Issue #2: Today, more than ever, a new issue must be priced attractively. That is to say if a bank's capital instrument is placed outside the bank's trade area to semi-sophisticated investors, there must be some compelling incentive for the buyer. In Monarch's case, their "Advisor" suggested pricing the offering at a level that was not perceived as an attractive value by knowledgeable investors. We can understand the initial reluctance on the part of the present Shareholders (the Board and Senior Management control approximately 8% of the outstanding shares) to happily accept the dilution of their positions by discounting the new issue short of book. However, a Board must always realistically weigh the, alternatives. Should a bank be in a capital-impaired position and thereby fail to meet regulatory requirements? The alternative is not a pleasant one. If the best way to attract new subscribers is to accept a dilution in present stock value (the new issue offered at less than present book value) then so be it. So perhaps at best the Monarch Board had misplaced concerns. It soon becomes a question of: Is 70% or 75% of something worth more than 100% of nothing? With a recent operating history such as Monarch's, is it any wonder that investors were not pushing and shoving to get in line to trade their checks for overvalued certificates?

The Outcome: The Monarch results are now in. The outcome, which is now known to all, was predicted by some. Monarch's "Advisor/dealer" network raised less than $200,000. During a recent regulatory exam, Monarch had to make a further charge directly to capital of some $300,000. This figure represented costs associated with this very expensive "best effort" program.

At year's end 1993, Monarch's core capital ratio was 6%. As of this writing, their core capital stands at less than 4% and they may face the possibility of yet a deeper crisis.

Lesson #1: Always carefully verify the success claims of any "Advisor" group that presents a simple solution to a complex problem. Such an illusionary, slam-dunk plan should raise questions and elicit direct checks with the "Advisor's" latest client(s) to validate that they can make good on their "you sit back, we do the rest" capital plan.

Lesson #2: Know when to say when! When it became evident that the sale was sluggish and time was slipping away, the bank should have quickly stepped in and begun to ask some hard questions of their "Advisor." Based on the answers received, options could have been considered and exercised. Know when to step in, have a Plan B and know when to pull the plug. The old adage "if it promises to work miracles, it's probably a miracle if it works" holds true in this instance.

Marine National Bank

The Overview: First and foremost, Marine National Bank had decided upon a pro-active strategy. They expected to: a) increase capital before they incurred any regulatory order to do so: b) position themselves to accept the business generated by the recovering Southern California Market and: c) acquire other community banks unable to weather the economic downturn. To accomplish this, they considered three possible options: Option #1) a private placement Option #2) the "Advisor" broker-dealer network and Option #3) Bankmark's directed capital acquisition program.

Option #1: A private placement was a quick solution. The Bank identified a few financially strong business associates who would be willing to invest $1.5 million in new stock. While this option could be quickly implemented, it only addressed short-term issues. The Bank really needed $3 million, and this plan would have concentrated the stock in the hands of a few, thus not broadening the Shareholder base.

Option #2: The broker-dealer arrangement was considered (presented coincidentally by the same "Advisor" engaged by Monarch Bank). While the "Advisor's" promise of "we do it all for you" had appeal, this approach was rejected because of the 15% commission structure. In addition to this, Marine National Bank failed to see the value in their stock being purchased by investors out of the area who would, or could, do little to expand the business base of Marine National Bank once the offering closed.

Option #3: Bankmark's program had the most appeal. Marine National Bank liked the idea that stock would be placed within the community, thereby opening doors for other business from new investors. In addition, they wanted to expand the existing narrow Shareholder base (control was in the hands of approximately 15 Shareholders) and create more liquidity for the stock. Finally, and no less important, was the fact that Bankmark's fee was more cost effective.

The Outcome: This capital campaign represented one of the few times in Marine National Bank history that it launched and actually completed a marketing program. Bankmark's strategy creates a situation where bank officers must meet and work one-on-one with potential investors. Marketing skills are developed and applied. All the while the program measures the officers' results (no effort, no sale, no increase in capital).

When the results were in, Marine National Bank had hosted 71 investment meetings and met face to face with 1,271 potential new investors/customers. Many attendees were existing customers with which the Bank had little or no contact for some time. During the campaign, and in the wake of three bank failures right in Marine National Bank's backyard, the Bank picked up 150 new shareholders, increased its capital by $1.5 million and, equally important, increased deposits by some $10 million.

Page 2 of 5 | Continue -->