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VOL. 38 | NO. 29 | Friday, July 18, 2014

Right place trumps wrong time for Avenue Bank

Middle Tennessee’s diverse economy helps young bank thrive despite pre-recession launch

By Jeannie Naujeck

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This month marks Avenue Bank’s seventh year of business. Count backwards and you’ll see that Avenue was founded during one of the most challenging times in U.S. history – five months before the U.S. economic recession officially hit, sending asset values, interest rates and bank margins plunging.

But Avenue’s founder, veteran banker Ron Samuels, says that the seemingly inauspicious timing was actually key to the bank’s success, allowing it to pick up business that other banks could not absorb.

And he believes Avenue’s foundational value of extraordinary service – one closely tied to Samuels himself – is the primary reason the bank is thriving.

Now on the cusp of $1 billion in assets, Avenue is about to become the 10th bank in Tennessee to reach that mark. And Samuels says the next benchmark, $3 billion, will not be far behind.

Fresh from celebrating Avenue’s July 9 birthday, the chairman and CEO sat down with the Nashville Ledger to reflect on the bank’s first seven years, and what’s next for him personally.

Q: Avenue launched in July 2007, just as the recession was about to hit. What’s your perspective on starting a bank then, especially in regards to where Nashville now stands?

A: “When you look back, Nashville was at the peak of its growth, relocations, economic development. Nashville was pretty much on a roll in 2007. We had, in the previous 20 years, about 60 percent growth in population in this region, 235,000 new jobs had been created, and we had per capita income increasing about 30 percent. Prime rate was 8.25 percent in February 2007 when we closed on our money raise, and all of the predictions were that prime would be 9 percent.

“Well, not only was it not 9 percent, but in fact, it was about 7.25 by the end of the year. So it dropped a point, and then it was going to drop 500 basis points over the next 18 months. I think only one other time had rates been below 1 percent. So it was challenging, to say the least, to do all your projections on a rising rate environment and then have the rates be the lowest in the history of the country.

“But when you look at our growth, and what’s happened, we’ve been fortunate to have a very diverse economic climate here. Health care and education, two of the largest – really, things didn’t change much for them. And health care is an area where we have some expertise, and it’s where some of our growth came from. Hospitality is another big industry for us, and music and entertainment.

“We came out of the gate here with a real focus on music and entertainment.

“We were actually fortunate to be launching at the time we did because, one, others were having to shrink their business. We were out there and able to absorb some of that. When you go back and look at the disruption that was taking place in our market, you had three announced acquisitions at that time: Green Bank bought Civitas Bank down in Franklin in February 2007, Renasant Bank out of Tupelo bought Capital Bank & Trust, and Regions acquired AmSouth at that same time.

“With the recession, a lot of the larger banks had to reduce their loan portfolios, get their capital ratios right, and so we got most of our growth from very specific and segmented industry concentrations that we had expertise in – the ones I mentioned, and commercial real estate.

“The commercial market was expected to collapse right after residential, and it didn’t. And that’s been a great growth area for us, as well as industrial. Plus, we’re not trying to be all things to all people. So the concentrations that we have build off themselves – business owners into private banking, wealth management and those kinds of businesses.

“We had great expertise [in] residential construction business and wanted to be in that business. We ended up having some acquisition development loans of property and stuff that were slower to develop than we had hoped. But for the most part, we were able to avoid some of the pitfalls that others were already in their books.

“The drop in rates put the squeeze on the net interest margin for all banks, but for us it was particularly a concern because we didn’t have a book of business that had fixed rates and floating rates balanced. Most of our business was floating-rate business, based off LIBOR or prime – prime being 8.25 when you first start and today prime’s 3.25.

“LIBOR [the London Interbank Offered Rate, a measure of the average interest rate banks would be charged if borrowing from other banks] was 560 when we started, and so you price loans at maybe 200, 225 over LIBOR, and you were getting 780.

“Today LIBOR is about 21, 22 basis points, so 200 basis points over that is 200, 225. You see the difference in being able to have a balanced portfolio, and we didn’t have a mature portfolio.

Samuels' 'The Front Nine'

Asked what advice he would give on success in life and business, Avenue Bank Chairman and CEO Ron Samuels produces a card he hands out.

On the front is a painting of four golfers called “After the Match” by his wife, artist and Realtor Lynn Samuels. On the back is a list of nine principles for success Samuels has culled from his life. He calls it “The Front Nine,” reflecting his passion for golf.

The Front Nine: A Walk to Remember

by Ron Samuels

The right foundation: What you learn as a kid sticks with you. Your ‘spiritual house’ must be in order. Know yourself, your values and what you stand for.

Attitude is everything: Set high expectations for yourself. Challenge the status quo. Think creatively. Be agile.

Be authentic: Don’t try to be someone else. Show respect. Laugh a lot. Have fun.

Show up on time, prepared and ready to play: You can’t win if you don’t play. Be enthusiastic and passionate. Focus on a goal.

Recognize how big the little things are: Do the little things right and it will add up to a big impact. Be aware of how you treat people. Do the right thing.

Be the solution: No whining; no complaining; no excuses. Leaders solve problems. Leaders value action.

Stand out: In a crowded market, fitting in is not enough. Be different. Create your own style. Break through the clutter. “People often rise to great heights the same way kites do. Against the wind. Not with it.” (“Go Fly a Kite,” Meldrum & Fewsmith Advertising)

Don’t be afraid: Take a chance on being great. Control the controllable. Mistakes are okay – especially if you learn from them.

Ask for feedback: Value it. Be prepared for some serious criticism. “Thank you; may I have another?”

Reprinted with permission of Ron Samuels

“So there were a lot of difficult days, but we were growing our business at a rapid pace because of being able to pick off some market share from others. But the market was still growing here. So that’s still a healthy robust environment to operate in.

“One big lesson – whether you’re lucky or good – is be in the right market. Nashville is one of the top five markets in the country today. We hear this over and over again from investment bankers.

“We’re expected to grow by another 1 million people, so that will put some stress on infrastructure, but it creates opportunities for businesses to continue to grow. You’ve got an educated workforce, so that will be a big driver.

“So we learned, be in the best marketplace you can be in. And use lots of advisors. It’s really important that you choose the right people to be engaged with. One of our values is to have the right people in the right job doing the right thing at the right time, with a bit of a sense of urgency about it, and it will drive that growth.’’

Q: Your original motto was “The difference is real.” You must have been asked, ‘Why start a new bank?’

A: “People would say to me, ‘Well, we don’t need another bank in Nashville.’ And I would say, ‘We’re not going to be another bank.’

“Part of our story has always been that we wanted to truly redefine how people experience their bank. What’s happened is, we’ve attracted people who really value innovation and creativity. They value the fact that decisions are made locally with people who have experience and expertise in the field. On top of that, you deliver an uncommon service level, and it helps them experience banking differently.

“At that time, we were exploring a model that was called concierge banking. It was new at the time. So I think we created a space we felt we could own as a competitive advantage. And now people are coming to us to find out about concierge banking. And it’s not so much about what we’re doing; it’s how we go about doing it.

“Regional banks and other community banks that are looking for a way to differentiate themselves are beginning to explore what some people call ‘universal bankers.’ Some are even calling it concierge banking. But it’s more difficult than you think. It seems simple, but the difference, particularly for banks that are of size and have some history, is you almost have to totally redo your footprint.

“We do not use ‘tellers.’ The bricks-and-mortar banks of the past, they’re set up with tellers so you’ve got to reconfigure it, and it’s costly. So we think we still have a reasonably strong competitive advantage of being agile and responsive to what people want.’’

Q: That model, where every customer, no matter how small, is treated like a private banking client, sounds more labor-intensive and costly.

A: “If you create the right environment for people to be productive, that means they own the culture and they create a brand for you. So in a lot of ways, most of our business has been generated word of mouth. It’s not as costly for us. We only have four offices plus the main office. We’re at $950 million [in assets] now.

“When you look at the numbers divided by four or five, and you see how much we produce per office, our offices are larger. That’s the advantage we have in being able to serve customers the way we want to, which is ‘wowing’ them in the experience that they have.

“You’ve got to find a way stand out. You can’t be another bank. When we talked about concierge banking, it was a way for us to define something that was really different. People talked about it but nobody executed on it, and that was what differentiated us, was kind of against the grain.’’

Q: Was it an advantage to start off in the modern tech era, and build for today’s way of doing banking?

A: “We did have advantage. We had a blank sheet of paper so we could hire the very best people, and we’re very fortunate to have a great security team, led by Kevin Mills, who are experts in this field.

“The technology’s changed too in the last seven years. Identity theft was not something people would have thought much about; now it’s high on everyone’s priority list. Our operations process is very cutting edge around the security piece. It’s got to be.

“We’ve had great acceptance of the mobile banking piece. We’re about 90 days into our delivery of mobile check deposits. We wanted to make sure that as a young bank it was tested, and it’s been very good for us.’’

Q: As a well-managed and profitable bank, you must constantly entertain merger offers. And your asset growth is beginning to snowball, with 50 percent in the past two years alone. How big would you like Avenue to become?

A: “We always wanted to become relevant in this market, and to be relevant we felt like we had to be somewhere in the $1 billion, $1.5 billion range to attract the capital. It’s still our vision to grow Avenue Bank.

“But we are also opportunistic as we look at other opportunities to acquire other businesses, other banks, wealth management companies. When you’re growing at a compound growth rate of about 18 percent to 20 percent, when you can get that kind of growth organically, we think it makes sense for us to continue to look for those great bankers in the marketplace, opportunities to grow what we call verticals – professional practice management medical practices, lawyers, CPA firms, that kind of thing.

“We have a not-for-profit vertical that we feel very strongly about. So we really see opportunity, with this community growing the way it is, and that provides us a chance to grow the business. We’ve got our sights on that first $1 billion now, and we’re looking to be $3 billion.

“The larger you grow and build your capital base, the larger transactions and relationships you can develop. You’ve got to think big. So we’ve got still a big vision for this company.

“We are blessed to be in Middle Tennessee. And when you look at the state’s gross domestic product, 30 percent of that is created in this 10 county area.

“The downside of this is you’ve got people from every marketplace in the country looking at Texas and Tennessee to relocate. So that’s a challenge. A lot of people would feel that Nashville could be over-banked.

“So it’s not surprising that we would see a lot of the smaller banks merging to get some scale. It certainly helps cover the additional compliance costs and regulatory costs that we have.’’

Q: Have you found those costs to be burdensome?

A: “Every one of our managers in the company own compliance. So that means we’re not looking at adding in a person or two that just handles compliance. It’s built into everybody’s job every day. So if you do that, then this is just part of doing business.

“And we can use outside resources. A lot of the Dodd-Frank implementation is around the mortgage business. They’re really focusing on the ‘too big to fail’ banks. Some of it triggers at $10 billion, some at $5 billion.

“So for a $1 billion community bank like us, we’re not seeing that much except for the mortgage piece. And if you were doing mortgages and underwriting them properly … Dodd-Frank is not as onerous as for people that had to rebuild the process they were using.’’

Q: As a community leader, what is your perspective on Nashville’s future growth?

A: “I think what we’ve learned is it is really, really important that local government be strong, that you have good leadership and good business leaders engaged. I think the Chamber of Commerce here is unusually good for a city of our size. They’ve done a fabulous job at driving economic development.

“So when you have a vision you can handle the cycles that hit. You take advantage of those strengths that you have as a city – Music City Center being a good example of hospitality driving revenue and being able to compete now for 60 percent or 70 percents of those kinds of conventions that bring revenues here.

“People from out of town spend money in our marketplace. We’re fortunate. We’re a destination city. As long as we can keep the cost of living below what other communities are, and have the drivers of revenue, I think we can fund those things that some big cities have difficulty with. What it takes is recognizing those issues and getting ahead of them.

“Education is always going to be number one in every city. And safety. We’re a very safe city and hope to keep it that way. And then you look at economic development. But I think the new mayor and the state are going to have to address the infrastructure and transportation issues.

“The middle part of the state is growing rapidly, and we have to look to the future. It will be disruptive for the folks that are here today, but one of the weaknesses we have here is that public transportation is just not available in Nashville.

“The educated workforce is coming here. We’ve always been an entrepreneurial city, but it’s even a bigger focus now with technology and the Entrepreneur Center here today. There are great angel investors out there, and the EC has really stepped up, not just here, but nationally, so we’ve got a bright future for growing and building businesses.

“Look at how the healthcare industry has grown up here since the late ’60s, early ’70s. They created wealth, they reinvested in building that industry here. And in the future, I think you’ll see that people who sell their businesses will start another one.

“Great entrepreneurs keep starting new businesses. You want to create an environment where they can be successful, and I think that’s what our community leaders have done.

“I hear people say, ‘Let’s slow the growth.’ Sometimes you don’t have that opportunity. So let’s manage it. Let’s have leaders lead it.

“We’ve been fortunate to have great leadership at the state and local levels for the last 25 or 30 years. As long as we continue that, and we get the right people in place, I think we can solve the challenges in our community.’’

Q: You started Avenue at a point in your life when most people would be thinking about retirement (Samuels is now 67). What’s next for you, personally?

A: “I’m excited about the fact that I have the opportunity to be in a great, growing market with a lot of young people. We had a dream of creating that signature bank for Nashville and to see that fulfilled is really important.

“Nashville as a city has grown to be able to support these local banks and that’s an important industry for us. So, I’m very excited about the next few years for me to stay very involved, and hopefully, I can inspire people to look at entrepreneuring more businesses here and be a part of that.

“The No. 1 thing is you’ve got to have a great attitude about what you do. And if you’re going to build a successful business, you’ve got to also be able to attract smart people and let them be who they are.

“Sometimes I say it’s my job to be in charge of the climate; I’m the climate control here. So we go out and hire the best people we can possibly hire, and then I get out of their way.

“When you can come in, and the CEO is willing to listen and then take action, I think it creates the kind of environment that people want to be part of. We’ve got a lot of different personalities here, a lot of smart people, and they want to be successful. So if you encourage them to challenge the status quo, deliver new ideas and be innovative and creative, you can be successful.’’

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