When George W. Haligowski was offeredthe opportunity to serve as CEO ofImperial Capital Bancorp Inc. in 1992, itcame with a catch: The board wanted a 100percent return on its investment.
There was also the slight problem of thecompany having $100 million of its $400million in assets impaired, potential FDICaction was looming, and it was in the middle of the savings and loan crisis.
Haligowski knew he couldn’t control themacro events going on at the time, so theasking price seemed too high. He countered by offering a 50 percent return inthree years. If he failed to hit the numbers,the board could fire him. The board agreed.Haligowski was a crafty risk-taker, as thatgamble with the board paid off for bothparties. Following an IPO in 1996, hebought out the owners, giving them the 100percent return they originally requested,and then he set to work to turn the organization around.
To move forward, the chairman, president and CEO identified a niche opportunity, supported that niche and maintained patience throughout the process.
“The company was trying to be a lot ofthings to a lot of different people,”Haligowski says. “I think it just took afresh assessment from an outsider, andmy first thought was, ‘There’s no way wecan do all these things well. It’s a gambleto put all your eggs in one basket, butsometimes you just have to do it.’”
Find a niche
Haligowski says he had a competitiveadvantage entering the CEO role as abusiness manager with significant salesexperience, because he viewed opportunities through the eyes of a marketer,not a banker. After making initial overhead reductions of 35 to 40 percent andeliminating the thrift’s commercialbanking services, resources weresparse. Generating new revenue was theonly road to growth and profitability,but the larger competition was formidable. After assessing the competition,Haligowski found a weakness in theenemy’s front line, and simultaneously,the bank’s niche market and a newgrowth strategy were born.
“Nobody has a crystal ball,” Haligowskisays. “I completed a thorough opportunity analysis by being involved in the marketplace and not sitting behind the desk.The bank had limited resources, and wecouldn’t really compete against the bigger commercial banks. It was a classicDavid versus Goliath situation.”
He identified an underserved market inthe commercial lending space, writingloans for real estate entrepreneurs, andhe saw an opportunity to exploit theniche through better sales techniques.
Haligowski concluded that many banking industry lending officers were reallyorder takers in disguise, and they wereleaving midsized commercial loanopportunities on the table. He took a riskand dedicated 25 percent of the bank’sresources toward the niche lending market composed of entrepreneurial ventures, such as multifamily real estate andconstruction loans ranging from$250,000 to $7 million. He attacked themarket with financially motivated salesrepresentatives, who outmuscled andouthustled the competition.
“To exploit a niche, you survey theadvancing army and look for breachesin the line,” Haligowski says. “Thenyou test the market to see if it’s receptive to your pricing and service. Whenyou see that it’s yielding, you want topower into the market and run as fastas you can. Timing is critical when youhave limited resources. We’re a smallcommercial bank; our advantage isthat we can move quickly. We’re like aPT boat: We can zig and zag becausewe are nimble and we can turn on adime, but we’re not an aircraft carrier,so we can’t survive the Battle ofMidway.”
Support the niche
With a new niche focus, Haligowskithen worked to change the company’sstructure and culture in order to support loan origination activities, loanservicing and the unique lending needsof the entrepreneurial borrower.
As part of the cultural shift,Haligowski made the bank’s managersowners by giving them stock in thecompany. He also empowered thecompany’s loan officers by givingthem creative license to structureloans in nontraditional ways to meetthe needs of borrowers who are oftenrepositioning a property. The notion ofentrepreneurs working with entrepreneurs was a hit in the market, and thebank grabbed market share from itslarger, less flexible competitors.
“I consider my managers to be mypartners, not my subordinates,”Haligowski says. “I think an ownershipstructure is preferable for an entrepreneurial culture because you can pushpeople differently when they have astake in the outcome.”
Giving key managers ownership andproviding the bank’s sales staff withincentives has enabled ICB to achievehigh rates of organic growth whileavoiding the need to take on largeamounts of debt from acquisitions.Not only has this driven the company’sstock price and dividend, but it’s setthe bank apart from its larger commercial peers, who often rely on mergers and acquisitions as a growth strategy.
In 2000, ICB re-entered the commercial banking arena. The 2002 acquisition of Asahi Bank of California provided ICB with the operating systemsit needed to operate commercially, soit could subsequently offer commercial borrowers a complete package of banking services. Asahi didn’t have branches, so the acquisition gave ICB the opportunity to increase revenue, without adding brick-and-mortar overhead. Haligowski stayedwith his successful niche market strategy and expandedeastward, eventually opening 19 new loan originationoffices across the country.
ICB made another acquisition in 2002, launching itsentertainment finance division. The division providesbanking, advisory and collection services to the entertainment industry. The division follows suit with Haligowski’sniche market strategy, because its focus is financing independent films, some of which scored home runs at the boxoffice, like “My Big Fat Greek Wedding” and “Monster.”
Aside from their strategic value, Haligowski made theacquisitions when the price was right. When he shops foracquisitions, Haligowski is first and foremost a bargainhunter. He says it’s important to look at acquisitions carefully before moving forward, and he always asks if he personally would pay two to three times the book value for abusiness.
“There has to be a really compelling reason to make anacquisition, like you’re getting a really good deal or you’readding to your core competencies,” he says. “Otherwise,you’re just diluting shareholder value. I’ve never reallyunderstood paying for good will. I don’t understand how itworks.”
Given the recent trends in the banking industry,Haligowski and his team may need those Midway-like battle survival skills. Over the last four years, other banks followed ICB into the midsize commercial lending space,some offering lower rates and less stringent lending qualifications. Then the bottom fell out of the market completely, and demand dropped by nearly 75 percent. Whencompetitors launch a niche market invasion, Haligowskisays the best survival tactic is often to hunker downbecause competitors aren’t often dedicated to the spacelong term, and then commence a hybrid marketing strategy to protect some of your market share.
“It’s a misnomer that being a niche player limits growth,”Haligowski says. “You select a niche market because it’ssignificantly underpenetrated and because you have a limited share of the available market. So you can mitigate riskand continue to grow by expanding your share.”
Despite having opport unities to increase market sharethrough better execution, Haligowski says that the last 12months have been challenging and that the underservedcommercial loan market all but evaporated during 2007.He says that just as timing is vital when gaining an initialfoothold in a niche market, it’s equally important whenwaiting out a down period.
“You don’t want to go surfing when the surf isn’t up,”Haligowski says. “You have to right-size your resourcesand wait for the next wave of opportunity. The otherchoice you have is to meet the price competition head-onby writing some loans at lower rates, and then outsourcethe risk to a third party. I think a hybrid solution is thebest answer, because you’ve got your entire structurededicated to the niche market, and it will eventuallyreturn.”
Under his hybrid solution, Haligowski has continued topush his sales team toward increased market share in thecommercial loan market, and then selectively meets pricing competition while carefully scrutinizing the split of thebank’s loan portfolio. In addition, he incentivizes his salesteam toward cross-selling by selling existing borrowersancillary banking services.
During the recent difficult times, Haligowski hasremained close to the bank’s employees. He provides thema monthly status report, and he personally visits customers to thank them for their business and also visitstroubled properties the bank has financed. Haligowskicautions CEOs not to overreact to market changes and tostay the course if they want to be successful in niche markets.
“We have our entire company and the culture set to support the commercial loan market,” Haligowski says. “It’s ahighly fragile system built on trust, so to undermine thatwould destroy the very underpinnings that make the entirething work. You have to spend more time in the field during difficult times and let people know you are committedto staying the course. You have to support people andmanage their perceptions when things are tough becausethat’s when they need reassurance the most.”
Although the bank has suspended its dividend for theremainder of 2008, it has remained profitable thus far. Asa demonstration of his confidence and his penchant for risk-taking, Haligowski purchased more than 100,000 ICBshares on the open market so far this year, making him thebank’s largest individual, noninstitutional shareholder.Since buying the company and repositioning it as an entrepreneurial niche player, he has grown the bank’s assets to$3.6 billion last year, up from $3.4 billion in 2006.
“I think you just have to make a judgment about the bestway to go,” Haligowski says. “You can get everybodyinvolved in the decision, but the only way the employeeswill follow a leader is if you are clear in your position.Sometimes, you just have to take a gamble and set a strategy, but don’t take it lightly, because if you’re wrong, youcan lose your job.”
HOW TO REACH: Imperial Capital Bancorp Inc., (888) 551-4852 or www.icbancorp.com