As of the end of the first quarter, there are over 90 domestic and international banks trading on the OTCQX Best Market with an aggregate market capitalization of $94.9 billion and combined assets of more than $3.1 trillion. Many of these banks are local U.S. community banks, due in part to a surprising number of community banks going public on the OTC Markets in the past few years.
On March 14, 2019, CEOs from 11 of these global and community banks gathered for a virtual investor conference to provide an update on business operations. Here is what each bank is focusing on:
Highlands Bancshares: Re-Focusing The Lending Business
Highlands Bancshares Inc (OTCQX: HBSI), which has 14 branches in Southwest Virginia, Western North Carolina, and Eastern Tennessee, is coming off a record financial year, according to Executive Vice President and Chief Risk Officer Bryan Booher.
In the 2018 fiscal year, the bank achieved its highest net income since 2007, its highest net interest margin since 2002, and the highest leverage ratio in the company’s history.
While, historically the bank had not pursued a targeted offering, Booher indicated that a shift is underway. Given that the majority of the bank’s 2018 loan portfolio focused on four key groups, Highlands plans to concentrate on these areas: construction and land, families of 1-4, owner-occupied commercial properties, and home equity loans.
Royal Financial: Net Interest Margin and Redefining Brick-And-Mortar
Net Interest Margin, a key metric for community banks, has been a point of concern across the industry as interest rates have risen over the last several years. Leonard Szwajkowski, President and CEO of Chicago-based Royal Financial, Inc. (OTCQX: RYFL) highlighted that point.
“Net interest margin remains under pressure as it is for most banks,” he told investors. As a result, he said the bank is focused on expanding their sources of non-interest income.
Szwajkowski also noted that the industry is facing a redefining of their physical locations. He keyed in on the fact that Royal Financial has continued to see mobile and online adoption rates accelerate, and, as such, has invested heavily in mobile offerings.
“It is a consolidating industry,” said Szwajkowski. “Many banks under $200 million continue to struggle. Our plan here is to continue to improve our customer service, continue to run the bank prudently, look for organic growth and watch regulatory compliance.”
Prime Meridian: Small Business Lending Is Key
Sammie Dixon, Vice Chairman, President and CEO of Prime Meridian Holding Company (OTCQX: PMHG), said the Florida-based bank is heavily focused on being a resource for small businesses seeking capital.
“Fintech is going to disrupt. But from a small business perspective, people need bankers,” he said. “We feel like with the disruption in the market with the larger banks, small business lending is going to increase and people needing that opportunity to speak with a banker.”
The quality of their assets is also important, he said, noting that the bank’s assets have grown at a 14 percent compounded annual growth rate each year since its establishment in 2008.
First Resource Bank And InsCorp (holding company for INSBANK): Location, Location, Location
First Resource Bank (OTCQX: FRSB) is a community bank headquartered just outside Philadelphia in Chester County, Pennsylvania. According to President and CEO Glenn Marshall, suburban Philadelphia is one of the most economically attractive markets in the United States and Pennsylvania.
“We couldn’t be in a better location in Pennsylvania,” he said. “We think it rivals some of the best places in the country.”
Marshall said the bank doesn’t build a location anywhere where they can’t get to $100 million in deposits within 5 years. Currently, it has branches in Exton, West Chester, and Wayne. Combined, Marshall said, those markets create a $12.5 billion deposit market.
“We love the footprint that that covers for us, and what we can do to take advantage of that in the near future,” he said.
Jim Rieniets, President & CEO of INSBANK parent company InsCorp, Inc. (OTCQX: IBTN), highlighted the fact that the bank had gone from breakeven to $4.3 million in core earnings from 2010-2018.
A lot of that growth, he said, has been enabled by the bank’s locations in the Nashville metro area. Since 2010, the area’s population has grown 17 percent, nearly triple the national average of 6.6 percent.
With 120 companies expanding or relocating to Nashville since 2015, he said the bank is positioning itself to these businesses and the nearly 15,000 new jobs that come with them.
Freedom Bank of Virginia- Reorganizing the Balance Sheet
Joseph Thomas, President & CEO of Freedom Bank of Virginia (OTCQX: FDVA), said that, with the Washington D.C. metro economy continuing to diversify, the bank took steps last year to reorganize its balance sheet.
That involved selling low-yield, long-duration municipal bonds, which reduced the bank’s interest rate risk. The bank also funded tax-advantaged bank-owned life insurance, and reduced costs by restructuring the workforce and making changes to vendor contracts.
Going forward, he said the bank is focused on attracting clients in certain verticals, specifically government contracting, insurance agency/Broker, professional services, and non-profits. Freedom Bank is also seeking expansion beyond its brick-and-mortar footprint, as it has expanded its sales teams across the D.C.-Maryland-Virginia area.
Garanti Bank and Grupo Financiero Banorte: Overcoming the Environment
Garanti Bank (OTCQX: TKGBY, TKGBF) is Turkey’s second-largest private bank, with about $76 billion in assets as of the end of the September quarter.
The biggest challenge right now, said Head of Investor Relations Handan Saygin, is the weakening economic environment in Turkey. Inflation rose 25 percent last year, and the Turkish Lira fell in kind.
Considering that environment, and the fact that the bank has 14 percent of the consumer loan market and 12 percent of the mortgage market, the bank didn’t see much loan growth. Therefore, Garanti is primarily focused on maintaining its liquidity and solvency. She also noted that Banco Bilbao Vizcaya Argentaria S.A. (BBVA) is the bank’s largest shareholder, owning approximately 49 percent of the company.
Ursula Wilhelm, head of investor relations at Mexico’s Grupo Financiero Banorte, S.A.B. De C.V. (OTCQX: GBOOY; GBOOF), highlighted a similar theme. Banorte is Mexico’s second-largest financial institution by assets, which much of its loan exposure to the Mexican government.
Mexico is expected to experience slow GDP growth in 2019 and 2020, and the banking industry’s overall loan growth had declined each of the last three years. Despite that, the bank expects its loan portfolio to grow 7-9 percent in the fiscal year 2019.
Commencement Bank, Victory Bancorp, and Suncrest Bank: Take Advantage of Local Consolidation
Washington-based Commencement Bank (OTCQX: CBWA) is focusing on “a conservative growth strategy that hinges on targeted M&A,” according to its CEO Hal Russell.
The bank, which has grown from $22 million to $357 million in assets in 12 years, completed its first merger with Thurston First Bank in 2016. In a contracting environment—Washington has gone from 107 banks headquartered in the state in 2006 to 41 today—Commencement is hoping to expand its footprint in the state.
The same can be said for Pennsylvania-based Victory Bancorp (OTCQX: VTYB).
Joseph W. Major, the bank’s chairman of the board and CEO, noted that the consolidation of 23 competitors this decade has created a windfall of in-market growth opportunities
California-based Suncrest Bank (OTCQX: SBKK) has also made M&A a priority, President and CEO Ciaran McMullan noted. The bank has made three acquisitions over the last four years, acquiring Sutter Community Bank in December 2015, Security First Bank in December 2016, and Community Business Bank in May 2018.
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