FAM Funds CIO John Fox & FAM Small-Cap Fund Co-Manager Andrew Boord
FAM recently attended KBW’s Winter Financial Services Conference. Here are some key trends from the meeting that reinforce our investment thesis within our small regional bank positions.
- Geographic Shift: The movement of people from high tax states to low tax states appears to be accelerating, benefiting places like Nashville, Dallas, Charlotte, and Florida, while making it harder to grow banks in other areas.
- Industry Consolidation: The merger of SunTrust and BB&T may benefit a number of our bank holdings as impacted bankers and customers migrate to other institutions. More broadly, “merger of equals” may become a trend as there are few smaller banks in attractive urban markets left to acquire on a “bolt-on” basis.
- Loan Growth & Quality: The outlook is for moderate loan growth in 2019. There are no systemic concerns around credit quality. Banks are being a little more careful given how long the upcycle has continued and shrinking exposure in certain areas such as hotel construction.
- Net Interest Margins: Pressure from competition for deposits is easing and margins should be roughly flat or only slightly lower relative to 2018. Stable margins plus high loan quality support our favorable outlook for banks.
- Culture is Key: Spending time with bank CEOs reinforces our view that leadership and culture are paramount because every bank has essentially the same opportunity set.