I returned home to D.C. last night after spending three days at Bank Director's annual Executive & Board Compensation conference with comp committee chairmen, HR executives and members of the boards of banks < $15Bn.  At the event (with more than 200 banks represented), discussions around critical issues and challenges ranged from structuring competitive CEO and board compensation plans to trends in employment contracts, evaluating management performance and rewarding CEOs while being fair to shareholders.  A few takeaways c/o Stifel Nicholaus Weisel that relate to both compensation plans AND investor interests that caught my attention:

• While the balance sheet crisis has passed for most banks, market valuations remain a challenge.
• Although there have been recent signs of economic stability, analysts and investors alike continue to proceed with cautious optimism (and in some cases, skepticism) in relation to bank valuations.
• Investors are beginning to look ahead to bank earnings and growth while remaining mindful of the continued importance of tangible common equity and tangible book value per share.

Of course, banks have underperformed the general market over the last 8 years.  So what to look for in the coming months?  According to Stifel's Executive Vice President & Vice Chairman, banks that have the ability to profit off of relatively low levels of growth while maintaining a clean balance sheet.  Yup, the earnings and growth outlook will drive strategic outcomes as we enter the "new normal."  For those of you that haven't read the latest issue of Bank Director, a cheat sheet of sorts with respect to a bank's characteristics in this new normal:

• Low growth (e.g. weak consumer loan demand)
• Increased revenue pressures (thanks a lot "operation twist")
• Higher regulatory compliance costs
• Decreases in credit costs / reserve releases
• Higher capital ratios

Unfortunately, overcapacity in a slow growth environment increases the number of banks not earning their cost of capital.  Of course, measuring this is proving a challenge, which is even more problematic in that you can't manage what you can't measure.

So some food for thought post-Chicago.  If you're left scratching your head, take a look at Stifel's analyst reports and our Analyst Forum.  Both offer strategic outlooks for banks in terms far clearer than I could hope to write!

Last week, after I wrote about Bank of the West's storied history, a few people asked me how I can see the good in a big bank.  Being that several invest in bank stocks, I paused before answering. Yes, there is an absence of optimism surrounding many institutions -- be it public or private, community-based, regional, or large.  With this in mind, I just read through a review of Q3 bank earnings from Raymond James; in it, they share an opinion that I wish I had last week:

We are likely about two years away from normal profitability levels, and many banks trade at very attractive valuation levels with estimated double-digit growth rates for net income through 2013. 

So if you're a Benjamin Graham-type investor -- who believes an investor's chief problem (and even his worst enemy) is likely to be himself -- than consider the following.  Despite "Occupy Wall Street" protests and a general frustration with big banks, customers are rewarding those same banks with an increasing amount of deposits in the form of money in checking, saving and other products, while smaller banks have been losing out.

I find peer set analysis far more intersting to comment on than individual stocks these days.  So consider a recent analysis by SNL Financial that found superregional and mega banks, or those with more than $50 billion in assets, have seen the largest annual compound growth rate in deposits during the last three years (at 15.2%). The top ranked for deposit growth are Bank of New York Mellon, Wells Fargo & Co., and BMO Financial Group.  According to this research, reported in a Bank Director article (by our very talented Naomi Snyder), the fastest growing banks with $10 to $50 billion in assets are:

Institution	State	Deposits June 2011	3-year growth
FirstBank Holding Co.’s FirstBank	CO	$10 billion	129%
Synovus Financial Corp.’s Synovus Bank	GA	$23 billion	108%
Hancock Holding Co.’s Whitney Bank	LA	$11 billion	74%

A reason to invest in one of these banks?  Not necessarily.  But just another reminder that while things appear bleak for the financial community, success stories do remain. especially if you're a bank that has 9+ zeros following a positive integer.

I'm in Dallas -- a few miles from my old home, in fact -- for our company's annual Bank Board Symposium.  Held in conjunction with American Banker, pretty cool to put my Bank Director hat back on and re-connect with a handful of people I first met 11+ years ago. Let me share some observations from this afternoon's event... 

As the two leading education and content providers for the financial services industry, Bank Director and SourceMedia’s American Banker put together today + tomorrow's conference.  At a time when banks and bank boards are experiencing unprecedented scrutiny to rebuild capital and restore shareholder value, I've been doing my best to get smart about the past eighteen months (described to me as having produced the most dramatic changes in banking since the great depression).  So yes, I'm excited to listen, learn and engage with a great group of bank CEOs, CFOs, chairman and outside directors.

I mentioned running into familiar faces here in Dallas.  One of them is Keefe, Bruyette & Woods' CEO, John Duffy.  Always quick with a smile, he kicked things off today like he has so many of Bank Director's conferences: with some telling data points and statistics.  While economist declared the market hit rock bottom in March of 2009, John put it in context of the market favoring large-cap banks since the subsequent rally began.  Intuitively, this makes sense: investors place a premium on liquidity -- and small and mid cap bank stocks simply aren't as attractive today as those large institutions that investors can get into and out of.  While I will not try to repeat his industry update, I did want to share a few notes I took during his presentation:

• For the 2006 - 2009 financial crises, bank stocks lagged the S&P 500 by 26% per year.
• In terms of earning trends, pre-tax/pre-provision earnings face "headwinds" of increased regulatory costs, shrinking balance sheets and increased carrying costs.
• There were 25 fewer bank M&A transactions in 2009 than 2008, representing a 17% decline in terms of transactions during the year (following a 50% drop in 2008).  In real numbers, 119 deals in '09 vs. 144 in '08, 288 in '07 and 296 in '06.  To-date, there have been 118 deals in 2010.
• Think those numbers are startling?  Consider that bank M&A activity in terms of deal value fell off the cliff in 2009, decreasing by $34 billion (94%)!

Back to an investor's perspective: he cited a number of important considerations.  For example, liquidity of common stock, institutional ownership, whether sufficient capital is being raised and the use of proceeds.  All interesting stuff as I get back into the swing of things here.  With a number of exceptional services providers supporting the event, I hope to post more later tonight relative to FDIC-assisted transactions and views from the FDIC, OCC and OTS (all speakers here).  At the very least, post #1 relative to my efforts to "get smart" ASAP.

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FYI: John referenced KBW's bank indices -- the BKX for large cap and the regional KRX -- throughout his presentation.  Worth taking a look to get a sense of the information he shared...