Founded in 2010, Bay Bank was created out of special charter dedicated to acquiring failed banks through the Office of Thrift Supervision. From those beginnings, Bay Bank embraced acquisitions as its core business strategy, a trend that is becoming increasingly prevalent in the banking industry, said CEO Joe Thomas.
Fresh from the acquisition of Hopkins Federal Savings Bank, Thomas spoke to The Daily Record about Bay Bank’s focus on business clients and the challenges community banks face today.
‘Built by entrepreneurs, for entrepreneurs’
Bay Bank has always focused on its business client base, said Thomas.
“We aspire to have advisers to clients who think entrepreneurially,” he said. “We have full range of deposit and cash management services for small businesses that is integrated such that you can engage with the bank in however way you choose.”
The bank has positioned itself to offer cash-rich businesses a range of services including remote check scanners or armored car service to pick up cash if a particular location does not have enough, he said.
“It’s those mix of things we customize so we can serve the customer. It’s not a one size fits all.”
Standing out in the crowd
“It is one of the challenges for Bay Bank both to differentiate itself for customers and to find new opportunities that are priced and structured for our shareholders,” said Thomas, adding that the bank is well capitalized at 13 percent-plus tier 1 capital. The bank has the ability to lend up $10 million.
“When we serve a customer’s need … we oftentimes have the whole senior management team meeting with a customer,” he said. “Through 11 branches we have a substantial array of consumer and professional clients for whom we provide checking, money markets and certificate deposit products.”
The bank also services legacy customers who have come to Bay Bank through acquisitions, new customers and customers who are employees of businesses that are Bay Bank clients. Seventy percent of Bay Bank’s loan portfolio is made of commercial and industrial loans to companies and 30 percent is to consumers including residential mortgages, home equity loans and auto loans.
Challenges for community banks
“Community banks face more challenges today than we ever have,” said Thomas. “That is one of the reasons driving consolidation in our industry. The regulatory regime facing a community bank today is as daunting and complicated as ever.”
Navigating today’s regulatory environment requires “expertise on staff that makes scale economies essential.”
“We operate in an economic environment where growth is modest, interest rates are very low,” said Thomas. “The ability to generate fee-based revenues is important.”
“For Bay Bank, acquisitions have been a core line of business for us to get our scale and grow through acquisitions. “We have benefited from non-interest income through the resolution of problem assets.”
The third challenge is “technology and non-bank entrance to financial services generally with advent of online lenders and non-bank finance companies that are focusing on consumer and professional (lending). The competitive landscape has become more challenging.”
To compete against online lenders, Bay Bank launched a Business Loan Express product, which offers a streamlined credit approval process for equipment loans, working capital loans and line of credit.
The role of a bank branch
“Increasingly all banks see less traffic and less transactions occurring in the branch. We have addressed this and have closed four branches over the last few years from past acquisitions. Banks play an important role in being accessible to customers. As a transaction center, branches are less relevant.”
Acquisition of Hopkins Federal
“We announced the merger in December, received regulatory approval and expect the transaction to close in early July. We will see the Hopkins facilities rebranded as Bay Bank and will be fully integrated for customers by end of July. It will be a very efficient process.”
“For Bay Bank, Hopkins affords us the opportunity insofar as it’s an all-cash merger to deploy our excess capital to gain additional earnings. The scale economies acquired enables us to grow first year earnings after the transactions by 40 percent for the combined company year over year (with existing customers).”
“It’s a win for Mr. (Alvin) Lapidus and Hopkins shareholders. It’s a win for the Baltimore market.”
Plans for future acquisitions
“In the near term, the focus is on integrating the needs of Hopkins customers.”
“Bay Bank was founded with the idea that we would continue to view acquisition as a line of business as part of our entrepreneurial strategy. We will certainly have our eyes open for opportunities.”
The next big milestone
“Getting to a $1 billion in total assets would be a place where the community bank of the future needs to be to be successful and to be profitable. After Hopkins we will be at $700 million in total assets and $60 million in market capitalization. From that position, we believe the stock market investors will ascribe a greater premium to our earnings and to our capital.”