Exclusive: Ameriana Bank CEO Talks Business With Expert Bank Investor

Ameriana Bancorp ASBI has been a top performer in 2014. A recent jump in share price puts the stock 20.3 percent higher than when the year began. According to community stock expert, Tim Melvin, Ameriana is a top stock to invest in. Melvin writes about his picks for Banking on Profit.

In an exclusive interview, CEO Jerry Gassen expressed optimism toward the regulatory environment, balance sheet improvements and more.
You are very involved with the single family and commercial real estate focused market. Are those markets holding up as well as the general economy in Indiana?
Residential took a bit of a decline during the downturn, but those values have rebounded and actually exceeded the pre-recession valuations. So, the markets recovered from this challenge. On the single family side is what I would characterize as inadequate supply.
Ameriana has made steady improvements in the total non-performing assets on the balance sheet. What’s been your approach to bring those down? I know some small banks are still struggling with this.
It starts with meeting regularly to discuss problem asset resolution. We have a dedicated special asset manager and you know we have been diligent in writing properties down to current market values, not pretending that they’re going to come back if they decline.
In your last quarterly earnings release, you referred to a strong commercial pipeline. Can you tell us a little bit more about that?
It was hard to find anybody willing to try and grow their business or having a need to grow their business… We’ve seen activity on the C and I side, where businesses are trying to replace rolling stock or equipment. Some companies are expanding, so we’re financing some building expansion. It’s really across the board that we’ve seen good loan activity.
The problem has been when we approve loans that it’s hard to drag them across the finish line. This is due to zoning issues or just the deals take longer than anticipated to close, but we’re still expecting pretty consistent long growth third quarter and well into the fourth quarter.
How are you dealing with what can only be called a new regulatory environment? A lot of the smaller banks are having a hard time dealing with this.
We’re doing extremely well and I won’t join my fellow bankers in whining. We take a very proactive approach. As you know, I can’t change the will of the Congress, nor can I change the will of the regulators; the best you can do is comply. So, we have developed a compliance team and a management mindset that says we’ll get it done.
Has the cost of doing all that been egregious in any way or you just kind of been able to work through it?
That’s the cost of doing business.
Let me put it in a context that a lot of people understand. If your IT servers go out, you replace them and continue to invest in upgrading that technology. Compliance is no different. There’s a certain level of fixed cost you have to continue to invest and given that we’ve had this tsunami of regulations, yeah, you have to add some cost. If you’re going to be in the game, that’s what you got to do.
When I look at your service area, you’ve got a lot of the bigger banks with a large deposit basis in your area. Do you have any specific plans to take share from the giants?
We don’t have to do a lot of marketing to take share. They do a nice job of shooting themselves in the foot.
On the deposit side it’s been an interesting dilemma because the lower rate environment and excess liquidity hasn’t created a need to aggressively go after increasing your deposit share. In fact, it comes at a cost that you really can’t afford because there’s no point. If you don’t have enough loan demand, there’s no place to lay it off in the investment portfolio until you can use it for lending.
So, it’s an interesting balance where you maintain your share, you stay competitive, but nobody’s being aggressive going after more deposits because there hasn’t being a need. Now, this may change with the rising interest rates and so on… But, competing against the large banks, they do enough to throw customers out or make them angry and we provide an excellent alternative to the large banks.

On the shareholders’ side, you’ve got a bunch of pretty well-known bank stock activists. Do you have a pretty good relationship with those guys? I know they can be pests.
We love them.
I’ve worked hard since I’ve joined the bank to maintain relationships with all our shareholders. At any given time, any shareholder, quite honestly, can be an activist.
My belief is be transparent... Don’t create surprises, don’t do things that diminish your holder value and make sure you communicate the direction of the company. At any given time, somebody might disagree with that but at least we’ve been clear and consistent on the path that we have taken.
How do you see all these banking in general and your bank in particular playing out over, say, the next three to five years?

It’s a tough question. As I said, we have a strategic plan for the company which involves continuing to expand in the Indianapolis market. We recently opened one office in another one of the sub-urban markets. We’ll be opening another office in probably 30 days or thereabouts. And so, we’re going to continue to focus on organic and measured growth in the greater Indianapolis market. As far as market forces, I can’t control those. We’ll have to see how all that plays out.
Now a lot of people are predicting a consolidation wave in the community banks. Do you see that developing in your area?
There are about 110 banks left in the Indiana market. A lot of them are small and a lot of them are not desirable, so I’m not sure how much more consolidation will occur. But, there are very real issues in the community bank space.
As you know, the regulatory burden for a very small bank is clearly an issue. You know the succession plan for boards and management is an issue. Leadership and management fatigue is an issue. And so, there are a lot of reasons that would compel a bank to seek a merger partner.
The markets are relatively favorable to acquisition right now. Bank values have bounded, the multiples are a little better, so I think you’ll see continued activity. It’s like after an earthquake: everybody predicts the tsunami, but the tsunami never materializes 99 percent of the time. I don’t think there’ll be a tsunami. I think it’ll be just measured business decisions on the part of banks for all the reasons I enumerated.

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