Mele Kalikimaka

The banking marketplace today is dramatically different from what it was just three years ago.  Since returning to the industry in 2010, I’ve seen a lot of change — and not all good.  Nonetheless, I am bullish on the future of banking.  While some in the media tend to criticize financial institutions and harp on measures like one’s Texas ratio (which models a bank’s risk profile to fail — and also inspired this site’s name), I prefer to focus on financial institutions as the fabric of our neighborhoods and communities.  When I write About That Ratio it is in stark contrast to those who deride the importance of banks.  I am not blind to the problems facing many bankers today, nor ignorant of errors and indiscretions made by some of our larger names.  Still, count me an optimist that better times are ahead.  So before my family and I take off for Christmas in Tulum, Mexico, one last About That Ratio for 2013 that shares three things from the week that was.


(1) While many year-end blogs take a look back,  Jim Marous authored a comprehensive forward-looking post on his “Bank Marketing Strategies” blog.  His 2014 Top 10 Retail Banking Trends and Predictions compiles opinions from 60 global financial services leaders — including bankers, credit union executives, industry providers, financial publishers, editors and bloggers, advisors, analysts and fintech followers.  I appreciated his invitation to contribute and thought to share the crowd’s top three trends for 2014:

  1. The “Drive-to-Digital” trend will impact delivery, marketing and service usage;
  2. Payment disruption will increase vis-a-vis new players, technologies and innovations; and
  3. Increased competition from “neobanks” and non-traditional players will accelerate.

Take a read through these and the subsequent seven points offered up.  As Jim writes, “disruption will continue at an unprecedented pace and that the industry will look different this time next year.”

(2) It is hard to escape the reshaping of the banking industry through merger activity; in particular, the return of negotiated, strategic bank combinations.  While in San Francisco a few months ago, I wrote about Heritage Financial’s combination with Washington Banking Co.  Forgive the use of “merger of equals” to describe the deal; however, that misnomer best represents the agreement.  Some see these deals becoming more popular as bankers seek to build value for the next few years in order to sell at higher multiples.  Others cite a desire to create more immediate value through cost cuts and efficiencies.  Regardless of who’s driving and who’s riding, there were quite a few notable deals in 2013; for example, Umpqua and Sterling and the recent “51/49” deal between United Financial Bancorp and Rockville Financial.  I get the sense that more boards will consider deals structured like these to accelerate “scaling up” without utilizing cash as the currency for an acquisition.  Time will tell if I’m right.

(3) Finally, I readily admit my excitement to welcoming men and women from across the country to various Bank Director events next year.  From our BIG M&A conference at the Arizona Biltmore in January to The Growth Conference at the Ritz-Carlton New Orleans in May to a peer exchange for officers & directors at the Ritz-Carlton in San Francisco, we have a lot planned.  These events are a big part of our 23 year-old company’s business — and its pretty darn cool to participate in various conversations that relate to growth, innovation and “what’s working.”  I’m not alone in thinking it is time for bank CEOs and their boards to go on the offensive.  Competing successfully in a marketplace, managing shareholder expectations, overcoming regulatory obstacles, developing talent and leadership for the next generation, and, most of all, ensuring that one’s institution has the option of choosing whether to “acquire or be acquired”… yup, topics galore for me to cover here in 2014.


I end every Friday post with a nod to my mother-in-law (who passed away four years ago).  She lived on the Big Island for several years and became quite fond of the “Aloha Friday” tradition; hence, the sign off.  The only Hawaiian saying that puts a bigger smile on my face is today’s title: Mele Kalikimaka!

Bank M&A: Dead, Dying, or Becoming Something Different?

This week, I’ve worked with our team to put the finishing touches on Bank Director’s agenda for our 20th annual Acquire or Be Acquired Conference.  Widely regarded as the financial industry’s premier M&A event, the conference affectionately referred to as “AOBA” attracts bank CEOs, CFOs, Chairmen and outside directors from across the country to Arizona each January.  I keep hearing about the various drivers to doing a deal today — think economics, the burden of government regulation and increasing cost of capital.  As industry and economic headwinds challenge banks both large and small, I can think of no better perspective on what’s going on than that from my friend, colleague and Editor of Bank Director magazine, Jack Milligan.  While I typically share three of my thoughts on About That Ratio each Friday, Jack graciously agreed to author today’s column and share his.  Enjoy! 

Today's guest author, Jack Milligan
Today’s guest author, Jack Milligan

I have written about commercial banks since the mid-1980s and during that time have witnessed three banking crises (the thrift crisis in the late ‘80s soon followed by the commercial real estate crisis in the 1990s and, of course, the global financial crisis that occurred in 2007 and 2008), saw the U.S. Congress pass landmark banking legislation like the Gramm-Leach-Bliley Act of 1999 and Dodd-Frank Act of 2010, reflected upon the death of one regulatory agency (Office of Thrift Supervision) and birth of another (Consumer Financial Protection Bureau), and observed a parade of kings like Walt Wriston, Hugh McColl and Sandy Weill come and go.  But the most significant thing I’ve watched happen during all that time has been the industry’s profound consolidation into an hourglass distribution where a small number of very large banks control a significant majority of the nation’s deposits, and a very large number of very small banks fight for what’s left.

This trend of consolidation coincidentally also began in earnest in the 1980s – and in fact the first banking story I ever wrote was about (if memory serves) post-merger integration.  We just dipped below 7,000 banks in the United States (6,891 to be exact according to the FDIC), which seems like a good time to reflect on the question of how much more consolidation will occur.  We all know that bank merger activity has dropped precipitously since the global financial crisis, and we all know why.  In the maelstrom of the worst economic downturn since the Great Depression, in which the industry’s asset quality looked like it had been riddled by a machine gun, only a few large banks had the financial strength and appetite to acquire another institution, often with some form of government assistance.  Normal M&A was for all practical purposes dead.

Since the crisis has abated and the U.S. economy has gradually stabilized, some level of M&A has returned – but certainly not to pre-crisis levels.  Last year there were 129 healthy bank acquisitions for a total of $11.9 billion, and the deal total and aggregate dollar value for 2013 might be even lower.  In 2007 there were 235 bank deals for a total value of $71 billion.  But even those numbers pale in comparison to the halcyon days of late 1990s, when the average annual deal flow was twice that and aggregate values were in the hundreds of billions of dollars.  Many banks, buyers and sellers alike, have been waiting for the M&A market to kick back in – but to what?  To the 2007 level? Or to something closer to 1998, when there were 475 bank deals?  It is theoretically possible that the M&A market will never revive and the industry won’t consolidate much more than it already has.

In a recent piece in the American Banker, financial writer and researcher Harvey Winters reasons, correctly, that there are many small banks in rural locales like Nebraska that aren’t attractive takeover candidates and won’t ever be consolidated.  Winters says there might never be an M&A spring so-to-speak in such isolated and (from the perspective of an acquirer) unattractive markets.  The country’s very large banks that are still under the nationwide deposit cap and theoretically could grow larger through acquisitions are also being waved off by their regulators who today are much more concerned about the systemic risk that very large banks pose to the financial system than they were before the crisis.

In the good old days, large aggressive acquirers that were assembling nationwide banking franchises just as fast as they could helped drive the rest of the M&A market.  But those buyers are all gone, at least for now.  My own view is that bank M&A (and therefore consolidation) isn’t dead, but it is becoming something different.  I think we’ll see the rise of middle-market consolidators that have the capital and the skills to assemble their own intrastate, and later regional, franchises.

A perfect example is Richmond, Virginia-based Union First Market Bancshares’ recent acquisition of Charlottesville, Virginia-based StellarOne Corp.  Union First had $4 billion in assets and StellarOne $3 billion, and the combined $7-billion asset institution now bills itself as the largest community bank in Virginia — which is to say the largest bank that isn’t named Bank of America, Wells Fargo, etc.  The new First Union may continue to consolidate the Virginia market, or perhaps venture into neighboring Maryland or North Carolina, or maybe do all three.  If I am correct, we will eventually see the emergence of a new tier of banks in the $10 billion to $50 billion range that will consolidate attractive banking markets like Virginia and help drive consolidation into yet another phase.  There are many small banks that will never attract a buyer, and a handful mega-banks that will never do another acquisition, but that doesn’t mean that bank consolidation has reached a dead-end.


Jack Milligan is the Editor of Bank Director magazine, a position to which he brings over 30 years of experience in financial journalism organizations.   Jack’s professional background includes stints as editor in chief of U.S. Banker, a leading magazine covering the banking industry; editor in chief at SNL Financial, a research and publishing company specializing in financial services; and general editor at Institutional Investor, a prominent financial magazine.  He’s on Twitter (@BankDirectorEd) and LinkedIn if you want to follow/connect with him.

The Race is On


The race is on… to expand into new markets, to add new talent, to introduce new technologies that attract and engage customers.  This race, playing out in cities and towns across the country, applies to many industries.  For our purposes, let me build on this theme vis-a-vis three takeaways from Bank Director’s annual Bank Executive & Board Compensation Conference in Chicago.

(1) How companies develop executives, attract leadership and approach compensation in today’s highly competitive and economically challenging world was front-and-center in Chicago.  As I wrote earlier this week, the environment that this country’s 7,000 or so banks operate in demands productivity, proficiency with technology and the ability to sell.  Finding the right people to lead such efforts, especially when you consider that every organization has a different set of “players” with a unique collection of knowledge, experience and skills, proves challenging.   Complicating matters is the fact that all banks are required to regularly assess whether any of their compensation plans encourage unnecessary or excessive risk-taking that could threaten the safety and soundness of the institution.

(2) Putting together compensation plans that reward growth and responsible risk takes many shapes.  However, the “adverse economic cycle” has dampened some employees’ opportunities to earn — and at a corporate level, has slowed the anticipated pace of bank consolidation.  While larger banks continue to increase in size, many smaller institutions are fighting for survival in today’s regulatory and low-interest rate environment.  According to SNL, there were 235 whole-bank M&A transactions announced and 51 failed bank transactions for a total of 286 deals in 2012. Total deals, as a percentage of overall banks in the U.S., have remained relatively consistent over the years between 3% and 4%.  Some interesting stats, courtesy of the Hovde Group:

  • Since 2000, sellers over $1 billion in assets have commanded a 32% premium over those sellers less than $1 billion;
  • In 323 transactions since 2000, sellers over $1 billion averaged a valuation of 246% of tangible book value; and
  • In 2,729 transactions since 2000, sellers less than $1 billion averaged a valuation of 187% of tangible book value.

M&A activity is once again heating up as financial institutions look to achieve necessary scale to compete and thrive… and while I will not wager on the exact number of deals that will mark 2013, I will take the over on 2012’s results.

(3) The relevance of scale, the pace and volume of M&A activity and the dynamic tension between the “bid-and-ask” takes center stage at our next conference: our 20th annual Acquire or Be Acquired Conference.  Held at the Frank Lloyd Wright-inspired Arizona Biltmore, we’ve put together a program that looks at the strategies potential acquirers might consider to the practical considerations the board needs to discuss.  As proud and pleased as I am for this week’s successful event, I am already gearing up to open our biggest conference the week before the Super Bowl.  Widely regarded as one of the financial industry’s premier M&A conferences, I am super excited by the hard work put in by our team and even more stoked to spend the next few months getting ready to welcome everyone to the desert.  To that end, I will begin to expand upon the topics and trends that influenced the development of this year’s program in future posts.

Aloha Friday!

Community banks, meet social media?

I posted these thoughts on January 30 to my DCSpring21 blog… as I move away from sharing bank-specific thoughts on that site (in favor of this one), I thought to re-post in advance of a few pieces I’m working on.



… or, the final percentage that correlates to the results shared from a Q&A with bankers earlier this week. Sorry, it is not the percentage of turtle tiles found at the Phoenician’s pool. That would be too easy; although, the image does fit when you consider the number of banks using social media vs. those that are not.

No, this is a post about building a brand — and with it, customer loyalty and engagement. For those of us that have been in a business development position, it is oh-so-true that its not easy to build a brand. But make no mistake, the rewards can be immense should you succeed. And yes, the 55% foreshadows the end to this piece.

Admittedly, I thought about taking this post towards my last few company’s efforts to employ various social media tools. However, the importance of building a recognizable, memorable and relevant brand came up with numerous bank CEOs and Chairmen at our recently-concluded Acquire or Be Acquired conference. To a man, they acknowledged the stakes to successfully position a bank are higher than ever, what with the growing popularity of credit unions, new technology and ever-emerging social media platforms. Even more so when a bank customer’s product adoption and brand loyalty is measured at the speed of a tweet or a post. Clearly, the integrity of a brand becomes critical.

So I was/am SHOCKED that more community banks haven’t hitched their wagons to the social media wagon. This is not speculation or wild assumption. Its based on hard fact.

Let me take a step back and explain. We welcomed 275 banks to the Phoenician for our 19th Acquire or Be Acquired this past Sunday, Monday and Tuesday — with a CEO, Chairman, CFO or director attending. I believe (but don’t have the final numbers in hand) that of the 720+ attendees, 575 worked for a bank. I share these numbers as a lead into this question I raised:

Question: How many of you are successfully using these on a daily basis to engage with your customers and potential customers. I’m going to ask ONLY the bankers in attendance to answer this one — and answer on behalf of your bank, not yourself. So you might be a proficient twitter’r, have more than 500 connections on your personal LinkedIn account and have been sharing pictures of this conference on FaceBook with your friends and family. But we’re curious how the banks here are making social media work for them.

The results pulled via an audience response system are startling — and suggest that those in the social media business have ample opportunity at community banks if they can show a bank’s directors and officers how the following ties into their business. The raw results:

  • Facebook = 33%
  • LinkedIn = 11%
  • Twitter = 4%
  • Pinterest = 0%
  • We do not use social media = 55%.


Go west young man?

Yup, that's me moderating a point-counterpoint session on bank M&A
*That’s me on the far left moderating a point-counterpoint at our annual M&A conference

As I head west (to Los Angeles for a few days of meetings), I started to re-read a few recent M&A outlooks for 2013.  Admittedly, I have a pretty long collection of white papers, analyst reports and opinion pieces in my Dropbox thank to our recently wrapped up Acquire or Be Acquired conference.  As I dig through the various projections, it strikes me that capital, liquidity and credit have improved at many U.S. banks since I rejoined the financial community in September of 2010.

Now, I draw no parallel to my return and this improvement — but do take comfort in hearing so many bank executives and board members voice more and more optimism about their months ahead.  That said, when I look back at 2012, I think few would contest that it was a year plagued with limited loan growth & intense margin pressure.

I share this as I think about the factors that will spark more M&A deals in 2013 than 2012. Fortuitously for today’s piece, I have some “inside” knowledge to share.  You see, with more than 700+ joining us at the Phoenician at the end of January, I had the chance to moderate a panel composed of two attorneys and two investment bankers.  I asked each to take a stance — pro or con — on the following statements before opening things up to the audience (of bank CEOs, CFOs, Chairmen and board members from 275 community banks).  What did we find?

  • 68% responded that 2013 will be the best year for bank M&A since the financial crisis of 2008.
  • It was a near dead heat (52% taking the con) that pricing for a well performing bank less than $1 billion will not exceed 1.25X tangible book or less.
  • 58% voted that the primary obstacle to doing a deal will be unrealistic price expectations of sellers.
  • 60% voted that banks that are thinking of selling would be better off waiting until 2014 when valuations will be higher that they are likely to be in 2013.

Not surprisingly, a strong and vocal 72% disagreed with the idea that banks need to be a minimum of $1 billion in asset size to be competitive in today’s market.  While certain economies of scale tip in favor of those above our industry’s magic number, I have to agree with the majority on this one.  Yes, compliance costs continue to escalate — and regulatory burdens, well, don’t get me started…


For more on this three-day conference, I encourage you to read “A Postcard from AOBA 2013.”  Penned by our editor, Jack Milligan, his gift with the written word writes circles around my amateur efforts.