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!

What Is Your Bank Worth

Regardless of one’s market, a bank’s leadership team needs to know AND focus on growing its institution’s value.

With many public companies feeling undervalued — and private ones unsure of their true worth, Bank Director welcomes bank CEOs, chairmen, presidents, CFOs and members of the board to the Ritz-Carlton in San Francisco next Thursday and Friday for “Valuing the Bank,” a peer exchange offered exclusively to officers and directors of financial institutions.  In simple terms, this program focuses on:

  • Raising capital, exploring a merger or sale + going public;
  • Attracting, compensating and retaining pivotal talent;
  • How strong corporate governance protects a bank’s value; and
  • Understanding risk in the context of determining a bank’s worth.

If you are in the Bay Area next Thursday and Friday — and serve as a bank director or are on a bank’s executive team — we have space for three (3) more participants.  If you’re interested to learn more, let me know via email (adominick at bankdirector dot com) or get in touch with our event’s team (877) 397-7595. 

Size Matters – and Other Banking Notes From the Bay Area

The Ritz-Carlton San Francisco
Walking up to the Ritz-Carlton San Francisco

Last week, Lexington, Virginia… this week, San Francisco, California… next week, Chicago, Illinois.  Yes, conference season is back and in full swing.  I’m not looking for sympathy; heck, for the past few days, I’ve set up shop in Nob Hill (at the sublime Ritz-Carlton) to lead our Western Peer Exchange.  Traveling like this, and spending time with a number of interesting CEOs, Chairmen, executives and board members, is why I love my job.  What follows are three observations from my time here in NorCal that I’m excited to share.

(1) On Wednesday, I took a short drive up to San Mateo to learn more about Kony, a company that specializes in meeting multi-channel application needs.  I have written about customer demands for “convenient” banking services in past posts — e.g. Know Thy Customer –and will not try to hide my interest in FinTech success stories.  Learning how their retail banking unit works with financial institutions to deliver a “unified and personalized app experience” proved an inspiring start to my trip.  Consequently, our Associate Publisher and I talked non-stop about the rapid evolution and adoption of technologies after we wrapped things up and drove back towards San Francisco.  We agreed that consumer expectations, relative to how banks should be serving them, continues to challenge many strategically. To this end, Kony may be worth a look for those curious about opportunities inherent in today’s mobile technology.  Indeed, their team will host a webinar that features our old friend Brett King to examine such possibilities.

(2) When it comes to banks, size matters.  To wit, bigger banks benefit from their ability to spread fixed costs over a larger pool of earning assets.  According to Steve Hovde, an investment banker and one of the sponsors of our event, “too big to fail banks have only gotten bigger.”  He observed that the top 15 institutions have grown by nearly 55% over the past six years.  Wells Fargo, in particular, has grown 199% since ’06.  With more than 90% of the banking companies nationwide operating with assets of less than $1 billion, it is inevitable that consolidation will be concentrated at the community bank level.  However, as yesterday’s conversations once again proved, size doesn’t always trump smarts.  I said it yesterday and will write it again today.  Our industry is no longer a big vs. small story; rather, it is a smart vs. stupid one.

(3) That said, “nobody has told banks in the northwestern U.S. that bank M&A is in the doldrums.”  According to the American Banker, two deals were announced and another terminated after the markets closed Wednesday.  Naturally, this should put pressure on banks in the region to keep buying each other.  Here in San Francisco, the one being discussed was Heritage Financial’s combination with Washington Banking Co.  According to The News Tribune, this is “very much a merger between equals, similar in size, culture and how each does business.”  Now, the impetus behind ‘strategic affiliations’ (don’t call them mergers of equals) comes down to creating value through cost cuts and wringing out efficiencies.  The thinking, at least during cocktails last night, was that deals like these happen to build value for the next few years in order to sell at higher multiples.  Certainly, it will be interesting to see how this plays out.  In a few months at our Acquire or Be Acquired conference, I anticipate it generating quite a few opinions.

Aloha Friday!

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