever, in Iran. And I'm not trying to say, I'm not trying to say, I'm not trying to be political and say what I support or don't support. I'm just saying give me a boring year without one of these once in a lifetime events happening and these banks are going to kill it. You guys and gals will make so much money. But the best companies I know, they don't tell me where the future is. They say, listen, we're navigating. We are navigating it. And it's so important to navigate and have a little excess capital. We are not an ROE shop. We look at EPS growth. ROE is nice, but it's just leverage. That's all it is. Uh, any good CFO can give me any ROE he or she wants just by leveraging eps. Growth is something that is much m more important to us.

Speaker A: Equalizer.

Speaker B: We want companies to have a little excess capital because your best opportunity for growth is when, uh, your competitors are hamstrung.

Speaker A: Mm, mm. Mhm. How do you feel about M, M and A? I mean that's obviously a way to grow quickly, seen as a catalyst for the group. Uh, we talked some about that yesterday about pinup demand coming through 25. Volatility in the market never really helps it. We had that beginning of March. Uh, but the pipelines, I continue to hear that pipelines are building. When you talk with teams, you talk with plenty of acquirers out there. Do you feel like they're more excited about it, more active? What do you think we're going to see this year in the next.

Speaker B: Okay, well let me say something else that's more important than M and A. The best form of growth for a bank. Where's my Bridgewater lady? Yeah, there she is. Okay. The best form of growth for banking is internal growth. Or, uh, we Call shoe leather. Ah. So go look at the most successful banks and you'll see they grow internally. Why is internal growth better than acquisitions? Because you're not giving contracts to Uncle Fred and Aunt Betty and all these other people. You're not doing this complex accounting. You're growing your business with your culture and your standards. We love internal growth for our companies. Okay, so that's number one. Now can acquisitions be good? Yes, they can be good. However, the cards are stacked against you because the seller always wants more of the action. So you've got to be very disciplined in the game.

Speaker A: Mhm.

Speaker B: Okay. And I could go down the line. You know, it's um. Some of the acquisitions, you know, over the years have just been huge failures. Just, you know, look at some of the biggest acquisitions ever. And some of these companies have a

Speaker A: countrywide, Wachovia, golden west, whatever.

Speaker B: Yeah. There's so many to even talk about. So be very important, we look at if there is tangible book value, dilution, we want to know how quickly it's going to be earned back. The other thing is everybody assumes that if a $5 billion bank buys a $2 billion bank, it's going to be seven automatically. They never really, really talk about how much diminution there will be of that target bank, how many of their people will be targeted by competitors to take them away. And all of a sudden it's not a $2 billion bank. You bought, you bought a billion eight. That's 10% of assets. You've got to be honest in your estimates.

Speaker A: Do you want to see retention packages for key lenders? Is that something when you investors, if

Speaker B: they're good, if they're bad, fire them?

Speaker A: So laying, uh, transparency. Is transparency on things like that, on how they're going to execute, important to you? When you look at the assumptions, I mean, I know you would do your own math.

Speaker B: Absolutely. But it gets down to people you can trust or not trust. So there's a gentleman here from South State. Where is he? Is he not here? Okay, if he's not here, I'm going to tell on him. Um, but there are some management teams you just trust. Because, you know, some of these CEOs I've known for 25, 30 years. And there are some management teams you can just trust. And there's other management teams you got to learn. And it's funny, my son, who's been with me 16 years now in my business, and my whole team, most of my team has been with me 30 years. But I always say to them, I said well, what did they tell you? And many times they will regurgitate to me what they said. And I said, no, I don't care what they said. What did they tell you? And I go, you've got to learn to read between the lines. So I won't give names, but there is one CFO I used to have. And I'd say, you know, I'd say, hey, Phil, how's things going? Uh, things are going fine. Well, if Phil said things were going fine, that really meant the quarter was crap. Okay. I just watched it over 10 years. And there's other CEOs like David Kemper at Commerce bank out of St. Louis. David is now chairman. He's retired. But, you know, you ask David, David, how you doing? Oh, God, it's hard out there, you know? Uh, then all of a sudden he comes out with another record quarter. So he's building up good chips and the other person is building up bad chips. And you just learn who you can trust and who you can't trust.

Speaker A: Mhm.

Speaker B: And that affects valuation. That's why some of the best valued stocks are with management teams who, don't take this as an insult, who are a little boring. I have a plaque in my office I've had for 40 years that says boring. Banking is best. Okay? We want, you know, remember, when you make a loan, the best you could ever do is get your interest and principal. You're not an equity investor. So what do you call a bank lender with a, uh, 9, 90 batting average? Unemployed. That's what you call them.

Speaker A: Santa Claus.

Speaker B: Pardon me?

Speaker A: Santa Claus.

Speaker B: Yeah, it's. You have to be. It's a risk taking business where you have to be great at it.

Speaker A: Ffin.

Speaker B: Ffin. So, you know, I saw Ffin get an award. You know Scott Deaser? I've known Scott for 20 years. He had me down to his annual meeting two years ago. Um, people like that, you just. They're honest, they're ethical, they're hardworking, they're in your face. They want to win. They want to. And their employees want to win. And it's amazing. Jerry Bach at, uh, Bridgewater. I mean, just people who just, uh, the people at South State, um, Mercantile, German American. It's just a bunch of the banks getting awards last night. And you sit down with the top people. You know, in a sport term, these people, they just don't want to win. They want to win. They want to grind it into you. They want to win Big questions from the audience. Yes, hello, Joe. John Maxfield here, sir.

Speaker A: So you.

Speaker B: One of the, one of the advantages that you have. So if you're a banker in this room and one of the things you do is you come and you really try to learn from who are the phenomenal institutions, who are the ones that I should go back and study through your career. You, I mean you've looked at probably thousands of banks. Like what are the ones that you would point out to bankers to be like these guys were like excellent bankers in this way or that way, you know what I mean? That they can go back and learn about. It's hard to. I don't want to give out too many names because it's. Every bank has certain things they need to do better at. You know, in banking it's funny if you use the Camel rating system. Banking Caemel, um, S. You know, I tell people this all the time as an investor in a bank, it's the only business I know that if you get straight B's across the board, you can get an A at the end because the consistency gets you there. Okay, so if your bank has, let's uh, say you're running an FIS box and you're having issues with your FIS box. Find a bank two to three times your size and you can network it so fast. It's one of the things we do all the time is try to put people together in non competitive situations to talk about things. And tech people especially. I've never seen more people willing to open up their black box and talk about. They love to do it as long as you're not competitive. So um, there's so many ways. If you're having alco problems, there's so many different people. You could talk to people who do it well, people who don't do it well. Um, and the networking process is so key here and we try to help people do that all the time.

Speaker A: I'm hearing don't manage your team so you don't sit still and try to learn from their peers, not their competitors. I don't know if that's a common attribute.

Speaker B: That's exactly right. And um, there's so many good. We talked about First Financial out of Abilene. I mean they've had one of the best track records in the country, period. Uh, but there's a lot of them. And you can go to every single, I could point you to every single state. You go to the state of Washington, go look at Columbia, go look at hifwa, go look. I mean just go down the line. I mean there is a Bank in LA American Business Bank. I think since their formation 20 some odd years ago, they have never had charge offs, cumulative charge offs. They're a $4 billion bank. So this is not some little thing. $4 billion bank founded, I don't know, 20 some odd years ago. They haven't had more than a million dollars of cumulative charge offs. These people are studs. And you meet them and they're the most boring people. And I love them. I never want a happy loan office. CEO, uh, credit officer. I like grouchy credit officers. You know, there was one credit officer, we used to call him Chief Dark Cloud because there's, he was never happy. You won the lottery, gotta pay taxes. You know, I just, I love those people. You know, banking is a bad news business, you know, make your mistakes really small. But I also will say this AI should help you dramatically, dramatically record keeping compliance, things like that, that are very difficult and time consuming and not necessary,

Speaker A: but not value creating.

Speaker B: Not value creating, but it can save you a ton in expenses. Just like fraud. Now fraud prevention, fraud is bigger than loan losses for most banks right now. Mhm. And AI can absolutely help with fraud prevention.

Speaker A: Got another question back here. Hi Ida. Um, back to what you were saying about M and A. Um, I mean, curious, what are some traits that you think that good acquisitions share? And also, um, curious of your response to those, uh, who say that, you know, people worried about, you know, a bad M and A deal are not focusing on the long term, uh, growth benefits, like 5 plus year growth benefits as opposed to the short term.

Speaker B: Okay, let me give you a couple examples of good material that at least from my opinion, uh, fifth, Third bought Comerica and they paid a price. It looks like any tangible book value dilution is going to be earned back in less than a year and it will be nicely accretive and it looks like it's even working out better. So that is what the market would consider. Not only Joe Stephen, but that's what the market considers a good deal. Uh, United UMB bought Heartland Financial and that deal is, I think when it was penciled out it was supposed to be an earn back in, I don't know, less than two years. I'm doing this off the top of my head. I think it's proven out that it's less than a year, um, and it's been wildly accretive. Those are good acquisitions. Now I'm not going to name bad acquisitions. Okay. I just, I don't want to have people shooting arrows at me when I walk out the door. But There are a lot of people overpay. I could give you a funny one. There was an acquisition about 20 years ago. A company called First. First Union was buying First Fidelity. And, uh, ah, First Union was run by Ed Crutchfield, and they bought a company in New Jersey called First Fidelity. And I remember on the conference call, they were saying, this expands our Eastern Seaboard presence. And what is the 12 words I told you to ask every time? How does this impact our earnings and tangible book value per share? Just ask that. Okay. In this acquisition, First Union wrote off 10% of its tangible book value. 10%. And a guy that I know was an analyst at another firm gets on the conference call and he says, ed, congratulations. And you could hear Crutchfield go, somebody's, uh, going to ask me a nice question. And the guy says, nine more of these, we go bankrupt.

Speaker A: Was that before or after the Money Store? Yeah, that was a sweetheart.

Speaker B: My point is, and you cannot underestimate the importance of the culture can only be one culture when it's done. And if the two cultures are starkly different and you think it's going to be a smooth integration, you're lying to yourself.

Speaker A: Yeah, another thing coming through.

Speaker B: You're lying to yourself. But there are a lot. There are plenty of bad acquisitions out there, too, but the good ones. And you find that, you know, the good acquirers, they're disciplined. You know, they're not doing one every six months. They're, you know, pretty boring. And boring is such a strong term in banking. And I say it's an award. It's a badge. You should, you know, you want people to think that you're sound. You always want to be sound. You know, somebody comes in with their hair on fire wanting to do something. Okay, let's settle down. Let's think about this. Let's work through this. I want to make sure you're not committing financial suicide.

Speaker A: I always think of the term aggressively dating. Selectively marrying, knowing what's out there.

Speaker B: I like that term. I don't know if I was ever an, uh, aggressive dater. I got turned down too much, but I don't know.

Speaker A: Well, we're out of time. But one quick question in closing. It's hard to think of sort of one thing, but, you know, what do you think community banks need to do to maintain relevance over the next five, 10 years? One core principle, or even two or three.

Speaker B: Number one, you still got to understand what the cornerstone of your bank is. Controlling risk, which is asset quality, interest rate management. But the delivery channel for your products and services has to change and evolve with your competition. And if your competition wants mobile banking, you better find great mobile banking apps. If your competition, excuse me, not your competition, your customers. If your customers want it. And you could also see what the better companies are doing. And, and I'm not talking about Chase. I'm talking about, uh, people that are two or three or four times your size that you aspire to be like. You could watch them, talk to them. And it's amazing. These companies will talk to you back and forth. And as I said, it's a navigation process. Uh, but you always want to do it from a position of strong capital. Always. You can never sacrifice your asset quality. You can never sacrifice your interest rate risk. You can never sacrifice capital too much. Just can't do it.

Speaker A: Well, terrific. I think it's a great place to leave it. Join me in thanking Joe. Really appreciate you joining us.

Speaker B: Yep. Thank you.

Speaker A: This is Nathan with one final note. This is my last episode of Street Talk. I'm grateful for the time at S and P, but an opportunity arose where I can learn and actualize many of the insights that have appeared on this show for years. S and P will continue its important work, but I'm joining a place where I could be closer to you all. Stay tuned for that. I wanted to thank all my guests on the show over the years, my loyal listener and s and P SNL for 20 plus wonderful years. Thanks.