Saturday, August 12, 2017

Bank Loan Leading Indicators

I recently shared a long ride with a colleague discussing a Capital Plan project we were working on. In Capital Plans, you would typically use baseline projections, usually taken from the strategic plan, and apply adverse events that, based on the bank's balance sheet and strategy, can occur. Even if they are not particularly likely to occur. 

But it's planning. And planning for bad stuff is part of planning. Life isn't all sunshine and rainbows.

As part of our commute discussion, we talked about leading versus lagging indicators of adverse events in order to reduce the impact of such events. Many if not most adverse events are beyond the bank's control. Because risks don't typically come home to roost at the time the Board or Management decide to accept the risk. Lagging indicators are easy, such as the migration from 30-89 days past due, 90+ past due, and non-accrual loans.

But lagging indicators are history. It would've been nice to know that Lee Harvey Oswald was heading to the sixth floor of the Texas School Book Depository. Unless you're Oliver Stone. Then you're wondering who Lyndon Johnson is talking to. I digress. Stopping Oswald or diverting him likely would've ended in a different result.

Can banks identify leading indicators that can reduce risk at the right time?

I was never a lender. And my firm is not in Loan Review or other areas involved with the evaluation of credit. Nor are we an ALCO firm, estimating Interest Rate Risk or Liquidity Risk. But we do Strategic Plans, Capital Plans, Process Reviews and General Advisory that deals with how banks identify and mitigate risk. 

Credit risk remains the greatest risk to a financial institution by far, in my opinion. Not even close. Although examiners and consultants will tick off a laundry list of risks that could put your bank in peril, like reputation risk. The way reputation risk is likely to roost is through liquidity risk. Customers lose confidence in your bank and your liquidity position takes a nosedive. But has many financial institutions suffered as much reputational damage as Wells Fargo recently? And their liquidity ratio is over 40%. They have plenty of liquidity.

No, I'll stand by my credit risk statement. Take the IndyMac domino effect. They had credit problems that came home to roost, Senator Chuck Schumer wrote a letter to the OTS about the bank's problems, and due to the reputation risk customers made a run on the bank. Liquidity is what put them under. Credit is what pushed the first domino.

Identifying leading indicators for credit risk isn't particularly difficult. Finding research that makes the correlation is. But I will list what I think are common-sense leading indicators to credit risk that may very well be effective, and hopefully can be tracked and monitored automatically so we don't have seven risk management analysts on staff hunting and gathering data.

JFB's Credit Risk Leading Indicators
1.  Residential and Commercial Real Estate, and Construction Lending: Trend of days on market (by property type)

2.  Residential and Commercial Real Estate, and Construction Lending: Trend of the difference between initial asking price and actual sale price (by property type)

3.  Commercial and Consumer Lending: Trend of average balance per commercial checking (by NAICS code), and retail checking accounts

4. Residential and Construction Lending: Trend of price index for single family homes under construction

5. Residential, Commercial Real Estate, and Construction Lending: Average checking account balance trends for your customers in the Real Estate Development NAICS

6.  Commercial Real Estate and Multi-family Lending: Trends in occupancy rates.

These are a few that I have seen or make sense to me. Could they be downloaded into a dashboard so bank management could see the trends, and modify risk appetites to curtail new lending in categories that are showing yellow or red? And advise your bank's borrowers on how to navigate difficult times to preserve their business to fight another day?

Do you agree with the above indicators and what others should be considered?

~ Jeff





Monday, July 31, 2017

Are Banks Overvalued?

The S&P 500 Bank Index is up 41% in one year. US Regional Banks' price-earnings multiple was 16.6x and price to tangible book value was over 2x (see chart). So are banks over-valued?

It depends. One way to compare is to look at the p/e ratio compared to the market. The S&P 500 p/e currently stands at 24.6x. So it looks like bank stocks are not overvalued.

But hold on. One ratio that can help us out is the PEG ratio. Remember that in Finance class? It's the p/e ratio divided by the earnings growth rate. According to Peter Lynch's iconic book One Up on Wall Street, a stock is fairly priced if its PEG ratio was 1. Meaning if it's p/e is 16.6x, like the US Regional Banks mentioned above, then the earnings growth rate should be 16.6%. I know I'm comparing a multiple to a growth percent. But, hey, I didn't invent the PEG ratio.

The challenge with banks' PEG ratio, as the chart shows, is that it is way over 1, by a factor of over 5 (5.7). I checked it against other industries in the Financial Services sector. Insurance brokerage has a PEG of 3.4. Specialty Finance: 0.4. The regional banks' PEG ratio, if I do the reverse math, implies that earnings are growing around 3% for the banks in that index. Which is very close to the 3-year annual net income growth for all FDIC insured banks.

So by the PEG ratio, banks would appear to be over-valued. Which may be true. But I want to bring up two mitigating points about banks:

1.  Banks are capital intensive. We must contemplate that implicit in their p/e ratio is some level of their tangible book value.

2.  Banks are not, in general, growth stocks long term. Risk management and the legions of regulators work in tandem to limit growth. 

Relating to 1, I did a data run of all banks and thrifts between $1 billion and $10 billion in total assets that were profitable. I checked their median p/e ratio. I then took their market cap and deducted their tangible common equity to deconstruct their p/e between tangible book and their market cap over tangible book (see chart). 

It is true that other industries can deconstruct p/e in this fashion. But would such an analysis of other industries equate 56% of an industry's p/e to it's tangible book value?

Even if we deducted tangible book from p/e, the industry PEG would still be 2.53 (7.6x / 3% growth), more than double Peter Lynch's prediction of fairly valued.

Which brings me to 2. How long can a company, a sector, and an industry grow faster than its markets? Certainly not forever. And for many, earning their p/e's means stoking growth either through acquisition, or greater risk taking. One is risky, and the other can be deadly. 

For these reasons, bankers may want to consider more moderate growth objectives, maximize earnings, and pay a larger portion of shareholder returns in dividends. 

What is your opinion on bank valuations?


~ Jeff


Note: I make no investment recommendations in my blog. I have a difficult time with my own portfolio. 

Friday, July 21, 2017

Health Insurance: A Bank Problem Too

Bank health insurance premiums have escalated to the point of cutting back benefits. As a nation, our system is not working, whether it be Obamacare or pre-Obamacare. The cost continues to escalate.

An industry publication recently contacted me for some commentary on their "Best Banks to Work For" annual piece. Naturally, I had opinions. When I analyzed their list two years ago, I noted that the financial performance of those banks was similar to banks that didn't make the list. Greater investments in personnel and employee benefits did not result in inferior financial performance.

I also noted that the most cited benefit by employees of banks on the list was gym and health initiatives. And generous benefits was near the top, at fourth. Remember the days that employees would seek banks out for stability, fair pay, and employee benefits? Merger mania has nearly eliminated stability, and the rising cost of healthcare has led to many banks cutting back on generous benefits, removing another competitive advantage in the employee marketplace.


It should be noted that the data in the accompanying charts came from employers. Not premiums in the Affordable Care Act marketplaces so often cited by lawmakers. But the escalation of premiums continues to far exceed inflation and will continue to put pressure on banks' bottom line unless they prune benefits even more.

So I would like to chime in on the healthcare debate, because we can no longer rely on media outlets to provide us with the information to make informed decisions. They cover protests. And protesters are likely to be people that receive free or highly subsidized insurance. I doubt there are net payers to the health care system out there protesting that they should pony up even more for the net takers.

The media covers inflammatory political rhetoric. Like saying one proposal or another will kill people. Not fact-based debate. Too boring. As evidence, look for the oft-quoted CBO stat that one proposal will result in 20 million more uninsured people. The next sentence should say, "the vast majority of which would choose to not participate". Does the media coverage say that? There ya go.

Any health care proposal should be: 1) private, 2) widespread, 3) transparent, 4) favor freedom.

So here are my thoughts:

Health care is a group system. If someone gets sick and consumes more than they contribute, the cost is made up through a pool of people that are paying more than their consumption. That is truth no matter if it's private insurance or government paid. But single payer, or government paid insurance where it's a continual transfer from one group to another is a bad idea. Look at the VA. True competition will come when the payer of services is the consumer of services. Look at auto insurance. We're forced to buy it, and we do so privately. Bad drivers pay more than good drivers. And the Camaro owner pays more than the Camry owner.  

So the JFB health care plan would be private health insurers.

To give small business, the life-blood of our economy, negotiating leverage with private insurers, I propose we allow businesses to affiliate through trade associations, unions, etc. across the country, not state lines. This also applies to an individual market. Allow them to affiliate, through churches, trade associations, etc. 

I propose there be a required minimum basic coverage that keeps families out of bankruptcy should they fall ill and encourages preventative care. Such as a high-deductible Health Savings Account (HSA) plan that has a maximum out of pocket (MOOP) per annum per family of about $10,000, adjusted for inflation. There must be language to limit political influence in this law. One of the failings of Obamacare was putting in political wish-list stuff for social engineering. Such as birth control. To keep teenagers from making babies. Sort of like mandatory parenting. The Basic Plan should be simple and protect families from bankruptcy for extraordinary medical expenses and encourage preventative care. 

I like HSA plans because it puts individual skin in the game. You want to load the shopping cart with Oreos or smoke a pack a day. It will cost you much more than me. Skin in the game. Put behavior and cost of the behavior as close to the individual as possible so there is consequence. I'm an accountability type of guy.

States can have overlays to keep state control. Especially since the Federal mandate will be Basic. But regulation and enforcement of the national law would be national. Regulation of overlays can be state-based. So if California wants to jack up the prices of plans to include medical, recreational, and Cheech and Chong level marijuana use, it's on Californians. We're not going to charge Kentucky for it.

My apologies to the freedom lovers, but we must compel people to buy insurance. In 1985 we required hospitals to treat whoever came to the emergency room, regardless of their ability to pay. That is why you would have to wait so long to get your broken arm fixed. Someone checked in before you with a head cold. Remember those long wait lines in the emergency room? Free health care for those that chose not to buy health insurance. Free riders. No more. This also solves the adverse selection problem in health insurance. People that don't participate in a health insurance plan if they are healthy (i.e. net payers). Many wait until they are likely to be net takers.

Make insurance transparent through a pricing portal run by your insurance company. Insurance companies negotiate different rates for different services by provider, and by insurance plan. It is nearly impossible to make an economic decision. I remember my daughter being at the doctor and was diagnosed with hip dysplasia, a common problem for growing female athletes. The doc said he was 95% sure this was the issue. If we wanted him to be 100% sure, he would need an MRI. I asked how much that would cost. He was taken back by the question, but left the room and asked his admin staff, and they came back with somewhere in the $900 range. That would come out of my HSA. So I decided his 95% was enough. I balanced an economic and medical decision. If a third party paid for it all, I probably would have gotten the MRI. See the problem?

Under the JFB plan, there would be an app that prices out services and service providers so everyone knows the price of their decision, including the prices of local doctors.

Medicaid should be transitory. We are creating a lifelong needy class in our society. It's moving closer towards indentured servitude to the government. Which is dangerous. Check history. However, keeping with the theme of pushing things more local, states can keep ponying up for people that aren't employed, lack the basic plan, and have lots of protest time. Their choice.

Companies can compete for talent based, in part, on their additions to basic coverage. They have the option to make HSA contributions and premium contributions to the basic plan, add benefits, or all of the above. Making it easier for would-be employees to determine which insurance offering is better, and tilt the scales towards those that are more generous, and creating transparent competition for talent. 

That's it. Simple. Transparent.

What do you think?


~ Jeff

Saturday, July 08, 2017

Guest Post: Financial Markets and Economic Update by Dorothy Jaworski

Here we are in July already!  The markets continue to roll and bond markets continue to trade in a 25 basis point range, hitting the higher end when they think the economy is strong (why else would the Fed raise rates?) and hitting the lower end when the weak economic data smacks them in the face.  I usually write with a cautious tone.  Many of my economic views contain the word “weak.”  I do not take this lightly.  I believe that we are in this era of weak growth, now eight years old, for the long haul unless changes are made to regulation and we stop adding debt at break-neck speed.  In this environment, it has been an achievement for our economy to grow at 2%. 

OMG- The Phillips Curve!
Janet Yellen, like Ben Bernanke before her, is using the Phillips curve to shape policy.  Remember that the Phillips curve is based on a set of formulas where unemployment and inflation have an inverse relationship.  With unemployment going down, inflation must go up, right?  Well, it did for a while, and now it is heading down, too.  The Fed must think it will rise again and they are raising rates in anticipation.  They must not see falling oil prices, weak GDP growth, falling gold prices, a narrowing Treasury-TIPS spread, rising debt levels, lower consumer spending, a low labor force participation rate, low productivity, and consumer prices so weak that major retail companies are closing stores at a record pace.  Someday, we will all simply shop online at Amazon and Walmart.  We will not even have to drive anywhere, since everything will be delivered to our front door.

The Fed has raised rates by 25 basis points twice so far in 2017 and has promised one more increase.  They believe that inflation is coming and that is fine.  They believe that they should raise rates because they were too low and that is fine, too.  If the Fed was motivated by the data, or their moves “data dependent” as they always claimed, they would not have raised interest rates.  Weak readings on employment, housing data, and retail sales won’t stop them.  Rising debt levels will not stop them.  Household debt in 1Q17 totaled $12.73 trillion, crossing the previous high mark of $12.68 trillion in 2008.  They are moving ever closer to a flat yield curve and slowing down 2% growth.  For what reason?  Well, maybe the Phillips curve…

The Fed also announced at their June meeting that they would be “normalizing” their balance sheet “soon,” which means reducing it by letting bonds mature and not replacing maturities or cash flows.  Remember all of the quantitative easing, or “QE,” purchase programs?  All of those bonds are on the Fed’s balance sheet to the tune of $2.5 trillion in Treasuries and $1.8 trillion in Agency mortgage backed securities.  Their “normal” balance sheet size would be under $1 trillion.  It is expected that $50 billion will not be reinvested monthly.  They also stated that they will do this “normalization” provided that “the economy evolves broadly.”  Who has any idea what that means?  It is my belief that they will proceed with this “normalization” no matter what, regardless of the cost.  Longer interest rates will tend to rise after losing a buyer for longer term MBS and mortgage rates will rise as a result.  With housing weak, our economy will be weak, and no one should be surprised.  Incidentally, Chair Janet Yellen’s term at the Fed expires in February, 2018.  There is already speculation that she will not be re-nominated.  That may be just in time for the easing to begin.

Presidential Agenda
I am very surprised that the markets are not having fits over the lack of progress on the presidential agenda.  The promises included tax cuts to 15% (although a much less dramatic decrease is expected), repeal and replacement of ObamaCare (stalled in the Senate), regulatory reform (some energy rules relaxed, but not much else), infrastructure spending to repair and replace our crumbling structures, roads, airports, electrical grids, etc.  Patience, they say!!  I believe that the stock markets believe that eventually the agenda will be accomplished.  And some good ideas have been presented, including job training and increased education for those whose skills may not match available job openings.

The Pool of Available Workers
When Alan Greenspan was Fed Chairman, he always looked at “augmented” unemployment numbers which were calculated using the pool of available workers (sum of the unemployed plus persons who want a job but are not counted in the labor force).  The augmented rate for May, 2017 was 7.5%, compared to the headline rate of 4.3%.  The pool stands at 12.4 million persons, including unemployed of 6.9 million, at the end of May, 2017.  This level compares to 12.3 million at the end of December, 2007, before the crisis hit in 2008.  The level reached 16.7 million in December, 2008 and the peak occurred in October, 2009 at 21.4 million.  It took nine years to return to pre-crisis levels.  It seems we have achieved the recovery of employment.  But why does it not seem so?  Maybe it does not feel right because wages have not kept pace, meaning inflation remains low.  We shall see.

Company Expenses Seen Rising
Corporate expenses are on the rise.  For years, regulatory and compliance costs have been growing dramatically.  Physical security costs ramped up over the past 15 years; just ask the airlines and Homeland Security.  Now an even greater threat promises to raise costs even more- the threat of cyber attacks.  Recently, we have seen ransomware virtually cripple company’s networks and Internet access, as criminals exploit vulnerabilities in Microsoft’s Windows operating system.  Some of the ransomware even has names:  WannaCry and Petya Clone.  Thieves lock up computers by encrypting files and access and demand ransoms, usually small amounts such as $300 in bitcoin.  This is becoming an increasingly frightening scenario.  In the age of
“The Internet of Things,” where every appliance and device under the sun is connected to the Internet, someone should be losing sleep.

An Even Larger Hadron Collider

Where else can you get updates on our favorite machine?  There is some excitement about the plans to build a new Hadron Collider that will be bigger and better than the machine today.  The new one, called the Future Circular Collider, will be three times as long and ten times as powerful.  It is in the planning stages and will be ready by 2035.  Considering that the current Collider took 30 years to build, that’s not a long time to wait.  Expect digging to occur under the mountains of Europe in a few years.  Let’s just hope that they put covers on this one so that birds cannot drop baguettes inside!   

Thanks for reading!  DJ 07/04/17





Dorothy Jaworski has worked at large and small banks for over 30 years; much of that time has been spent in investment portfolio management, risk management, and financial analysis. Dorothy has been with Penn Community Bank and its predecessor since November, 2004. She is the author of Just Another Good Soldier, and Honoring Stephen Jaworski, which details the 11th Infantry Regiment's WWII crossing of the Moselle River where her uncle, Pfc. Stephen W. Jaworski, gave his last full measure of devotion.

Friday, June 30, 2017

Book Report: The Unbanking of America by Lisa Servon

Let me start with the author's ending: "In order to repair the system, we need a shared understanding that access to good financial services is a right, not a privilege for the fortunate few. We need to demand financial justice."

That is how the book ended. If I read it first, I probably would have returned it to the shelf. But no, I made the commitment to read it when recommended by a colleague, and it was quickly on my Kindle. Something about it being on my Kindle compels me to read it. So I trudged through it to get to her takeaways, which, when I read them, I could have guessed her bio before I read it. Professor of city and regional planning at the University of Pennsylvania.

Didn't see that coming.

Without further anticipation, here are the book's takeaways with a little editorial commentary from me:

Amazon Link
1. Change the relationships between banking and government. She argues for renewed government involvement in the consumer financial-services sector. Stating the relationship has shifted to "favoring bank profitability and efficiency over public needs." She further argues the government doesn't hold banks accountable to serve all Americans equally well. 

There were ideas in the book to accomplish this that I must report to you: a) Subsidize banks to serve customers with financial instability who are not profitable. b) Enable mission-oriented banks and credit unions to extend their reach. She cited Amalgamated Bank (lost $5.8 million over past five years), Carver Federal Savings Bank (lost $4.9 million), and Lower East Side People's Credit Union (only $50 million in assets, yet profitable on a 5+% net interest margin). c) Have the Federal government provide banking services. She cited Post Office banking as an example. Saying it would be "not for profit, simply because it's the right thing to do."

JFB editorial commentary:  Not sure the author was fully aware of the impact government involvement has had on those in the lower economic ladder. For example, the securitizing of the residential lending business moved most of that business away from banks to mortgage bankers and brokers, that far and away were the culprits behind preying on the underbanked. Perhaps a little light reading on the FHA, then later FNMA and Freddie Mac are in order. Dodd-Frank, the CFPB, and regulators "disparate impact" doctrine are pushing community financial institutions out of consumer banking. The Durbin Amendment and Reg E reduced fee income in checking accounts, making low-balance accounts difficult for financial institutions to cover costs. Costs foisted on them by, you guessed it, the Federal government through various laws such as BSA/AML. This resulted in the reduction of "free checking" and the increases in required minimum balances. So forgive me if I am somewhat indignant about sending in the Feds to exact more carnage. Oh, and we already have subsidized financial institutions to serve the underserved. They're called Credit Unions. They pay no Federal income taxes.


2. Enable better decision making. Hold financial service providers accountable by requiring them to make it easier to compare products and make informed choices. Like a fact-box on packaged foods.

JFB editorial commentary: Funny that she talked about the reams of disclosures that confuse the public. These disclosures are required by law and bank regulators. *irony*


3. Create a sandbox for innovators. She admits that regulation stifles innovation. 

JFB editorial commentary: This is already happening, without government intervention. Even in spite of it. In a previous post, I offered that banks were slow to use alternative data for consumer loan decisions because of regulatory interpretation of the Fair Lending Act and the disparate impact doctrine. Alternative credit data to make loan decisions would benefit the underbanked. I fail to see how her clarion call for more government intervention sits with this recommendation. 


Alright, I've given you enough of this book. When reading some of this stuff I first thought that the author was simply a pen name for Elizabeth Warren. 

Are we doing the underbanked and unbanked any favors by pointing to a barely existent boogeyman behind the tree for their challenges? I Googled "free checking" and came up with multiple options. I once had very little in my accounts too. If I overdrew my account, I didn't write a tersely worded letter to my congressman. Yet this is how the author chooses to rationalize individual challenges. 

It's the systems fault.

In response to someone overdrawing their checking account, consider the following reactions:

Person 1.  The big bank screwed you! Something must be done!

Person 2.  Ouch! You shouldn't overdraw your account. Let me show you how I avoid doing it.

I ask you: Which person cares more about the long-term well-being of the underbanked?


~ Jeff

Tuesday, June 20, 2017

Why are banks slow to adapt alternative credit data? I'll tell you why!

Deposit insurance. 

In order to get federally sponsored deposit insurance, that is industry self-funded mind you, the Federal government and state governments set up a regulatory scheme to ensure the safety of customer deposits.

All have benefited. The banking system is stable, which is critical to national and state economies. Depositor money is safe. Also critical. And let's not forget about the thousands of employees that work for regulatory bodies, compliance personnel in banks, and consultants that help them comply.

So what am I talking about, that deposit insurance is why banks don't do like FinTech lending firms and use alternatives to the FICO score in underwriting consumer credits? 

Our legislatures did not limit themselves to safety and soundness when they created banking law. No, they dabbled in money laundering, terrorism, drugs, Internet gambling, and, oh yes, fairness.

Fairness.

What does that mean?

Whatever you want it to mean.

So when yesterday's American Banker asked why alternative credit data was a hard sell for small banks, running afoul of the Fair Lending Act was a key concern (see table).


I would argue that using alternative data to make consumer loan decisions scares bankers because it has not played out with the "fairness" laws and regulations out there, and the disparate impact doctrine used by regulators to determine if a practice is discriminatory. 

According to the FDIC, disparate impact occurs when a policy or practice applied equally to all applicants has a disproportionate adverse impact on applicants in a protected group. Even if it serves as a good predictor of a borrowers propensity to pay back the loan. If a financial institution uses payment of utilities in its credit decisions, and declines credit because prospective borrowers pay utilities late, this could have a disparate impact on a protected class. But bankers won't know that when they establish the criteria. They have to find out later, after a bureaucrat in Washington does a white paper.

This application of law will continue to be a challenge for financial institutions looking to compete with FinTech firms and mine other data sources to predict a customer's credit worthiness.

I got news for our lawmakers and regulators. I only know bankers that want customers to pay back their loans. And because deposit insurance is a national program, so should they.


~ Jeff


Tuesday, June 13, 2017

What Can Marc-Andre Fleury Teach Bank Boards?

It's a team sport.

Sure, he's a hockey goalie. I doubt he knows much about banking. Or how good Boards function. But he can teach us that a high performing Board works as a team for their constituencies. For professional athletes, it's for their team, teammates, and town. For bank Boards it's for their shareholders, customers, communities, and employees.

I recently attended the Maryland Bankers' Association annual convention. I attend many sessions for my own knowledge. And for the benefit of clients, and today, my blog readers.

One interesting session was The Importance of Board Composition and Succession to the Future of the Enterprise delivered by Regina Pisa and Matt Dyckman of Goodwin Law. I know. The topic title was a mouthful. Lawyers.

Interesting because an early point they made was that "strategic planning and board composition should be inextricably linked." Provocative because they recommended diversity, but not in the politically correct way, but rather "diversity of skills, knowledge, and viewpoint."

And I say Amen!

Last September I did an analysis of the Board composition of the best and worst ROE banks to see if there was any secret sauce to the best, and a recipe for disaster for the worst.  I could find none. All of the carping over CPAs or former bankers meant nothing to the bank's financial condition or performance. Possibly to the chagrin of regulators who suggest or outright tell banks to put this person or that person on the Board.

What does matter in my opinion, and seemingly the opinion of the good folks of Goodwin Law, was the interaction between Board members and the Board and Management, determines if a Board is high performing or not. Don't take my interpretation of their words. Look at their slides. Lawyers have lots of slides.



This is consistent with my experience.

If you want a high performing Board, consider it as a whole, deliberative body. If the body needs an arm, add an arm. Don't add another leg. This brings me to the other slide I'll swipe from their presentation (with their permission, mind you).


What you want is debate, but not for debate's sake or to hear those type A personalities talk. But debate to ensure management is following policy for safety and soundness. Debate that the Board reports are accurate, timely, and relevant. And debate to hold management accountable for pursuing the bank's strategy. Team players that build the team up and make the Board better.

What you don't want are yes men/women, gripers, or those that pursue self interest above all else. 

Which brings me to Marc-Andre Fleury. Last season he was the Pittsburgh Penguins starting goalie. He got hurt and his replacement did so well he took Fleury's job. This season, Fleury served as the second string goalie although he is very, very good. He stepped in when the other goalie got hurt and delivered two playoff series wins. One against my Capitals!

He never griped. Never brought the team down. In fact, he built the team up when called upon. And his team spirit played a key role in delivering a second straight Stanley Cup to Pittsburgh. 

That's why the Pens general manager called him "the best team player in sports". Because hockey is not an individual sport. It's the team that wins championships.

And so it goes with bank Boards.


~ Jeff

Wednesday, May 31, 2017

Fintech'ers Will Be Right on Branching. Unless Bankers Act.

Are branches dead? The conventional wisdom from the shouters would be yes. Look at transaction counts. Look at the decline in branches since 2009. Look at the surveys.

I read a recent interview of Members 1st Credit Union CEO Bob Marquette by S&P Global Market Intelligence (link requires subscription). When asked, Marquette said of the death of the branch: "I think it's bullcrap. I think banks are closing branches for one reason: to cut costs and prop up their earnings and boost their stock price." 

Clearly he is not attending FinTech conferences. 

Remember those predictions about the checkless society, and cash being dead? Yet both live on. Although the trend is decidedly in that direction. I sometimes quip that FinTech prognosticators are like futurists. They make educated predictions. And they typically miss the timing. Sometimes by decades or generations.

In Brett King's 2012 book, Branch Today, Gone Tomorrow, he called for a 50% reduction in branches while asking what would banking look like in 2015. Between 2012 and 2015, there was a 4% branch reduction. As Bob Uecker would say, "Just a bit outside." The decline between 2015 and 2016 was 1.5%. I'm not sure if Brett's intention was to make a prediction or a wish.

But I believe Brett's prediction will become truer by the year. I am not smart enough to make a prediction combined with the timing of the prediction.

I also believe that branches can be developed as competitive advantages for community financial institutions. Much like the credit union CEO thinks his branching strategy differentiates his CU. But, as our current strategy execution stands, there is much work to be done.

On March 6th, I tweeted one inconvenient truth for FinTech'ers (see pic). 


The green bar was all respondents. The red: millennials. The gold, Gen Z, which I didn't know was a Gen yet. They are under 21 years old!

And when my friend and fellow bank consultant Mary Beth Sullivan from Capital Performance Group in DC shared the post in the below pic on LinkedIn, it stirred a spirited rebuttal. I only hope my friend Ron Shevlin from Cornerstone Advisers still owes me a drink. Don't click on those links! They're competitors. :) 

I don't want to engage in a tit for tat on studies. Figures don't lie but liars figure, right? Note to Mary Beth and Ron. I'm NOT calling you liars (I would be calling myself one too). No alerting the press required. And would they cover consultants bickering anyway?

I digress. Back to the post. Perform this common sense test when there are a group of you in a room... a group of regular people. Not bankers. Not bank consultants. Not FinTech'ers. Ask for a show of hands how many people bank with a bank that has a branch in the town where they live. My guess, if you asked 10, eight would raise their hand. Common sense.

But perhaps it would've been nine in 2012. I will give the branch doomsayers that. And I think the trend would go down over time. So here is how I think bankers can slow branch decline. I don't think it will stop. Because the large banks look to branches for continuous cost savings, and I don't foresee that changing. Which is good if a competitive advantage is what you are after.


1. Identify what makes the branch important to your customers. I think if bankers asked this from the start, we could've avoided the WaMu Occasio experiment. Although I read a story today about a FinTech firm in Vietnam opening bank branches because the government requires an employee to verify the account holders' identity in-person. But the rest of the branch is essentially a customer hang-out. Like Occasios were supposed to be. If this is important to your customers, then perhaps a hang out is what you should build. But my "ears to the tracks" tells me customers want to open accounts, get loans, and solve problems at branches. Small businesses still want to drop off deposits. So take the pulse of your markets, and make the branches into what your customers want and will want them to be.

2.  Elevate branch employees. If your market wants business acumen from your branch employees, can they do it? Did you know the University of Toledo offers a Certified Business Advisor designation? And banking associations offer a host of certificates for increasing the knowledge base and skill sets of branch employees to meet the emerging needs of customers in a new-branch environment. The all-too-familiar approach of putting branch employees in a position to fail because we elevated them from teller-head teller-assistant branch manager-branch manager without giving them the skills to do what your market demands will doom the community banks' attempt to position branches as a competitive advantage.

3.  Make your branches look the part. Once you identify what customers want and set out to elevate employees, take a look around. I wrote about branch decor in these pages. In it, I wondered if customers would drink your brand Kool Aid if your branch manager had stacks of paper on her desk, or if your carpet had coffee stains from 1984. Cher got a facelift and looks pretty good. So should your branches.

4.  Pull the plug on poor performers. Where will you get the money to pay for those higher skilled branch managers (and perhaps all branch personnel), the training it will take to get them there, and a date with HGTV's Fixer Upper? By pulling the plug on those branches that were $18 million in deposits last year and grew to $18.3 million today. They are dogs. You're investing $500k (more or less) per year per branch to keep them open. And you will lose very few deposits by closing them, particularly if you have a branch nearby and good online banking technology. Stop it! Close them! Invest the savings.

Interesting that I call for branch consolidation when I'm arguing for the relevance of branches, no? I'm a modern-day consultant.

You can do the above or some variation of it. Or....

You can continue with business as usual, or some minor modification of it. And run the risk of proving the branch haters right. Your choice.


~ Jeff



Saturday, May 20, 2017

What's With Regulator Agita Over Bank Commercial Real Estate Lending?

Anxiety, anxiety, anxiety. The recovery from the Great Recession is eight years running. Ample time to look down the road towards our next recession. And regulators are getting anxious. Anxious about commercial real estate (CRE) concentrations. 

Last December, Astoria Financial Corp. and New York Community Bancorp called off their planned merger. Why? They couldn't get regulatory approval. Both institutions were over the CRE concentration guidelines, so putting them together would exacerbate this risk, so the regulatory thinking must have been.

Today, I read an American Banker article on how a multi-billion dollar bank is going to ramp up its business lending. Why? Reading between the lines, this bank is likely over the CRE guidance levels, and were probably getting grief from their regulators about it.

To remind readers, in 2006 the OCC, Federal Reserve, and FDIC issued joint interagency Guidance on Concentrations in Commercial Real Estate Lending. They need a marketing person to title their reports. Maybe sub out an economist or two.

To summarize, banking institutions exceeding the concentration levels should have in place enhanced credit risk controls, including stress testing of CRE, and may be subject to further supervisory analysis. Whatever that means.

The CRE concentration tests are as follows:

1.  Construction concentration criteria: Loans for construction, land, and land development (CLD) represent 100% or more of a banking institution's total risk-based capital.

2.  Total CRE concentration criteria: Total nonowner-occupied CRE loans (including CLD loans), as defined in the 2006 guidance (“total CRE”), represent 300% or more of the institution’s total risk-based capital, and growth in total CRE lending has increased by 50 percent or more during the previous 36 months.

The OCC did an excellent analysis of the impact of this guidance in 2013. If you have some free time to read it, I encourage you to do so.

The upshot of the analysis, in my opinion, is that the risk can be further limited to CLD lending, more so than straight, plain vanilla CRE lending that is so common in community financial institutions. See the chart below from the OCC report for net charge-offs during the Great Recession.



To be balanced, and not a news media outlet, it is true that banks that grew CRE fast, i.e. over the guidance levels mentioned above, regardless if in the CLD or straight plain vanilla categories, were more likely to fail during the period measured. But isn't fast growth by itself an indicator of increased risk of failure, regardless of the loans that fueled the growth? Risk mitigants tend to lag growth, especially fast growth. And success is the great mollifier to risk managers that wish to take away the punch bowl when the party's rockin'.

So, yes, fast growth leads to greater failures. But that's why fast growth is riskier, and tends to reap greater rewards for stake holders. Look at technology companies. Their shareholders are highly rewarded for fast growth. And they take on greater risk, because earnings have yet to materialize.

I would like to take issue with the implicit pressure on financial institutions for going over the 300% guidance levels for plain vanilla CRE. Note that the guidance says AND 50% growth over the past three years. But is that how it is being examined and enforced? Or are examiners, and perhaps bankers, pulling back on bread and butter lending, seeking loans where they have less experience or there is riskier collateral?

The below two charts tell a story. The Great Recession lasted from the fourth quarter 2007 through the second quarter 2009, according to the National Bureau of Economic Research.

For the below chart, I took every bank and savings bank, not federal thrifts because during this time they still filed TFRs versus Call Reports, and therefore their loan categories were different. But look at the asset classes that were on non-accrual during this period. How significant was CRE lending to the souring of bank loan portfolios?


The following chart is from my firm's profitability outsourcing service. It shows the pre-tax profit as a percent of the loan portfolios measured. We perform this service for dozens of community banks. CRE lending remained more profitable and stable then C&I portfolios, which seems to be the asset class banks try to increase to offset the risk of CRE concentrations and raising the ire of their examiners.


CRE not only remained profitable during the Great Recession, but more profitable and more stable than C&I. Indeed, even today, CRE is the most profitable community banking product. If you wondered why community banks feast on it, there ya go!

I don't want to suggest that banks continue packing on CRE and relegate C&I to the back burner. C&I loans are typically smaller than CRE, are more difficult to underwrite, and require more resources to monitor. Yet the pricing we see in our product profitability service does not show bankers getting paid for these challenges. C&I spreads were very close, and in some institutions inferior, to CRE spreads. Also, there are an increasing number of technology solutions that can reduce resources needed to more profitably deliver C&I loans to the market.

So, don't let this blog post motivate you to double down on CRE, and turn your back on C&I. What do your customers demand? What is the trend in your market? How can you reinvigorate economic vitality into your communities?

Don't let regulatory guidance or the inefficiency in your lending processes answer those questions. Let your markets and customers do the talking.


~ Jeff


Saturday, May 06, 2017

Who Am I?

Who I am is in the eye of the beholder, right?

Quick note: I mostly blog about banking. Today I blog about myself so you can have a better idea of the person behind the writing.

I am a recent member of my local Rotary Club. New members typically give what is termed a "Classification Speech" to the membership. I was no different, and was tapped to deliver mine last month. So I called the club president to ask what I should talk about.

"Anything you want" he said. He later regretted it. Giving me an open mic is ill-advised, as my wife would tell you.

I formatted my Classification talk in "Who Am I" format, much like how Admiral James Stockdale quipped in a 1992 Vice Presidential debate. I delivered it extemporaneously, so I don't have the exact words I used on that day, just an outline scrawled on a piece of paper.

But here is the essence of what I said.

Who Am I? I am John and Joyce Marsico, my parents. My dad died of Hodgkin's Lymphoma when I was six years old. Eleven months from diagnosis until death. He was the local McDonald's manager. My mom was a stay at home mom, which was more typical in those days. Work life was different then. If my dad took weeks off to get and recover from chemo, he wouldn't be paid for that time. So after chemo, no matter his condition, he went to work to keep the family money flowing.

When he passed, my mom was left with three boys, ages 8, 6, and 3. No income. And little life insurance. She went to work, and we lived off her wages and the social security survivors benefit. In spite of those tremendous challenges, she kept us in Catholic school for fear that without a father, we were at greater risk to getting into trouble or hanging out with some bad kids.

In today's society, we call people hero's for not so heroic things, like scoring a goal, or being in a film. Today someone called Kurt Russell and Goldie Hawn "inspirational". Try going to work the day after chemo. 

I am the husband of Jackie. We were high school sweethearts. I was working the charm on her since Mrs. McTighe's high school English class. Took three years. Got married when I was 21, she was 20. Everything we have we built together. Nothing was given to us. Today, if you saw us walking down the street together, you would think I was rich. Well I am. Not in the money way.

I am a sailor. I served in the Navy because my father, grandfather, and uncles served. And I could've used the funding to pay for college. It was a tremendous adventure. I remember being taken out to my first ship that was sailing into the Mediterranean Sea, the USS Coral Sea, an aircraft carrier. I was flown out on a C-2 Cod, the only cargo plane (at the time) to be able to land on carriers. It had one window on each side, and I got the window seat. Coincidentally (or not), the chaplain was in the seat next to me. Aircraft carriers are mighty big ships, but very small airfields. I survived. Many of my old Navy friends remain my shipmates.

I am the father of two girls. As I mentioned above, I grew up in an all boy household. Girls, as I entered adolescence, were awesome. I didn't know why I played ball with Jane all the way up to middle school, and suddenly I was ok with being her cheerleading base! As a dad, I knew. So God sent me two to test me! Ok, maybe that's exceedingly narcissistic. Raising girls was difficult for me because I had no frame of reference. And the emotional ups and downs of growing up is more pronounced on girls than boys, in my experience. It weighed heavy on me when my girls went through it. But they made it through with flying colors! So far. Fingers crossed.

When our first was born, my wife and I were stationed in Rota, Spain. Twenty one hours of labor, the last three pushing. My wife, not me. I just experienced a couple uncomfortable hand squeezes and a difficult glare when I ordered pizza. After those 21 hours, the doc decided on a c-section. After trying to push my daughter out for so long, she had a conehead when she was born. So my first words when she was born was not "beautiful", or "wow". It was "is that normal?". It was normal, by the way. 

I am a bank consultant. When I first started, I worked primarily on mergers and acquisitions, where my boss told me that my job was 20% math, 80% psychology. It hit home when we were negotiating a transaction that the handshake-creating concession was to allow the chairman to keep his Bentley. Psychology. 

My kids still don't know what I do. In simple terms, some of what I do can be described by example. I watched a banker in deposit operations reviewing checks. She was flipping them one at a time. I asked what she was doing. She said checking for fraud. I asked what fraud looked like. She didn't know. I asked how long she did that per day. She said one to two hours. I suggested she stopped doing it. 

Perhaps that's an oversimplified example of some of the things that I do. But it's true. 

I am a Rotarian. Truth be told, I probably wouldn't have joined Rotary if not for my friends Dan and Kevin. But I was getting to the point where I was growing tired of the excuse that I travel so much that I can't commit to much. Travel is the primary reason I had to hang up the whistle as a lacrosse coach. 

I was getting a haircut one day at Manny's barber shop. I call him the hip-hop barber because he was playing hip-hop the first time I visited. While getting my haircut, Manny took a call. After getting off the call, he explained that he had to schedule a haircut for a bed-ridden young man, who had a catastrophic accident years ago. He had been cutting his hair for years. What made Manny's generosity even greater, was the young man lived 30 minutes away. 

That's charity for your fellow man. And that's why I had to be more than the contributor to the family checking account.


~ Jeff


Did you know? That since Rotary's first effort to eradicate polio from the face of the earth in the Phillippines in 1979, polio cases are down 99.9%! How about that! *Mel Allen voice*

Monday, May 01, 2017

Cultural Conversation in Banking

Are your incentives consistent with your strategy and culture?

I was recently interviewed by the Financial Managers Society on this topic, and as a lead-up to my presentation on the subject at the upcoming FMS Forum in Las Vegas in June.

Here are excerpts from the discussion.



FMS: Why is measuring account openings such a misguided endeavor?


JM: If a bank measures product profitability, costs follow activity. Those that don't measure product profitability intuitively tend to believe that the number of accounts drives the work more than balances, even though balances, for the most part, drive revenue in banking.

So if customer A comes in with $10,000, an accounts-driven institution would try to split up that $10,000 between two or three accounts so they can hit their targets. The profit-focused bank, on the other hand, would do what the customer originally intended, and open up that checking account knowing full well that they would get similar or equal spread on the $10,000 in the single checking account, but have less back-office expenses to absorb than if they opened three accounts.


FMS: Which numbers should matter in the quest for better profitability - and why?

JM: Co-terminous spread and direct pre-tax profit - and the trends for both - would create an environment to drive profitability rather than activity. Bankers typically hold lenders accountable for the size of their portfolio and their production. What if they were instead held accountable for the spread (after provision), both in dollar aggregate and the ratio, and the trend for each?

So if Lender A had a $50 million portfolio at a 1.25% co-terminous spread, or $625,000, would that be better than the lender with a $35 million portfolio, with a 2% co-terminous spread? The math says no. But who reaps more reward in today's environment?


FMS: Bigger picture, how can the right incentives lead to a better culture?

JM: We look for the path of least resistance in terms of meeting goals and incentives - it's human nature. If I'm a branch manager whose incentive kicks in if I grow branch deposits by 10%, then I'm looking to do that with the least resistance. So I might call my regional manager daily for CD rate exceptions to get that $200,000 CD, even though with the rate exception, that CD might have a five-basis-point spread.

On the other hand, if I was held accountable for growing my branch's co-terminous deposit spread, would I still chase the CD customer? Or would I maybe seek the operating account at the tire and battery shop down the street, even though that might bring 25% of that CD balance to my branch? Multiply that logic to every profit center within the bank. Now you have a culture!





Sunday, April 23, 2017

Are Banks Different?

Does your financial institution need to be different than the five others in town or the multitudes outside of town?

If you believe the paradigm that a business model must generate low-cost solutions or differentiated solutions in order to build a sustainable competitive advantage, then my guess would be that your answer would be yes. Truth be told though, I still hear that "our money is no different than the banks' across the street" defeatism. 

If you believe that to be true, then the pair of Levi's jeans you purchase at the JCPenney in the mall, at Walmart, or on Amazon are no different, either. Yet one of those three has built a low-cost competitive advantage, the other a unique distribution network differentiation, and the third might go the way of the General Store.

It is annual report season. As a bank consultant, and bank stock investor, I review many of them. And my opinion is, I can't tell them apart by their "Letter to Shareholders". Chairmen and CEOs alike spout undifferentiated bromides that tells me their strategy in their markets must be low cost. Because I can't make out any difference.

Below are three such letters, taken from publicly available annual reports for three financial institutions headquartered in the same large U.S. city. I removed names, numbers, and geographies. But they are public companies, so these letters are available to the public in unedited form. No reason to call them out here, as it is beyond the point of the post.

Do these banks sound alike? Do they sound like your bank? 


~ Jeff


Bank A:

To our shareholders,

Since our inception, we have used the word ‘‘Absolutely’’ as a part of our brand. We believe this word reflects our customer centric and solutions oriented approach to banking. In 2016, we decided to ask our customers for feedback on their relationship with [Bank A]. Frankly, we couldn’t say it any better ourselves.

[Customer comments were here]

We are both extremely proud of, and honored by, this feedback. We also believe there is a direct correlation between these customer quotes and our bank’s performance, and we’re very pleased to report that 2016 was an outstanding year for tangible results at [Bank A]. Numerous milestones were achieved, including record earnings, crossing $x billion in total assets, and maintaining sound asset quality. Growth in interest and noninterest income outpaced declining accretion income, resulting in a significant increase in total revenue. Disciplined execution on our strategic priorities resulted in exceptional growth in organic loans and core deposits, which combined with effective expense management, collectively yielded net income of $xx million.

In addition to our financial success, we announced two bank acquisitions during the year: [Bank acquisitions]. Both of these acquisitions were completed on [date], providing us with well-known and talented bankers and an expanded statewide footprint into new strategically compelling markets. We now have a meaningful presence and efficient footprint in seven of the eight largest MSAs in [state].
[Bank A’s] results in 2016 demonstrate our commitment to grow low-cost transaction deposits, improve our noninterest income lines of business, maintain strong credit metrics while growing loans, prudently deploy capital, and become a more efficient company.

Our payroll, treasury services, and cash management product offerings continue to provide a competitive advantage in growing core funding and allow us to successfully compete with banks of any size. We had $xx million of deposit growth in 2016, including $xx million, or x%, growth in transaction deposit accounts. Noninterest-bearing deposits comprised xx% of total deposits at year-end 2016. Our long-term success is going to be primarily driven by the quality of our deposit base and having very deep relationships with our primary depositors.

We also generated organic loan growth of $xx million, or xx%, while managing our risks effectively and without compromising our high credit standards. Our credit quality metrics continue to be among the best in the entire industry.

Positive momentum in our noninterest income lines of business carried over into 2016 as all three of our key fee income initiatives—mortgage, SBA, and payroll—had double digit growth in 2016. In our SBA business, we added a team with a national market focus and completed major improvements to our operating processes that will significantly improve productivity and efficiency. We remain very pleased with the pace of growth in payroll clients, which in turn, delivers core funding and a solid recurring revenue source.

We are making measureable progress with our commitment to become a more efficient company. Total noninterest expense, excluding merger and credit-related expenses, declined nearly x% in 2016.
Expense reductions occurred across the board in nearly every category leading to a significant improvement in our efficiency ratio in 2016. In addition to the capital deployment through two acquisitions, we maintained an attractive dividend, with a yield of more than x% based on our year-end share price, equating to a dividend payout ratio of approximately x% for the year, and we repurchased over $x million of our common shares. We continuously evaluate our overall capital management strategy and remain committed to being conservative stewards of your investment in [Bank A].

In summary, we are blessed to operate in genuinely attractive markets with diverse growth drivers and positive economic trends, which make us very optimistic about the future for [Bank A]. Our existing markets represent a significant growth opportunity for our company. We continue to grow market share in the [metro] market, strengthen our number one market share in [region], and are excited about the tremendous opportunities we have in our new markets. 

As we reflect upon the successes of 2016, we are grateful for each client, board member, and employee that contributed to this success, and are ‘‘Absolutely’’ thankful for your continued confidence as a shareholder.



Bank B:

Dear Shareholders and Friends:

It seems the pace of change escalates as our business continues to expand. Integrity, intelligence, energy, sense of responsibility is more important than ever. The understanding that our role is to serve our customers – and each other – is critical. Attitude really is everything, and first experiences do make lasting impressions.

We try to run our businesses with these truths to guide us and our success, along with a dose of luck, indicates we are on the right track.

Mortgage grew both in production and in markets served, adding offices in [state], [state], and [state], as well as adding lenders in existing markets. Wealth Management added new product offerings and we are now building our marketing team. SBA increased production and expanded the lending footprint to include the [region] as well as the [region]. Commercial and Construction Lending continued steady expansion.

Our focus on retail branches shifted from expansion to one of efficiency and profitability for these new markets, though we remain open to new acquisition opportunities. To keep up with increasing production, we invested heavily in internal systems and software. Online Account Opening, when fully introduced, will give us another way to be accessible and user friendly.

Our financial results remained strong with net income of $x million or $x earnings per diluted share.
For you, our Shareholders, both cash dividends and book value per share increased again in 2016.
Some highlights are listed here to give a sense of our momentum:

[Financial highlights here]

[Name], with the team he has selected, is building a foundation to last and has the talent to meet our market opportunities. He will properly be named CEO of the Bank at the April meeting.
Our “Golden Rule” philosophy works. Increased Shareholder value from customer service is the result.

We thank you for your continued support and confidence in our Company.



Bank C:

For [Bank C], serving our clients means connecting with people. It means engaging at a deeper level than simply doing business or handling transactions. We are committed to leading and strengthening our relationships and serving the needs of others. For us, the best way to accomplish this is earning trust and investing in these relationships to grow our Company.

[Bank C] built its reputation by remaining firmly rooted and accessible in the communities we serve. We combined trust, loyalty and personalized relationship banking with the delivery of high touch service and life focused financial solutions. Our rich history and legacy has provided us the foundation and the inspiration to innovate and seek ways to continue to drive shareholder value.

Now, more than ever, we know that innovation paired with human interaction enables us to not only provide financial empowerment and guidance on a grander scale, but also sets us apart in the marketplace. By increasing our visibility and footprint in new as well as existing markets we are attracting, building, and maintaining a growing customer base and a more sustainable future for our internal and external stakeholders.

We launched our 95th anniversary year by remaining purposefully focused on building our brand with a deliberate charge toward the future. To make us even more agile to face and optimize new opportunities, we focused on four core strategic priorities: Bringing the Brand to Life; Defending and Growing the Business; Mobilizing the Brand across All Platforms; and Driving Organizational Excellence. As you will learn throughout this message, the successful implementation of our initiatives revealed our ability to execute and utilize technology to be responsive to our clients and grow our business.

[Financial highlights here]

[Separate discussion of each of the core strategic priorities mentioned above here]

Our legacy is who we are...Our future is what we are defining.

Lastly, we celebrated our 95th anniversary in 2016. This is a significant milestone of which we are extremely proud. I would like to thank our clients and community for supporting us all these years and for putting their trust in us, our board of directors for their encouragement to reach new milestones and our teammates who created the successes that we are reporting with their efforts and dedication.

To our shareholders, thank you for partnering with us by investing in our Company. We commit to you that we will continuously strive to build a better bank that will support our values, serve our clients and provide you a return.

We are looking forward to 2017 and the exciting opportunities it will bring.