Many financial institutions have decided now is a better time to hire talent rather than buy another bank or credit union, enter new markets, or add business lines. The proof is in several high-profile recruiting announcements from small and midsize financial institutions.
CapStar Financial Holdings in Nashville, TN, will expand outside its home state for the first time after hiring a First Horizon banker in Asheville, NC. Encore Bank in Little Rock, AR, will move into Boulder, CO, after recruiting a former market president at Great Western Bancorp.
IC Federal Credit Union in Fitchburg, MA, hired former Avidia Bank executive CarrieAnne Cormier as its chief operating officer. Citadel Credit Union in Exton, PA, hired a team of bankers from Santander Bank with plans to launch a business banking division in August.
Columbia Banking System in Tacoma, WA, and Western Alliance Bancorp in Phoenix, AZ, are entering Salt Lake City after recruiting bankers from large competitors such as Bank of America, U.S. Bancorp, and Zions Bancorp.
Banks are also going after talent to grow or add new lines of business. RBB Bancorp in Los Angeles hired three bankers to beef up its Small Business Administration lending. Encore hired a banker to build a business banking community association.
M&A takes a back seat
When the pace of mergers and acquisitions is down significantly, it’s indicative that an acceleration in executive recruiting is coming.
Banks announced 84 acquisitions at midyear, based on data collected by Raymond James. Excluding the pandemic-impacted numbers for 2020, this could lead to the lowest annual volume in a decade.
Several factors are putting a damper on dealmaking this year.
In light of President Biden’s executive order requiring agencies to review their approval processes, concerns abound about more regulatory scrutiny.
The Federal Reserve’s decision to aggressively raise interest rates to fight inflation has led some bankers to wonder about credit quality. Rising rates have also given potential sellers more confidence that they can boost profits and justify staying independent a bit longer – or ask for more money from a suitor.
Why hiring makes sense
There are several reasons why banks are looking to recruit instead of pursuing acquisitions. Financial institutions such as CapStar and Encore benefit by avoiding employee attrition. Meanwhile, they have an opportunity to enter markets with a clean balance sheet rather than inheriting potential credit issues from an acquired institution.
The approval process for most mergers can take months – the median time for closing a deal in the last 12 months was 141 days, according to S&P Global Market Intelligence – while a new hire could start within weeks. And a well-respected banker can recruit colleagues to their new employer. Encore, for instance, will have three bankers ready to go in Boulder.
Lenders appear more open than ever to switching banks. In comparison, acquisition targets can be fussy about pricing – often to the point where they want more than what a buyer is willing to pay. Ergo, it is typically not as expensive to recruit talent as it is to buy a bank.
For banks that don’t have the strongest currency, which is often a reflection of their stock price, hiring talent is a much easier path to expansion than trying to wrangle an acquisition.
Key Hiring Considerations
To be sure, every strategic opportunity carries a degree of risk. This also applies to the hiring process.
Banks and credit unions should make sure any lender or executive they are recruiting is free and clear from any non-compete or non-solicitation agreement that could lead to litigation from the company they are leaving.
Cultural fit is another thing to keep in mind. While not as monetarily burdensome, hiring a new employee is a multitiered commitment. Employees must be able to integrate within the existing culture. If it isn’t a good fit for either party, that is not only money but time wasted. A thorough interview process will help alleviate this potential issue.
Finally, ensure that a lender’s vetting process for borrowers and clients is consistent with yours. You do not want to bring on someone with a widely divergent view of borrower selection or the terms necessary to bring on a new client.
The Bottom Line
With several other large mergers recently completed – or on track to close in the coming months – it is likely more bankers will be looking to make career moves soon. That will provide more opportunities to bring on talent and spearhead expansion initiatives.
It will be interesting to see that future movement and whether marquee hires can bring meaningful loans, deposits, and revenue to their new employers. SRM will keep an eye on these developments; we suggest you do the same in your local markets.