While other banks were chasing fast money mortgages during the residential real estate boom, Mark Tipton and Rodney Hall were patiently and deliberately soliciting deposits and conventional loans from small and mid-size companies.
The reckless era seemed like déjà vu for the co-founders of Georgia Commerce Bank, who discovered the benefits of building a diversified asset base as neophyte Texas bankers during the mid-1980s.
“We learned some valuable lessons about diversifying asset classes from watching the oil and gas industry crash and the big banks fail early on in our careers,” says Tipton, a San Antonio native who serves as chairman and CEO.
Although learning from others’ mistakes is one of the hallmarks of successful entrepreneurs, in today’s instant gratification world, executives need discipline and investor support to follow a conservative game plan when brazen competitors are growing at a frenetic pace.
“Every business has to take risks to grow; it’s how you go about it that matters,” says Hall, the bank’s president, who grew up in the Texas Panhandle. “It’s possible to have solid double-digit growth without taking excess risk if you put the right plan and infrastructure in place.”
Later, when the bubble burst and Georgia led the nation with 84 bank failures, this dynamic duo raised capital, made strategic acquisitions, and sauntered past struggling competitors in classic tortoise and hare fashion.
Here’s how Tipton and Hall grew Georgia Commerce Bank’s assets from $13 million in 2003 to more than $725 million in 2012 while averting one of the biggest meltdowns in the history of the financial services industry.
Build mindshare first
Given Tipton and Hall’s penchant for slow and steady growth, they had the foresight to look for like-minded, patient investors when assembling their team. The co-founders maintain that their compatible board and shared vision helped them stay the course as competitors were jettisoning traditional underwriting practices in the quest for subprime loans.
In fact, Hall credits Harald Hansen, one of the bank’s directors, with setting the tone early on.
“On the day we opened, he told me to build the bank like we were going to own it forever,” Hall says. “I’ve never felt like I had to take extraordinary risks to deliver quarter-over-quarter growth. We’ve had the luxury of focusing on our long-term goals from the outset.”
Whether you have the luxury of handpicking your board or you inherit them, it’s a CEO’s job to build mindshare for their ideas, Tipton says.
“If you bounce ideas off your board and use them for strategic planning purposes, they’re more likely to support you during tough times,” he says.
Private meetings with board members are a great way to foster support for your ideas, Hall says. Although they require time, patience and persuasiveness, the one-on-one sessions elicit concerns that might otherwise fester.
“It’s easy to act out of desperation when you’re not in sync with your board,” he says. “The problem is that hasty moves seldom end up being good moves.”
“Naturally, you want your board members to challenge you and speak up if they think you’re headed in the wrong direction,” Tipton says, “but you can’t move forward until you create mindshare for your plan. Otherwise, you may encounter resistance at the first sign of distress.”
Hall and Tipton concede that there were times when the board wondered why Georgia Commerce was not growing as quickly as other regional banks. But taking extreme risks to accelerate growth wasn’t a consideration.
“The idea of leading with price or flexing our underwriting criteria didn’t make sense to us,” Tipton says. “We’ve been able to maintain investor support because they see that our strategy works; we’ve been profitable since our second year.”
Put your eggs in several baskets
Concentrating on one industry or asset class can cause insurmountable problems for banks when the economy shifts and customers in highly affected sectors can’t service debt.
“The insolvent banks we acquired from the FDIC in 2011 had two common characteristics,” Tipton says. “They had a large book of real estate loans and most of them were stand-alone transactions. It’s easy to see why they ran into problems when the housing bubble burst.”
To bridge economic troughs, Tipton and Hall solicit relationships with privately held companies in diverse industries such as manufacturing, distribution and professional services.
“We spread our risk evenly,” Hall says. “We break down our lending goals into sub-targets and continually monitor our progress to make sure we’re not getting too heavy into one type of loan or industry.”
However, the pair’s risk management strategy extends beyond asset-level oversight. They manage risk down to the customer level by using several banks to fund very large loans. Since the lead bank typically solicits the participants and services the loan, using participation loans reduces risk but doesn’t interfere with the development of vital customer relationships.
Although many bankers believe that loans create deposits, Tipton and Hall take the opposite view. Hall believes that deposits serve as an entree to a lending relationship, plus they improve the bank’s balance sheet, increase its lending power and alleviate risk.
He cites the fact that Georgia Commerce Bank was the first institution in the state to pay back TARP (the Treasury Department’s Troubled Asset Relief Program) funds as validation for his contrarian strategy.
“We see deposits as a way to build a relationship and our asset base,” Hall says. “Plus, you lessen the likelihood of default if you get to know a business and its owner before lending them money. That’s why so many banks got into trouble. Their strategy defied sound business logic.”
After searching for several years for an opportunity to jump-start growth, the stars finally aligned in 2011 when Tipton and Hall purchased two failing banks in highly desirable Forsyth and Cherokee counties from the FDIC.
Although the acquisitions would give Georgia Commerce Bank an immediate presence in two affluent areas replete with private companies and professional service firms, the road to success was paved with obstacles and undesirable risks.
For starters, it was difficult to raise capital when banks were failing and outside investors were looking for a quick return. Instead of fighting an uphill battle, they decided to raise $21 million from a small group of current shareholders.
“Everyone else in the industry was hunkered down, but we were able to make a bold move because we were well-capitalized,” Hall says. “However, we still opted for measured, sustainable growth by keeping the transaction within the family.”
To make matters worse, the co-founders inherited a portfolio of delinquent loans that required swift resolution.
Though the acquisitions came with a built-in safety net, specifically the FDIC’s loss-share program, the small bank lacked the staff and customer relationships to rectify the issues within the specified five-year timeframe. So, Tipton and Hall vowed to retain the acquired employees, a move that runs counter to the standard operating procedures of many executives.
“Acquisitions often fail because executives don’t retain the current staff and lose their connections with customers,” Tipton says. “You reduce much of the risk if you keep them, assimilate them into your culture and educate them on your lending policies.”
Once the staff was secure, Tipton and Hall assembled a loss-share team and charged them with isolating risky loans, rewriting terms, resolving issues and looking toward the future by garnering relationships with quality customers.
“Our keys to success include developing markets in a thoughtful way and finding patient, like-minded investors,” Tipton says. “Banks that were in a hurry and took shortcuts didn’t survive.”
So far, their plan seems to be working. The bank has grown from 11 employees to 112 in the 10 years since it opened. And for year-end 2012, it reported slightly more than $7 million in profits.
Last December, the co-founders raised $25.5 million to fund additional acquisitions with the Dodd-Frank Wall Street Reform and Consumer Protection Act on the horizon. Only this time, they turned to institutional investors, like-minded, of course.
“We wanted our investors to believe in us and our vision of reaching $1.5 billion in assets within three to five years by making quality whole bank acquisitions,” Hall says. “We assessed our chemistry with prospective shareholders by sharing our story and our plan. Since we were positioning for future growth, there was no need to rush.”
“My advice is to absolutely resist the temptation to take shortcuts when you’re building a business,” Tipton says. “Companies that try to outrun their headlights get out of sync with their board and their business plan. Look no further than the bank failures in this state to see why slow and steady wins the race.” ●
- Continually build mindshare for your plan.
- Risk diversification is the key to survival.
- Don’t take shortcuts when building
Name: Mark Tipton, Rodney Hall
Title: chairman and CEO, president
Company: Georgia Commerce Bank
Tipton: Bachelor’s degree from Tulane University; master’s degree in business administration from Baylor University.
Hall: Bachelor’s degree in business administration from Angelo State University.
What was your first job and what did you learn from it?
Hall: I learned the value of hard work and the importance of independence working on our family farm. My dad would give me a list of chores and expect me to do them. My experiences helped me become a leader because I had to figure out problems and get things done without someone looking over my shoulder.
Tipton: I learned a lot about people’s expectations and how to read them by waiting tables. For example, business people wanted quick service so they could get back to the office, while someone else wanted to enjoy a leisurely meal. The moral: You better know how to read people if you want a tip.
What is the key to business success?
Hall: If you have the right plan and execute consistently, you’ll overcome obstacles and the things outside your control, and that’s one of the keys.
Tipton: No one succeeds alone. If you surrounded yourself with bright, self-motivated people who work well together and empower them, success is practically guaranteed.
How to reach: Georgia Commerce Bank, (678) 631-1240 or www.gacommercebank.com