Do You Know These 3 Cs of Banking?

Quickly:

  • When it comes to talk about bank mergers and acquisitions, It has been written that the questions rarely change — but the conversations prove irresistible.

By Al Dominick, CEO of DirectorCorps — parent co. to Bank Director & FinXTech.

PHOENIX, AZ — If you’re with us here at the Arizona Biltmore for Bank Director’s annual Acquire or Be Acquired Conference, you’ve heard that banks with low‐cost core deposits continue to attract interest from acquirers.  So as banks wrestle with increased funding costs, that observation sparked an idea about what constitutes the “three Cs” of banking today:

  1. Compliance
  2. Cost Control
  3. Consolidation

For instance, having good on-going relations with one’s regulators is hugely important. In fact, I heard several prominent attorneys share that regulatory risk remains the greatest obstacle to completing an M&A deal.  So having the bank in position to act quickly and confidently when an opportunity arises is a major advantage in today’s competitive M&A environment.  I take this to mean no enforcement actions, satisfactory CRA, good HCR results, etc.

As was discussed yesterday afternoon, when an acquirer can present a credible narrative that a potential deal is consistent with a well-considered strategy — and that the company has the infrastructure appropriate to the new organization, you find a well received merger.

In terms of consolidation, we saw a number of presentations note the 261 bank M&A deals, worth an aggregate $26.38 billion, announced in 2017.  As a point of reference, 241 deals were announced — worth an aggregate $26.79 billion — in 2016.  According to S&P Global Market Intelligence, the median deal value-to-tangible common equity ratio climbed significantly in 2017 to 160.6%, compared to 130.6% for 2016.  Last December alone, 32 deals worth a combined $1.84 billion were announced and the median deal value-to-tangible common equity ratio was 156.5%.

Throughout the fourth quarter, there were 74 bank deals announced in the US, which was the most active quarter since 83 deals were announced in the fourth quarter of 2015. However, last quarter’s $4.4 billion aggregate deal value was the lowest since the third quarter of 2015, which totaled $3.43 billion.

These are by no means the only Cs in banking.  Credit, core technology providers, (tax) cuts… all, huge issues.  So along these lines, I made note of a few more issues for buyers, for sellers — and for those wishing to remain independent.  Take a look:

If you are interested in following the final day of the conference via our social channels, I invite you to follow me on Twitter via @AlDominick, the host company, @BankDirector, or search #AOBA18 to see what is being shared with (and by) our nearly 1,200 attendees.

10 Questions I Plan To Ask During Acquire Or Be Acquired

Quickly:

  • Despite improving economic conditions, the business of banking remains difficult.

By Al Dominick, CEO of DirectorCorps — parent co. to Bank Director & FinXTech.

PHOENIX, AZ — For all the talk of bank consolidation, there are still 5,700+ banks in the United States.  But let’s not kid ourselves.  For many community banks today, earnings pressures + regulatory and compliance costs + the continued impact of technology = a recurring challenge.

While the number of banks in business will inevitably shrink over the next 10 years — perhaps being cut in half — I remain bullish on the overall future of this industry. If December’s tax reform spurs capital spending and job creation by small- and medium-sized businesses, many of the banks joining us here in Arizona stand to benefit. But will the recent tax cut induce companies to invest more than they already planned to? This is but one of a number of questions I look forward to asking on stage through the first day of Bank Director’s Acquire or Be Acquired Conference.

Below, ten more questions I anticipate asking:

  1. Are FinTechs the industry’s new de novos?
  2. What does it mean that the banking world is deposit rich yet asset poor?
  3. Why are certain credit unions thinking about about buying banks?
  4. In terms of technology spending levels, where are dollars being earmarked and/or spent?
  5. With respect to small business lending, do credit unions or FinTechs pose a more immediate challenge to community banks?
  6. What is an appropriate efficiency ratio for a bank today?
  7. Will big M&A buyers get back in the game this year?
  8. What are some of the critical items in due diligence that are under appreciated?
  9. What does an activist investor look for in a bank?
  10. Is voice recognition the next huge source of growth for banks?

We have an exciting — and full day — coming up at the Arizona Biltmore. To keep track of the conversations via Twitter, I invite you to follow @AlDominick @BankDirector and @Fin_X_Tech.  In addition, to see all that is shared with (and by) our attendees, we’re using the conference hashtag #AOBA18.

21 Reasons I Am Excited About Acquire or Be Acquired

Quickly:

  • Making banking digital, personalized and in compliance with regulatory expectations remains an ongoing challenge for the financial industry. This is just one reason why a successful merger — or acquisition — involves more than just finding the right cultural match and negotiating a good deal.

By Al Dominick, CEO of DirectorCorps — parent co. to Bank Director & FinXTech.

PHOENIX, AZ — As the sun comes up on the Arizona Biltmore, I have a huge smile on my face. Indeed, our team is READY to host the premier financial growth event for bank CEOs, senior management and members of the board: Bank Director’s 24th annual Acquire or Be Acquired Conference. This exclusive event brings together key leaders from across the financial industry to explore merger & acquisition strategies, financial growth opportunities and emerging areas of potential collaboration.

AOBA Demographics

The festivities begin later today with a welcoming reception on the Biltmore’s main lawn for all 1,125 of our registered attendees.  But before my team starts to welcome people, let me share what I am looking forward to over the next 72 hours:

  1. Saying hello to as many of the 241 bank CEOs from banks HQ’d in 45 states as I can;
  2. Greeting 669 members of a bank’s board;
  3. Hosting 127 executives with C-level titles (e.g. CFO, CMO and CTO);
  4. Entertaining predictions related to pricing and consolidation trends;
  5. Hearing how a bank’s CEO & board establishes their pricing discipline;
  6. Confirming that banks with strong tangible book value multiples are dominating M&A;
  7. Listening to the approaches one might take to acquire a privately-held/closely-held institution;
  8. Learning how boards debate the size they need to be in the next five years;
  9. Engaging in conversations about aligning current talent with future growth aspirations;
  10. Juxtaposing economic expectations against the possibilities for de novos and IPOs in 2018;
  11. Getting smarter on the current operating environment for banks — and what it might become;
  12. Popping into Show ’n Tells that showcase models for cooperation between banks and FinTechs;
  13. Predicting the intersection of banking and technology with executives from companies like Salesforce, nCino and PrecisionLender;
  14. Noting the emerging opportunities available to banks vis-a-vis payments, data and analytics;
  15. Moderating this year’s Seidman Panel, one comprised of bank CEOs from Fifth Third, Cross River Bank and Southern Missouri Bancorp;
  16. Identifying due diligence pitfalls — and how to avoid them;
  17. Testing the assumption that buyers will continue to capitalize on the strength of their shares to meet seller pricing expectations to seal stock-driven deals;
  18. Showing how and where banks can invest in cloud-based software;
  19. Encouraging conversations about partnerships, collaboration and enablement;
  20. Addressing three primary risks facing banks — cyber, credit and market; and
  21. Welcoming so many exceptional speakers to the stage, starting with Tom Michaud, President & CEO of Keefe, Bruyette & Woods, Inc., a Stifel Company, tomorrow morning.

For those of you interested in following the conference conversations via our social channels, I invite you to follow me on Twitter via @AlDominick, the host company, @BankDirector and our @Fin_X_Tech platform, and search & follow #AOBA18 to see what is being shared with (and by) our attendees.

Consolidation Trends in Banking

By Al Dominick, CEO of DirectorCorps — parent co. to Bank Director & FinXTech

Quickly:

  • Nationwide consolidation in the banking space will continue; at least, that is my sense based on conversations and presentations at Crowe Horwath’s Bank Leadership and Profitability Improvement Conference.

_ _ _

So much of this morning was spent talking about growth through mergers and acquisitions (M&A) that I couldn’t help but flash back to January’s Acquire or Be Acquired conference.  Thematically, I went into that event expecting the unexpected.  Given this morning’s presentations on growing one’s bank, I believe that mindset still holds water.

For example, Tom Michaud, the president and CEO of Keefe, Bruyette & Woods, described 2016 and 2017 as one bumpy ride.  From recession fears to lower-for-longer rates, the initial euphoria after the presidential election (at least in terms of stock prices, which went up 27% – 30%) to the uncertainty of regulatory relief, he reminded us of where we are coming from relative to where we might be heading.  I am always curious to hear what Tom thinks about the state of banking; below, ten things I learned from him this morning:

  1. The interest rate outlook is a bit cloudier than it was in November;
  2. Regional banks have had excellent earnings per share growth relative to the overall market;
  3. We have an active pace of consolidation — nearly 5% of the industry is merging;
  4. The most prolific acquirers can buy 2, maybe 3 banks, at best each year;
  5. M&A deals are getting bigger — not ’97 or ’98 levels, but bigger than where they’ve been;
  6. Large buyers are not in the game right now — buyers $25Bn and below continue to drive M&A activity (case-in-point, 95% of total M&A deals since 2011 have buyer assets less than $25Bn);
  7. Buyers are completing their acquisitions in 6 months or less;
  8. Banks with strong tangible book value multiples are dominating M&A;
  9. There have been 37 bank IPOs since 2013 — and the market today is open to small bank IPOs; and
  10. If you’re running a bank, you better be watching (like a hawk) the FinTech charters being pursued by companies like SoFi.

Following Tom’s presentation, we doubled down on growing-the-bank type topics with a session involving Rick Childs, a partner at Crowe Horwath, Jim Ryan, the CFO at Old National Bancorp, Jim Consagra, EVP and COO at United Bancshares and Bryce Fowler, chief financial officer at Triumph Bancorp.

From pricing discipline to acquisitions of privately-held/closely-held companies, the guys made clear that “there are only so many deals out there.”  They shared how boards need to determine the size they want to be, honestly assess the talent they have relative to such aspirations and determine how growth through M&A aligns with enterprise risk management positioning.  Essentially, their remarks made clear that a successful merger or acquisition involves more than just finding the right match and negotiating a good deal.

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As I shared with yesterday’s post, my thanks to Crowe Horwath, Stifel, Keefe Bruyette & Woods and Luse Gorman for putting together this year’s Bank Leadership and Profitability Improvement Conference at The Inn at Spanish Bay in Pebble Beach, California.

Opportunities Abound at Acquire or Be Acquired

#AOBA17 conference intel (Monday)
By Al Dominick, CEO of Bank Director | @aldominick

Quickly

  • Earnings pressures, regulatory/compliance costs + the impact of technology will continue to make it more difficult for banks to compete and be profitable, which will continue to generate consolidation.
  • The increase in stock prices and capital raising activity is likely to provide an additional catalyst for M&A in early 2017
  • Raising capital is an immediate and viable option for most banks today

_ _ _

Here at Bank Director’s annual Acquire or Be Acquired conference, it is clear that to maximize shareholder value, a bank’s leadership must not only plan for the future but also take advantage of today’s opportunities.

For those interested in following the conference conversations via social channels, I invite you to follow me on Twitter via @AlDominick, the host company, @BankDirector and its @Fin_X_Tech platform, and search & follow #AOBA17 to see what is being shared with (and by) our attendees.

3 Things to Know from Day 1 at Acquire or Be Acquired

#AOBA17 conference intel (Sunday/Monday)
By Al Dominick, CEO of Bank Director | @aldominick

Quickly

  • New competitors and innovations are continually changing the business of financial services.
  • The continued shift towards technology, data, algorithms and smart analytics impacts how value and profit are created.
  • In the last 10 years, this is the best time for banks to access the capital markets.

_ _ _

The possibility of less regulation and a change in corporate tax policy have quite a few attendees feeling bullish on the immediate future of community banking.  Below, I share why I am so optimistic about the state of banking in 2017.

For those interested in following the conference conversations via social channels, I invite you to follow me on Twitter via @AlDominick, the host company, @BankDirector and its @Fin_X_Tech platform, and search & follow #AOBA17 to see what is being shared with (and by) our attendees.  To see what I’ve already shared from this year’s conference, check out my Saturday outlook and yesterday’s mid-day recap.

Trending at Bank Director’s Acquire or Be Acquired Conference

#AOBA17 conference intel (Sunday)
By Al Dominick, CEO of Bank Director | @aldominick

Quickly

  • We could see over 200 merger transactions despite a declining number of banks in 2017.
  • There is a clear trend on M&A pricing multiples being driven by bank profitability and asset quality.
  • For banks, too little capital is not the only issue — too much capital and the inability to produce sufficient returns on capital is equally problematic.

_ _ _

What is my bank worth?  How will the changing tax environment affect bank values?  When is the right time to buy (or sell) a bank?  What are the most significant factors affecting bank value?  These were just some of the questions surfaced this morning here in Arizona.  In this video recap of Sunday morning’s presentations at Bank Director’s Acquire or Be Acquired Conference, I share a few observations about the conversations taking place around issues such as these.

Given the focus of this three-day event, I anticipate many subsequent presentations building off of these points.  For those interested in issues such as these, I invite you to follow me on Twitter via @AlDominick, the host company, @BankDirector and its @Fin_X_Tech platform, and search & follow #AOBA17 to see what is being shared with (and by) our attendees.

Welcome to Bank Director’s 2017 Acquire or Be Acquired Conference

#AOBA17 conference intel (Saturday)
By Al Dominick, CEO of Bank Director | @aldominick

Quickly

  • Banks have benefited from rising stock prices and interest rates, which are expected to boost low net interest margins.
  • The change in the U.S. presidency has resulted in a steepened yield curve, as investors predict improved economic growth.
  • Currently, many anticipate regulatory relief for banks and the prospect of major corporate tax cuts.

_ _ _

As we prepare to kick off our 23rd Acquire or Be Acquired Conference in Phoenix, Arizona, I anticipate the general mood to be good, even as I “Expect the Unexpected.”  686 bankers comprise the 1,076 attendees at Bank Director’s event here at the JW Marriott Phoenix Desert Ridge Resort & Spa — a figure that reflects the participation of 379 financial institutions.

For those interested in following the conference conversations via social channels, I invite you to follow me on Twitter via @AlDominick, the host company, @BankDirector and its @Fin_X_Tech platform, and search & follow #AOBA17 to see what is being shared with (and by) our attendees.

Expect the Unexpected

“If past history was all that is needed to play the game of money, the richest people would be librarians.” – Warren Buffett

#AOBA17 pre-conference intel
By Al Dominick, CEO of Bank Director | @aldominick

This may be a phenomenal—or scary year—for banks. Banks have benefited from rising stock prices and rising interest rates, which are expected to boost low net interest margins. Indeed, the change in the U.S. presidency has resulted in a steepened yield curve, as investors predict improved economic growth. Currently, many anticipate regulatory relief for banks and the prospect of major corporate tax cuts. Such change could have a significant impact on banks; however, those running financial institutions also need to keep an eye on potential challenges ahead.

As we head to our 23rd Acquire or Be Acquired Conference in Phoenix, Arizona, with a record breaking 1,058 attendees Jan. 29-Jan. 31, I am expecting the mood to be good. Why wouldn’t it be? But what is on the horizon are also fundamental changes in technology that will change the landscape for banking. What will your competitors be doing that you won’t be? Our conference has always been a meeting ground for the banking industry’s key leaders to meet, engage with each other and learn what they need to do deals. It is still that. Indeed, most of the sessions and speakers will be talking about M&A and growth.
But this year, more than 100 executives from fintech companies that provide products and services to banks join us in the desert, on our invitation. We want to help banks start thinking about the challenges ahead and how they might solve them.

Here are some things to consider:

  • How will the Office of the Comptroller of the Currency’s limited-purpose fintech charter enable more established fintech companies to compete with some of the incumbents in the room?
  • If smaller banks are indeed relieved of many of the burdens of big bank regulation, will they use the savings to invest in technology and improvements in customer service?
  • How will customer expectations change, and from whom will customers get their financial services?

To this last point, I intend to spotlight three companies that are changing the way their industries operate to inspire conversations about both the risks and rewards of pursuing a path of change. Yes, it’s OK to think a little bit beyond the banking industry.

Spotify
Rather than buying a CD to get their favorite songs, music-lovers today favor curated playlists where people pick, click and choose whom they listen to and in what order. There is a natural parallel to how people might bank in the future. Just as analytics enable media companies to deliver individually tailored and curated content, so too is technology available to banks that might create a more personalized experience. Much like Spotify gives consumers their choice of music when and where they want it, so too are forward-looking banks developing plans to provide consumer-tailored information “on-demand.”

Airbnb
The popular home-rental site Airbnb is reportedly developing a new service for booking airline flights. Adding an entirely new tool and potential revenue stream could boost the company’s outlook. For banks, I believe Airbnb is the “uber-type” company they need to pay attention to, as their expansion into competitive and mature adjacent markets parallels what some fear Facebook and Amazon might offer in terms of financial services.

WeChat
One of China’s most popular apps, the company counts 768 million daily active users (for context, that’s 55 percent of China’s total population). Of those users, roughly 300 million have added payment information to the wallet. So, WeChat Pay’s dominance in the person-to-person payments space is a model others can emulate. PayPal already is attempting such dominance, which Bank Director magazine describes in our most recent issue.

Many of those attending our conference also have done amazing things in banking. I can’t name all of them, but I’d be remiss to not mention CEO Richard Davis of U.S. Bank, our keynote speaker. After a decade leading one of the most phenomenal and profitable banks in the country, he is stepping down in April. We all have something to learn from him, I’m sure.  Let us think about the lessons the past has taught us, but keep an eye on the future. Let’s expect the unexpected.

*note – this piece first ran on BankDirector.com on January 26, 2017

Look At Who Is Attending Acquire or Be Acquired

In just 20 days, we raise the lights on our 23rd annual Acquire or Be Acquired Conference.  This is Bank Director’s biggest event of the year, one primarily focused on banking’s “great game” — mergers and acquisitions.  My team has spent considerable time and energy developing a spectacular event focused on growth-related topics that range from exploring a merger to preparing for an acquisition; growing loans to capturing efficiencies; managing capital to partnering with fintech companies.  To see the full agenda, click here.

Widely regarded as one of the banking industry’s premier events, we have more than 1,000 people registered to attend AOBA later this month — an all-time high.  We couldn’t do this alone, and over the course of these 2 ½ days, executives from many of our industry’s leading professional services firms and product companies share their perspectives on “what’s now” and “what’s next.”  I invite you to take a look at all of the corporate sponsors joining us:

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As I shared in a recent post, bank executives and their boards face some major issues without clear answers.  Before heading out west, I’ll share more about the banks (and 660+ bankers) joining us at the JW Marriott Phoenix Desert Ridge Resort & Spa.  Until then, I invite you to learn more about the companies supporting this conference by hopping over to bankdirector.com. To follow the conversations happening around this conference on Twitter, I’m @aldominick and we are using #AOBA17.

Eagerly Anticipating Bank Director’s Acquire or Be Acquired Conference

In the face of this month’s political transitions, bank executives and their boards face some major issues without clear answers.  For instance, many continue to speculate on the Fed’s interest rate hikes while others pontificate on potential regulatory changes (hello CFPB).  While convenient to cite November’s election results, keep in mind that we, as an industry, were already in a period of significant transformation.  Still, it’s a titanic-sized understatement to say Republican presidential nominee Donald Trump’s surprise victory shook up the world. 

While change remains a constant in life, I am personally and professionally excited to return to the Arizona desert later this month for a great tradition: Bank Director’s annual Acquire or Be Acquired Conference.  With a record turnout joining us at “AOBA,” I’ve begun to assess various business models of institutions I know will be represented.  For instance, those categorized by:

  • Organic Growth vs. Acquisitive Growth;
  • Branch Light Model vs. Traditional Models; and
  • CRE Focused Lenders vs. C&I Focused Lenders.

I am finding there are multiple dimensions to such business structures — and I anticipate conversations later this month will help me to better understand how the market values such companies.

As AOBA helps participants to explore their financial growth options, I am keen to hear perspectives on the “right size” of a bank today — especially if certain asset-based constraints (think $10B, $50B) are removed.  Given a number of recent conversations, I expect increased IPOs and M&A activity in the banking space and look forward to hearing the opinions of others.

Finally, with the advance of digital services, I’m curious how technology trends might impact bank M&A, and more broadly, banking as a whole given the impact on branch networks.  Indeed, as branches become less important, they become less valuable… which impacts deal valuations and pricing going forward.

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Between now and the start of the conference, I intend to share a whole lot more about Bank Director’s 23rd annual Acquire or Be Acquired Conference on this site, on LinkedIn and via Twitter. If you’re curious to keep track, I invite you to subscribe to this blog, and follow me on twitter where I’m @aldominick and using #AOBA17.

Banks Are Feeling the Pressure to Grow

Bank executives and board members are feeling significant pressures to grow in 2016, according to Bank Director’s 2016 Bank Mergers & Acquisitions Survey, sponsored by Crowe Horwath LLP.

By Al Dominick, President & CEO, Bank Director

Bank CEOs and their boards face some very significant challenges in the years ahead.  The sharply increased cost of regulatory compliance might lead some to seek a buyer; others have responded by trying to get bigger through acquisitions in order to spread the costs over a wider base.  While transforming a franchise through organic growth is desirable, I continue to see mergers & acquisitions (M&A) remaining the fastest avenue for growth in banking today.

For those who joined us at our annual Acquire or Be Acquired Conference last month, you may recall that Bank Director’s team surveyed 260 chief executive officers, chairmen, independent directors and senior executives of U.S. banks in advance of the conference to examine current attitudes and challenges regarding M&A — and what drives banks to buy and sell.  Three points stand out to me:

  1. Of the respondents who served as a board member or executive of a bank that was sold from 2012 to 2015, a full 55% say they sold because shareholders wanted to cash out.
  2. Despite concerns that regulatory costs are causing banks to sell, just 27% cite this burden as a primary motivator.
  3. Credit quality issues are most often cited barriers for banks being able to complete acquisitions.

Certainly, “why banks are bought or sold” involves much more than just the numbers making sense.  At AOBA, it was made abundantly clear that M&A remains attractive inasmuch as successful transactions improve operating leverage, earnings, efficiency and scale.  Moreover, attendees shared during one of our interactive sessions that earnings potential is the most attractive characteristic of an institution they are interested in acquiring.

Bank Director and Crowe Horwath LLP AOBA info

In his “Buy Or Die In Phoenix: A Recap Of The 2016 Bank Director’s Acquire Or Be Acquired Conference,” Tim Melvin neatly summarizes the conundrum many bank CEOs face today.  “Competing against their bigger, better funded rivals is… (a) huge obstacle to growth. The days of opening branches on the other side of town, then the next town over and so on to grow a bank are over.”  He concludes by recounting a point made by Steve Hovde, an investment banker we’ve worked with for a number of years: “to thrive, you have to get bigger. To get bigger you probably have to buy and again, if you can’t buy you probably have to sell.”