23 Banks 8-19pm bc bs.indd

00 Cover 8-21.indd 991
8/22/08 2:32:00 PM
‘We can stay focused on our customers, employees and communities’:
Richard Green (left), third-generation CEO of Philadelphia’s Firstrust Bank, with
Timothy Abell, the bank’s first non-family president.
banking on
family ownership
Banks that are family-held face the same issues as other family-owned businesses
do, but they also must operate under tight regulatory constraints.
B Y PAT R I C I A O L S E N
l
IKE SO MANY OTHER U.S. INDUSTRIES, banks have
turned to consolidation to remain competitive.
Many family-owned banks have been swallowed
up amid the “merger mania” that has swept the
banking industry over the past decade. But executives at
family banks that have withstood various pressures—often
internal as well as external—say their institutions’ personalized service and ability to relate to family business clients in their communities have helped them differentiate
themselves from their larger rivals.
Richard J. Green, 56, CEO of Firstrust Bank in Philadelphia, says he has no intention of selling. He represents
the third generation of his family to lead the bank, which
has assets of more than $2.2 billion and offers retail and
commercial services in 25 branch offices in eastern Pennsylvania and southern New Jersey.
Firstrust’s origins are representative of the hard work and
strong relationships that are needed to build a family bank.
PHOTO: JOE BRADLEY
23 Banks 8-19pm bc bs.indd 53
8/22/08 10:09:10 AM
Samuel A. Green, Richard’s grandfather, was a teenager
when he emigrated from Hungary. Samuel was a go-getter
who taught himself how to read English in the city library
and sold insurance, real estate, shoes—whatever it took
— to make a living. Samuel was also a member of a building
and loan association, a precursor to savings and loans, and
eventually rose to bank director. But he wanted to start his
own bank, which required $7,500 in customer deposits at
the height of the Depression. Relying on his reputation for
trustworthiness, Samuel offered to match whatever friends
and colleagues would invest. He raised the cash and in 1934
realized his dream when he founded Pennsylvania’s first
federally chartered savings and loan.
Richard Green is philosophical about the kinds of pressures that family-owned banks have confronted in the last
few years. “There’s the challenge of being a family-owned
The change in Firstrust’s business model, Green explains,
required “literally dozens” of adjustments. The bank invested in information technology and new processes, lured
away commercial bankers from competitors in the region,
and shifted its assets to a mix of business loans, commercial
real estate, construction loans and consumer loans.
Timothy Abell, 47, the first non-family member to serve
as president of Firstrust, says there are significant advantages to being privately held. “We don’t have a broad investor base that may have varying interests or time horizons;
we have what we like to think of as ‘patient’ investors,”
Abell says. Executives at public banks, he explains, are
pressured to sell when times are good because investors
believe the maximum value can be obtained. “On the other
hand, if you’re not doing well, there’s some pressure to sell
because people want the sale premiums. Investors may not
think you can earn your way to the same returns.”
Abell notes that he and Green don’t have to spend their
time fielding questions from institutional investors who
have opinions about what the bank should be doing to
maximize short-term earnings and drive the stock price up,
nor do they have to weather proxy battles for a directorship. “We can stay focused on our customers, employees
and communities and what we think is best long-term,”
he says.
Abell, who was hired as COO in 2004, was promoted
to president last year. His ascension points up one of the
main issues family-owned banks must address—their succession plan. Richard Green’s three children are only in
their teens. If Green wants to retire in the next ten years
or so, there will be a gap in leadership until they mature
and can take over the business, should their desire and
talent permit. Abell, who has more than 20 years of banking experience, is helping to bridge that gap while at the
same time bringing a fresh perspective and strategic skills
to Firstrust.
capital: a primary concern
Structure eases pressure: Paula and Peter Fasseas of
Chicago’s Metrobankgroup holding company.
business of any kind, and then there are the challenges
facing the banking industry,” he says. To be successful, he
suggests, “You need the mindset that this is something you
want to do, and you need to be willing to invest in people,
infrastructure and assets to provide a long-term future for
the business. But it has to start with the willingness to lead
and to adapt to changes in the environment to keep your
business model vital.”
In 1987, for example, Firstrust evolved from a savings
and loan to a commercial bank in an effort to better serve
customers in the region, Green says. “We strove to keep all
that was good and to layer in the new businesses that would
continue to keep us relevant in the marketplace.”
23 Banks 8-19pm bc bs.indd 54
The need for capital is a concern for any bank but has
special considerations for family-owned banks. “Regulators mandate how much capital we need to have,” says
Bob Vogel, 56, CEO of Market Bancorporation and New
Market Bank in New Market, Minn. “Unlike other businesses, banks need to keep a certain amount in retained
earnings as a percentage of assets.” Non-family-owned
banks can sell stock if they need to raise capital to service
debt, for example, but that’s not an option for bank owners
who want to keep the stock in the family. Another issue
for family bank owners, Vogel adds, is whether to pay
dividends to family members or leave assets in the bank
so it can grow.
When he bought New Market from his father in the
1970s, it was small, with assets of less than $4 million.
(In 2006, by contrast, the bank, which has four branches,
had revenue of $6 million and total assets of $80 million.)
Vogel’s three siblings weren’t interested in joining him and
didn’t mind that their father transferred the bank to him.
But that would likely not happen in most banks today, he
8/22/08 10:09:12 AM
Bob Vogel, CEO of Market Bancorporation and New Market Bank in New Market, Minn., notes that family-owned banks
can relate to the ‘emotional culture’ of their family business clients.
says, because families are usually dealing with a larger
asset and the siblings pursuing other interests would likely
want a share.
So many families wrestle with these concerns that Vogel
and Glenn Ayres, a family business adviser with Doud
Hausner & Associates, based in Glendale, Calif., joined
with a third partner, executive David Watrud, to start
the Family Held Bank Institute, an educational program integrating the needs
of a family-held business
into the community bank
environment.
A disturbing percentage
of family-owned banks are simply not positioned to keep
their asset in the family, laments Vogel, whose two daughters work in the New Market bank. If a banking family
starts distributing capital to siblings who want to cash out,
Vogel explains, they could be in danger of defaulting on
debt payments. Another problem, Vogel says, is that a bank
can outgrow the managerial ability in the family. “It’s good
to grow,” he says, “but you have to know where you’re
going so that you have the resources in place when you
get there.”
the pressure to sell
A succession plan is “the sword over the leader’s head,”
asserts family business adviser Glenn Ayers. “Banks traditionally have been entrepreneurial-based, with one general manager passing the baton to another,” Ayres says.
“As they’ve gotten bigger, however, especially in the last 50
years, there’s been a natural pressure to broaden the
shareholder base to include
all of their children. Usually
they’ve done quite well and
have a great deal of pride
in what they’ve accomplished.” But the paradigm
has changed, Ayres notes.
“There’s no way the children are going to be able to buy
their parents out in every case, as in past generations. It’s
too much money.”
The temptation to sell a family-owned bank for a substantial profit may be attractive, Ayres adds, but it also means
the loss of the franchise. In his experience, few bank leaders consider this alternative until an offer is on the table.
He advises bank owners to be clear with members of the
next generation about potential plans so children who were
expecting to work in the bank are not surprised by a sudden
the temptation to sell the
bank for a substantial
profit may be attractive,
but it also means the loss
of the franchise.
23 Banks 8-19pm bc bs.indd 55
8/22/08 10:09:13 AM
announcement of a sale.
Paula Fasseas, who heads the Metrobankgroup holding
company in Chicago with her husband, Peter, says that
while she and her husband are highly involved in the
banking enterprise they have built, she is realistic about
the possibility that her children—or their children—may
eventually want to sell. Their daughter, Alexis, 27, works
in operations at the bank while studying in the J.D./MBA
program at Northwestern University’s Kellogg School of
Management. Their son, Drew, 26, is a Metrobankgroup
loan officer.
“When we bought our first bank in 1978, Illinois regulations stipulated that banks could only have one branch.
There were hundreds of small community banks in the
state,” Paula Fasseas recalls.
“We second-mortgaged our
condo, bought a 25% stake
and sold stock to anyone we
could find.” Every time the
state legislature would allow
it, the couple would scout
locations and open another
branch to serve a specific
community.
Today Metrobankgroup
consists of 11 independent
banks with 106 branches. “As we added more banks to our
group, we kept them separate,” Fasseas explains. “We wanted to stay true to our mission and not become a big bank.
Each bank has a separate president with separate boards of
directors, and we hire employees from each community.
We’ve got our market share, we’re very service-oriented
and we’ve got a good reputation.” In 2007 Metrobankgroup
had $3.3 billion in assets.
the Independent Community Bankers of Minnesota, an
association dedicated to keeping community banks competitive, says pressure to sell often comes from the younger
generation.
Johnson was the majority owner and CEO of Owatonna State Bank in Minnesota for almost 20 years and also
worked for the Resolution Trust Corporation, a government-owned asset management company that liquidated
the assets of insolvent banks during the savings and loan
collapse in the 1980s.
He recalls one family-owned bank in which one sibling
did all the work after the parents retired, while the other
did little but approve bad loans. The first sibling pushed
hard for the bank to be sold and succeeded. In another
family-owned bank, Johnson says, two brothers who
didn’t work in the business
resented the third sibling,
who managed the bank.
Eventually, the two inactive
shareholders forced a sale.
Instead of selling, Johnson
notes, the siblings in the
latter case could have arranged a buyout agreement.
By pledging the bank’s stock
as collateral, the sibling managing the bank could have
borrowed funds from another bank to buy the other siblings out.
It’s no surprise that if a family has held on to a bank for
years, selling can be quite profitable, Johnson says. “By the
time the family has gotten to the third or fourth generation,
depending on state regulations, there can be an insurance
agency and a real estate firm as well as the bank,” he adds.
Sometimes an insurance agency can be even more profitable than the bank, he notes.
“I tell bankers that you can sell a bank almost any day
you want, but you only get to do it once,” Johnson says.
That message, he notes, gets their attention.
non-family-owned banks
can sell stock if they
need to raise capital to
service debt, but that’s not
an option for bank owners
who want to keep the
stock in the family.
the cost of compliance
Metrobankgroup’s structure helps to avoid some pressure,
Fasseas says. Data processing, marketing, finance, human
resources, information technology and training are centralized and the charges are spread over the 11 banks, which
keeps costs down.
“We have the advantage of the big banks’ resources and
centralization, but we still have the separate banking units,”
Fasseas adds. “Even if we have to take a bump in the road,
we’re going to be here long-term.”
For small family-owned banks, regulatory compliance
costs are a big issue, says Vogel. “The smaller you are, the
more difficult the burden,” he notes. A $500 million bank
with 100 employees might be able to afford an employee
who works exclusively on compliance issues, he says, but
an $80 million bank with 25 employees can’t, nor can it
recover the cost. For smaller banks, report filing and other
compliance activities must be chalked up to the cost of
doing business.
next-generation challenges
John Johnson, a membership recruitment consultant for
client relationships
Family-owned banks can relate better than other banks
to their family-owned business clients, Vogel says. “We
understand their limited resources as well as the family
dynamics,” he says. “It gets down to balancing the meritbased culture of a business with the emotion-based culture
of a family.”
Family-owned banks can help their clients balance the
two by, for example, offering advice on what they must do
to be creditworthy and what return the business should be
making. “But we can also understand there’s an emotional
culture behind the business that doesn’t exist in a non-famiFB
ly business,” Vogel says.
■
Patricia Olsen is a New Jersey writer whose work has
appeared in the New York Times, On Wall Street, USA
Weekend, Hemispheres and other publications.
Reprinted from Family Business Magazine® Autumn 2008
© Family Business Publishing Company • 1845 Walnut Street, Suite 900 • Philadelphia, PA 19103
(215) 567-3200 • www.familybusinessmagazine.com
23 Banks 8-19pm bc bs.indd 56
8/22/08 10:09:15 AM
Did you know that 90% of businesses in America are family owned or operated?*
Firstrust understands the unique issues facing these businesses because we are one.
With three generations and 74 years of family-oriented experience, Firstrust has
a wealth of knowledge and banking services to help your business succeed for
generations to come. That's why Firstrust should be the first choice for your
family business.
RICHARD J. GREEN
CHIEF EXECUTIVE OFFICER
DANIEL B. GREEN
CHAIRMAN
*Source: U.S. Small Business Administration
800-220-BANK
firstrust.com
Member FDIC
23 Banks 8-19pm bc bs.indd 57
8/22/08 10:09:17 AM