Tag: Mergers

Posted on

From Bank Director’s 2015 Acquire or Be Acquired Conference: A 45 Second Video Recap of Day Two

On Tap For Day Three

Last night, I shared three takeaways from our second full day at AOBA (Three Observations From Bank Director’s 2015 Acquire or Be Acquired Conference). Looking ahead to our final half day, we kick things off with a series of discussion groups that address the following issues:

  • New Lending Markets for Community Banks
  • Growing with SBA Loans
  • Everything You Wanted to Know about Civil Money Penalties
  • Capital Plans & Nontraditional Alternatives
  • Incorporating M&A into Your Strategic Planning Process
  • Beyond eMail – Purpose-Built Tools for Mobile Executives

With coffees in hand, we move into our first general session, led by PwC, entitled “What You Can Learn from the Country’s Biggest Banks.” Following that presentation, we have back-to-back breakout sessions available before closing with “The Butterfly Effect of Technology on Banks Today.”  To see an abbreviated PDF version of the three day agenda, please click 2015 AOBA Agenda (Overview).

##

To follow the conversation on Twitter, I invite you to follow me @aldominick, follow @bankdirector and tweet using the hashtag #AOBA15.

Posted on

Bank Director’s 2015 Acquire or Be Acquired Conference

Banks are increasingly interested in the topic of mergers and acquisitions, which must have something to do with our record attendance at this year’s Acquire or Be Acquired Conference in Scottsdale, Arizona.

The fun begins at The Phoenician (pictured above) this weekend with Bank Director’s 21st annual “AOBA.”  Last year, we welcomed 435 officers & directors from 271 financial institutions to the Arizona Biltmore.  This year, we have 522 bankers and bank board members from more than 300 banks in attendance. Merger activity is clearly gaining steam, and this is bringing more interested parties to the table.

AOBA15-demographics-2

Three Days in the Desert

Why banks are bought (or sold) involves much more than just the numbers making sense.  Moreover, to successfully negotiate a merger transaction, buyers and sellers must bridge the gap between a number of financial, legal, accounting and social challenges. So allow me to sketch out what’s on tap for this massive three-day event.

On Sunday…

To kick things off, we take a macro-level look at capital markets and operating conditions for banks nationwide. Additionally, we look at how M&A fits within a broad range of strategic options for a bank’s board and how some successful acquirers have aligned transactions to achieve strategic goals.  Of note, we welcome the perspectives of CEOs from high performing banks like Pinnacle National Bank, Banner Corp., First Interstate BancSystem, IBERIABANK and CVB Corp. as part of several presentations. On stage, these men will share their thoughts on what it takes to build and lead successful institutions.

On Monday…

Building on the first day of the conference, we turn our attention to the long-term preparation required by both a buyer and seller.  For instance, regulatory planning remains critical to getting deals done for both sides — especially on compliance issues.  Thematically, Monday builds on Sunday’s presentations, with sessions dedicated to helping a bank’s board make a rational buy, sell or hold decision.

On Tuesday…

To put a bow on this year’s event, we start with a look at what the biggest banks are doing today followed by a series of breakout sessions on more in-depth topics.  To conclude, we welcome the perspectives of our friends from NASDAQ who will look at trends, issues and the “movers and shakers” in the technology world that may impact growth and innovation within the financial community.  As much as AOBA explores one’s financial growth opportunities, this final session examines what’s happening outside of our industry that may precipitate new changes or challenges to a bank’s growth aspirations.  Oh and in the afternoon… we swap suits for cleats, wrapping up AOBA with our annual golf tournament.

Can’t Make it?

For those not able to join us — but interested in following the conversations — I invite you to follow me on Twitter via @AlDominick, the host company, @BankDirector, and search & follow #AOBA15 to see what is being shared with our attendees.

Posted on

On Bank Branches and a Bank’s Brand

When I think about top performing banks, I typically consider those with the strongest organic growth in terms of core revenue, core noninterest income, core deposit growth and loan growth.  Sure, there has been a lot of talk about growing through acquisition (heck, last week’s post, “Seeking Size and Scale” looked at BB&T’s recent acquisitions and my monthly column on BankDirector.com was entitled “Why Book Value Isn’t the Only Way to Measure a Bank“).  But going beyond M&A, I’m always interested to dive into the strategies and tactics that put profits on a bank’s bottom line.

Build Your Brand or Build Your Branch

Earlier in the week, KBW’s Global Director of Research and Chief Equity Strategist, Fred Cannon, shared a piece entitled “Branch vs. Brand.”  As he notes, “branch banking in the U.S. is at an inflection point; the population per branch has reached a record level in 2014 and is likely to continue to increase indefinitely. The volume of paper transactions peaked long ago and with mobile payment now accelerating the need for branches is waning. As a result, many banks see closing branches as a way to cut costs and grow the bottom line. However, branches have served as more than transactional locations for banks. The presence of branch networks has projected a sense of identity, solidity and ubiquity to customers that has been critical to maintaining a bank’s brand.”  He then poses this doozy of a question:

“If branch networks are reduced, what is the replacement for a bank’s identity?”

Fred and his colleagues at KBW believe banks need to replace branches with greater investments in brand. As he shares, “some of this investment will be in marketing, (as) a brand is more than a logo. We believe banks will also need to invest in systems, people, and processes to project the sense of identity, solidity, and ubiquity that was projected historically by branch networks.”

United Bank, An Example of a High-Performing Bank

One example of a bank that I think is doing this well is United Bank.  On Wednesday, I had the chance to check out their new financial center in Bethesda, MD.  With dual headquarters in Washington, DC and Charleston, WV, the $12.1 billion regional bank holding company is ranked the 48th largest bank holding company in the U.S. based on market capitalization. NASDAQ-listed, they boast an astonishing 41 consecutive years of dividend increases to shareholders – only one other major banking company in the USA has achieved such a record.  Their acquisition history is impressive — as is their post-integration success.  United continues to outperform its peers in asset quality metrics and profitability ratios and I see their positioning as an ideal alternative to the offices Wells Fargo, SunTrust and PNC (to name just three) operate nearby.

A Universal Priority

Clearly, United’s success reflects a superior long-term total return to its shareholders.  While other banks earn similar financial success, many more continue to wrestle with staying both relevant and competitive today.  Hence my interest in Deloitte’s position that “growth will be a universal priority in 2015, yet strategies will vary by bank size and business line.”  A tip of the hat to Chris Faile for sharing their 2015 Banking Outlook report with me.  Released yesterday, they note banks may want to think about:

  • Investing in customer analytics;
  • Leveraging digital technologies to elevate the customer experience in both business and retail banking;
  • Determining whether or not prudent underwriting standards are overlooked; and
  • Learning from nonbank technology firms and establish an exclusive partnership to create innovation and a competitive edge.

With most banks exhibiting a much sharper focus on boosting profitability, I strongly encourage you to see what they share online.

Aloha Friday!

Posted on

Seeking Size and Scale

With Wednesday’s announcement that BB&T has a deal in place to acquire Susquehanna Bancshares in a $2.5 billion deal, I felt inspired to focus on the mergers & acquisitions space today.  You see, if 2013 was the year of the merger-of-equals (MOEs), it seems that 2014 has become the year of “seeking size and scale.”

As I’ve shared in past posts, 2013 was characterized by a series of well-structured mergers which produced a dramatic improvement in shareholder reaction to bank M&A.  For example, Umpqua & Sterling,  United Financial Bancorp & Rockville Financial and Bank of Houston & Independent Bank.  Over the past few weeks, we’ve seen some pretty interesting transactions announced that are not MOEs; specifically, Sterling Bancorp buying Hudson Valley Holding in New York, Banner picking up AmericanWest Bank in the Pacific Northwest and the afore-mentioned BB&T deal.

Don’t Be Fooled, Size Matters

As evidenced by the Sterling and Banner acquisitions, the desire for scale and efficiencies is prompting certain institutions to expand.  While regulatory costs and concerns have been cited in previous years as deterents to a transaction, isn’t it interesting that both of these deals position the acquiring institution near the $10Bn threshold (*important as crossing this asset threshold invites new levels of scrutiny and expense).  But like John Thain suggested earlier this year, “the key is being big enough so that you can support all of the costs of regulation.”  Still, comments made by Richard Davis, chairman and chief executive of U.S. Bancorp, about the BB&T agreement should temper some enthusiasm about the biggest players jumping in to the M&A space a la the $185 Bn-in-size BB&T. “This is not a deal you’d ever see us do,” he said at conference in New York hosted by Bank of America Merrill Lynch, adding “it’s both out-of-market and it’s fairly expensive.”

I’m Serious, It Matters?!?

Earlier this year, Deloitte published The Top Ten Issues for Bank M&A.  In light of the BB&T deal, it is worth revisiting.  To open, the authors opine “size matters when it comes to regulatory constraints on the banking sector: The bigger the players, the more restrictions on banking activities, including M&A. Banks with less than $10 billion in total assets face the least restriction, while the very largest Systemically Important Financial Institutions (SIFIs) experience the highest level of constraints. Among the major regulatory actions that are expected to hold considerable sway over bank M&A in 2014 are the Volcker Rule, Basel III capital requirements, global liquidity rules, stress testing, and anti-money laundering (AML) and Bank Secrecy Act (BSA) compliance laws.”

Who I’m Taking to Buy a Lottery Ticket

Finally, a tip of the hat to Frank Cicero, the Global Head of Financial Institutions Group at
Jefferies. He reminded me on Wednesday that every prediction he made in a piece he wrote for BankDirector.com at the beginning of the year has come to pass…fewer MOE’s, bigger premiums, regional banks returning to bank M&A.  Personally, I’m wondering if he wants to walk into the lotto store with me this weekend?

Aloha Friday!

Posted on

On Recent Bank Mergers and Acquisitions

Earlier this week, American Banker’s Robert Barba wrote that bank M&A could reach an “inflection point” (sorry, paywall). With bank valuations increasing — and asset quality improving — I’m seeing deal premiums make a comeback, along with banks able to pay them.  The title of Robert’s piece caught my attention, as did his look at BB&T’s agreement in early September to buy the $2 billion-asset Bank of Kentucky Financial in Crestview Hills.  While that high-stakes deal has generated headlines, let me share some observations about another transaction that “shows well.”

VYkgHqw

As Robert wrote on Tuesday, the $188 billion-asset BB&T is “often viewed as one of the bigger banks most likely to acquire. It managed to make a few deals during the downturn, including buying the operations of BankAtlantic from its holding company and picking up Colonial Bank’s assets and deposits from the Federal Deposit Insurance Corp.”  While this deal alone does not represent a resurgence of big bank M&A, it might foreshadow a pick up in activity.

Of course, no two deals are alike — and as the structure of certain deals becomes more complex, bank executives and boards need to prepare for the unexpected. The sharply increased cost of regulatory compliance might lead some to seek a buyer; others will respond by trying to get bigger through acquisitions so they can spread the costs over a wider base.  For this reason, I wrote a piece for BankDirector.com called “Deciding Whether to Sell or Go Public” earlier this week (no registration required).  As you can read, David Brooks, the chairman and CEO at $3.7-billion asset Independent Bank Group based in McKinney, Texas, and Jim Stein, the former CEO of the Bank of Houston and now vice chairman of Independent Bank, talked with me about their experiences and decision to merge their banks.

With merger activity on the rise, more boards of directors are considering whether the time is right for their financial institution to find a strategic partner, especially if they want to maintain the strategic direction of the institution or capture additional returns on their shareholders’ investment.  In the end, no one knows what will happen with bank M&A in the coming months, but looking at deals like the one Robert wrote about and the one I shared… well, one can guess.

Aloha Friday!

Posted on

What Is Your Bank Worth

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.

The Ritz-Carlton San Francisco
The Ritz-Carlton San Francisco

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.

Today’s Agenda

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.

Aloha Friday!

Posted on

Bank Mergers and Acquisitions

Before I head out to California to speak at Moss Adams’ annual Community Banking conference, a look at the principal growth strategy for banks: mergers and acquisitions.

photo-17

Over the last few years, bank advisers have made the case that consolidation should increase due to significant regulatory burdens, lack of growth in existing markets and aging boards and management teams that are “fatigued” and ready to exit our industry.  So as I see prices to acquire a bank on the rise, it is interesting to note that demand for a deal hasn’t slowed.  According to Raymond James, there were 136 acquisitions announced in the 1st half of the year versus 115 announced in the first half of 2013.  Moreover, total deal value is reported at $6.1 billion versus $4.6 billion in the first half of 2013.

Taking this a step further… While activity in the first quarter of 2014 was only slightly ahead of prior years, the second quarter saw a dramatic increase — 74 deals were announced, which is the highest of any quarter since the credit crisis of 2008.  According to this piece by Crowe Horwath (Will 2014 Be the Year of M&A?), annualized, the total number of announced transactions will exceed 260, which is on par with many of the pre-crisis years of the 2000s.

When is a “Deal Done Right?”

As competition to acquire attractive banks increases, so too does the short and long-term risks incurred by the board of an acquiring institution to find the right fits.  In many ways, the answer to “what makes a good buy” depends on the acquiring board’s intent.  For those looking to consolidate operations, efficiencies should provide immediate benefit and remain sustainable over time.  If the transaction dilutes tangible book value, investors expect that earn back within three to five years. However, some boards may want to transform their business (for instance, a private bank selling to a public bank) and those boards should consider more than just the immediate liquidity afforded shareholders and consider certain cultural issues that might swing a deal from OK to excellent.

My Thoughts on CIT’s Acquisition of OneWest

No two deals are alike — and as the structure of certain deals becomes more complex, bank executives and boards need to prepare for the unexpected.  The sharply increased cost of regulatory compliance might lead some to seek a buyer; others will respond by trying to get bigger through acquisitions so they can spread the costs over a wider base. So as I consider this summer’s CIT deal for OneWest, I see a real shift happening in the environment for M&A.  I see larger regional banks becoming more active in traditional bank M&A following successful rounds of regulatory stress testing and capital reviews.  Also, it appears that buyers are increasingly eyeing deposits, not just assets.  This may be to prepare for an increase in loan demand and a need to position themselves for rising interest rates.

A “Delay of Game” Warning

While M&A activity levels are picking up in the bank space, the amount of time from announcement of acquisition to the closing of the deal has widened significantly in some cases.  As noted by Raymond James earlier this week, “this has been particularly notable for acquirers with assets greater than $10 billion where there have been notable delays in several instances given the greater regulatory scrutiny for banks above this threshold. M&T’s pending acquisition of Hudson City was originally expected to close in 2Q13, and through August 18, 2014, was 722 days from the original announcement on August 27, 2012. This case stands out as a prime example of issues surrounding Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance. A more recent example is the delay in the expected closing of BancorpSouth’s two pending acquisitions (Ouachita Bancshares and Central Community Corporation) that have both been pushed out due to similar issues.”

##

When it comes to bank M&A, I sometimes feel like everyone has an opinion.  I’d be interested in your thoughts and welcome your feedback.  To leave a comment on this post, simply click on the white plus sign (within the grey circle at the bottom of this page).  I invite you to follow me on Twitter (@aldominick) where you can publicly or privately share your thoughts with me too.

Aloha Friday!

Posted on

Time To Sell The Bank?

From the the appeal of spreading into new geographies to the attractiveness of acquiring exceptional talent to drive new sources of revenue, the need and desire to grow exists at virtually every financial institution. For those pursuing another bank, a merger or acquisition (M&A) provides an avenue to drive earnings while improving operating leverage, efficiency and scale. I have written about M&A from a potential buyers point-of-view (e.g. Acquire or Be Acquired – Sunday Recap); today’s piece flips the script and highlights three issues that may precipitate a sale.

2006
2011
2013

Compliance Costs

Banks are facing some very significant challenges in the years ahead — and not just from consolidation.  As KPMG shared in its An Industry At a Pivot Point, “the costs and time stresses created by the regulatory environment are not going away, and will continue to affect four areas for banks: strategy and business models, interactions with customers and client assets, data and reporting structures, and governance and risk capabilities.”  Certainly, the sharply increased cost of regulatory compliance might lead some to seek a buyer; others will respond by trying to get bigger through acquisitions so they can spread the costs over a wider base.

Capital Concerns

Some banks will have to raise capital just to meet the Basel III requirements, while others will have to raise capital to do an acquisition or support their organic growth. The required levels are so much higher now that banks will have to manage their capital much more closely than they did before.  (*If you’re looking for a central resource for the many ongoing regulatory changes that are reshaping bank capital and prudential requirements in the United States, take a look at Davis Polk’s excellent Capital and Prudential Standards Blog.)

Earnings Pressure

As the attractiveness of branch networks and deposit franchises dwindles, lack of top-line growth will lead to further industry consolidation. With little overall changes in our economy, in-market mergers between banks with significant overlap in branches and operations offer tremendous cost-saving opportunities when done skillfully.

##

To comment on this piece, click on the green circle with the white plus sign on the bottom right. Aloha Friday!

Posted on

FI Tip Sheet: First Quarter Favorites

As I come off of a great week in Chicago and Bank Director’s annual Chairman/CEO Peer Exchange, today’s post takes a look back at the first three months of the year.  Yes, certain discussions during this time focused on tepid loan growth, higher capital requirements and expense pressures & higher regulatory costs hitting banks today.  Nonetheless, many more conversations focused on growth, innovation and “what’s working.”  So, to wrap up this week, three points from the past ninety days that inspired me.

AboutThatRatio = image for Jan 10.001

Some of Banking’s Best

To kick off the year, I put together a two-part series on some of the top CEOs in our industry.  Inspired by my coach and an article entitled the “Best CEOs of 2013” that ran on Yahoo Finance, I reached out to a number of colleagues that work for professional services firms to ask their thoughts on the top CEOs at financial institutions — along with why they hold them in such regard.  Part one shared various thoughts on some of the best CEOs in the business today — broken down into three categories: the “biggest banks” with $50Bn+ in assets, those with more than $5Bn but less than $50Bn and finally, those in the $1Bn to $5Bn size range.  Part two built on that piece, highlighting three exceptional CEOs that lead publicly traded banks before shifting to the thoughts and opinions of two very talented colleagues.

Eat or Be Eaten

As the President of Bank Director, I’m lucky to lead one of the industry’s biggest (and dare I say best?) M&A conferences: Acquire or Be Acquired.  Let me first offer up big time props to my many talented colleagues for everything they did to make this year’s the biggest and best yet!  One of the cool new things I did at the Arizona Biltmore this year?  Film a 90 second or less video each evening that summarized the day’s salient points.  As much as I shared big takeaways in written form on this site (e.g. what if I told you that by December 31, 2018, we’d witness a 25% decline in the number of institutions between $500mm and $1Bn), I’m proud of these two videos from the desert that relayed what caught my eyes and attention on two of the three conference days.

 

.

The Innovator’s Dilemma

In my role, I find myself talking with Chairmen and CEOs about their strategic plans.  This year, quite a few shared their thoughts for leveraging financial technology to strengthen and/or differentiate their bank.  In a piece I shared at the end of February, I cited Clayton Christensen’s “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail.”  His book inspired that Friday’s FI Tip Sheet title – and first point.  If you’re not familiar with his work, the Harvard professor writes about two types of technologies: sustaining and disruptive. Sustaining technologies are those that improve product performance. As he sees it, these are technologies that most large companies are familiar with; technologies that involve improving a product that has an established role in the market.

Most large companies are adept at turning sustaining technology challenges into achievements.  However, large companies have problems dealing with disruptive technologies — an observation that, in my view, does not bode well for many traditionally established banks.  While risk is inherent to banks of all sizes, taking chances on emerging technologies continues to challenge many officers and directors… a theme I anticipate covering in greater detail over the next 90 days.

##

Whether this is your first time or 78th time reading About That Ratio, let me say thank you for doing so.  It is a real treat to share, each Friday, three short stories about what I’m hearing, learning and talking about as I travel around the country.  Being that I meet with so many interesting people — be it a bank’s CEO,  board members or executives at professional services firms and product companies — I find it tremendously rewarding to share anecdotes and insights that might interest others.  As always, Aloha Friday!

Posted on

Acquire or Be Acquired – Sunday Recap

The most successful banks have a clear understanding and focus of their market, strengths and opportunities.  One big takeaway from the first full day of Bank Director’s Acquire or Be Acquired Conference (#AOBA14 via @bankdirector): it is time for a bank’s CEO and board to reassess their strategic opportunities.

_4323183253
thanks to Keith Alstrin of Alstrin Photography

90 Second video recap

Looking for profitability cures

From the strategies and mechanics behind transactions to the many lingering questions regarding industry consolidation, economies of scale, regulatory burdens and how to build long-term value, today featured some pretty fascinating presentations.  One of the common themes from the afternoon sessions: most bankers are looking to cure profitability challenges through some kind of M&A activity.

How much are you worth
Whether buying, selling or simply growing organically until it’s time for a transaction, a bank’s leadership team needs metrics in place to know and grow its valuation.  As we heard today, valuation is a controversial and complex subject.  To wit: it requires an in-depth understanding of a company, its market and competitors, financial and non-financial information.  In addition, factors such as the legal and regulatory environment proves quite a challenge.

Trending topics
Overall, the issues I took note of where, in no particular order: margin compression, deposit funding, efficiency improvements and business model expansion in the context of the current environment. Also, keep an eye on the the Northeast and greater Atlanta area this year for increased merger and acquisition activity.

More to come from the Arizona Biltmore tomorrow…