I’m at a 1909 Neoclassical landmark in San Francisco for Bank Director’s “Valuing the Bank” program. Setting up shop in the beautiful Ritz-Carlton on Nob Hill is a real treat, as is welcoming a number of bank CEOs, chairmen, CFOs and outside directors to the Bay Area. Let me share a few of my takeaways from yesterday’s conversations and tee up what’s ahead this morning.
What Drives Value Creation
To open the day, we reviewed the operating environment in terms of “what drives value creation.” Beginning with a presentations made by the Hovde Group and Moss Adams, we touched on issues like margin compression, deposit funding, efficiency improvements and business model expansion in the context of the current environment. One interesting, M&A-specific fact from this session: the market for high-performing banks is at a 5-year high. Consider the number of deals greater than $25 million in deal value that were priced above 150% of tangible book value: in the last 4 quarters: 44… for the prior 18 quarters: 45.
Understanding Risk in the Context of Determining a Bank’s Worth
I made note that credit unions have seen loans grow 9.8% this past year; far quicker than the 4.9% growth at banks (h/t Hovde Group). So as much as I’ve recently harped on non-bank competition from players like Apple and PayPal, a stark reminder that banks also need to find a way to compete with lower rates offered by credit unions to reverse this trend of losing loans. Back to the M&A side of things, it was suggested that to maximize value, potential sellers should consider selling less profitable/smaller/rural branches.
This morning, we will look at corporate governance and talent-specific opportunities to strengthen one’s institution. After a series of peer exchanges, I am excited to tackle the idea that banks are sold more than they are bought. Indeed, our final session of this program pairs David Brooks, the Chairman & CEO of the NASDAQ-listed Independent Bank Group and Jim Stein, Vice Chairman & Houston Region CEO, Independent Bank. Jim was the CEO at Bank of Houston and sold that bank to David’s, and together, will talk with me about how that deal was struck.