The Next 5 Years in Banking Is Plumbing

Of the 1,400-plus people wandering the halls of the JW Marriott Desert Ridge Resort and Spa in Phoenix last week during Bank Director’s Acquire or Be Acquired Conference, more than half wore ties and suit jackets. Roughly a quarter sported sneakers and hoodies.

Bankers mingled with fintech entrepreneurs in sessions on bank mergers and growth, followed by workshops and discussions with titles such as “Curating the Right Digital Experience for Your Customers.” It’s an embodiment of the current environment: Banks are looking to an increasing array of financial technology companies to help them meet strategic goals like efficiency and improved customer experience online and on a mobile device.

Investors are pouring money into the fintech sector right now, a spigot that is fueling competition for banks as well as producing better technology that banks can buy. Last year, venture capitalists invested $8.7 billion on digital banking, credit card, personal finance and lending applications, more than double the amount the prior year, according to Crunchbase.

At the conference, venture fund managers filtered through the crowd looking for bankers willing to plunk down money for funds devoted to start-up fintech companies. Many of them have found willing investors, even among community banks. In Bank Director’s 2021 Technology Survey, 12% of respondents said they had invested directly in technology companies and 9% said they had invested in venture funds in the sector. Nearly half said they had partnered with a technology company to come up with a specific solution for their bank.

It turned out that an M&A conference goes hand in glove with technology. More than half of all banks looking to acquire in Bank Director’s 2022 Bank M&A Survey said they were doing so to gain scale so they would have the money to put into technology and other investments.

“The light bulb has gone off,” said Jerry Plush, vice chairman and CEO of $7.6 billion Amerant Bancorp in Coral Gables, Florida, speaking at the conference for fintech companies one floor above, called FinXTech Transactions. Directors and officers know they need to be involved in technology partnerships, he said.

Even longtime bank investors acknowledge the shifting outlook for banks: John Eggemeyer, founder and managing principal of Castle Creek Capital, told the crowd that the next five years in banking is going to be about “plumbing.”

However, cobbling together ancient pipes with new cloud-based storage systems and application programming interfaces has proven to be a challenge. Banks are struggling to find the skilled employees who can ensure that the new fintech software they’ve just bought lives up to the sales promises.

Steve Williams, founder and CEO of Cornerstone Advisors, said in an interview that many banks lack the talent to ensure a return on investment for new bank-fintech partnerships. The employee inside a bank who can execute on a successful partnership isn’t usually the head of information technology, who is tasked with keeping the bank’s systems running and handling a core conversion after an acquisition. Engaging in a relationship with a new fintech company is similar to hiring a personal trainer. “They’re not going to just deliver you a new body,” Williams said. “You have to do the work.”

He cited banks such as Fairmont, West Virginia-based MVB Financial Corp. and Everett, Washington-based Coastal Financial Corp. for hiring the staff needed to make fintech partnerships work.

Eric Corrigan, senior managing director at Commerce Street Capital, said banks should consider whether their chief technology officer sits on the executive team, or hooks up the computers. “Rethink the people who you’re hiring,” he said.

Jo Jagadish, an executive vice president at TD Bank who spoke at the conference, has a few years of experience with bank/fintech partnerships. Prior to joining TD Bank USA in April 2020, she was head of new product development and fintech partnerships with JPMorgan Chase & Co. “You can’t do your job and a fintech partnership on the side,” she said in an interview. “Be focused and targeted.”

Jagadish thought banks will focus the next five years on plumbing but also improving the customer experience. Banks shouldn’t wait for the plumbing to be upgraded before tackling the user experience, she said.

Cornerstone’s Williams, however, thought the work of redoing a bank’s infrastructure is going to take longer than five years. “It’s going to be a slog,” he said. “The rest of your careers depends on your competency in plumbing.”

Plumbing may not sound like exciting work, but many of the bankers and board members at the conference were happy to talk about it. Charles Potts, executive vice president and chief innovation officer for the Independent Community Bankers of America, said that fintech companies and their software can put community banks on par with the biggest banks and competitor fintechs on the planet. Nowadays, community banks can leverage their advantage in terms of personal relationships and compete on the technology. All they have to do is try.

Bank Profitability to Rebound from Pandemic

The Covid-19 pandemic has been a defining experience for the U.S. banking industry — one that carries with it justifiable pride.

That’s the view of Thomas Michaud, CEO of investment banking firm Keefe Bruyette & Woods, who believes the banking industry deserves high marks for its performance during the pandemic. This is in sharp contrast to the global financial crisis, when banks were largely seen as part of the problem.

“Here, they were absolutely part of the solution,” Michaud says. “The way in which they offered remote access to their customers; the way that the government chose to use banks to deliver the Paycheck Protection Program funds and then administer them via the Small Business Administration is going to go down as one of the critical public-private partnership successes during a crisis.”

Michaud will provide his outlook for the banking industry in 2022 and beyond during the opening presentation at Bank Director’s Acquire or Be Acquired Conference. The conference runs Jan. 30 to Feb. 1, 2022, at the JW Marriott Desert Ridge Resort and Spa in Phoenix.

Unfortunately, the pandemic did have a negative impact on the industry’s profitability. U.S. gross domestic product plummeted 32.9% in the second quarter of 2020 as most of the nation went into lockdown mode, only to rebound 33.8% in the following quarter. Quarterly GDP has been moderately positive since then, and Michaud says the industry has recaptured a lot of its pre-pandemic profitability — but not all of it. “The industry pre-Covid was already running into a headwind,” he says. “There was a period where there was difficulty growing revenues, and it felt like earnings were stalling out.”

And then the pandemic hit. The combination of a highly accommodative monetary policy by the Federal Reserve Board, which cut interest rates while also pumping vast amounts of liquidity into the financial system, along with the CARES Act, which provided $2.2 trillion in stimulus payments to businesses and individuals, put the banking industry at a disadvantage. Michaud says the excess liquidity and de facto competition from the PPP helped drive down the industry’s net interest margin and brought revenue growth nearly to a halt.

Now for the good news. Michaud is confident that the industry’s profitability will rebound in 2022, and he points to three “inflection points” that should help drive its recovery. For starters, he expects loan demand to grow as government programs run off and the economy continues to expand. “The economy is going to keep growing and the pace of this recovery is a key part of driving loan demand,” he says.

Michaud also looks for industry NIMs to improve as the Federal Reserve tightens its monetary policy. The central bank has already begun to reverse its vast bond buying program, which was intended to inject liquidity into the economy. And most economists expect the Fed to begin raising interest rates this year, which currently hover around zero percent.

A third factor is Michaud’s anticipation that many banks will begin putting the excess deposits sitting on their balance sheets to more productive use. Prior to the pandemic, that excess funding averaged about 2.5%, Michaud says. Now it’s closer to 10%. “And I remember talking to CEOs at the beginning of Covid and they said, ‘Well, we think this cash is probably going to be temporary. We’re not brave enough to invest it yet,’” he says. At the time, many bank management teams felt the most prudent choice from a risk management perspective was to preserve that excess liquidity in case the economy worsened.

“Lo and behold, the growth in liquidity and deposits has kept coming,” Michaud says. “And so the banks are feeling more comfortable investing those proceeds, and it’s happening at a time when we’re likely to get some interest rate improvement.”

Add all of this up and Michaud expects to see an improvement in bank return on assets this year and into 2023. Banks should also see an increase in their returns on tangible common equity — although perhaps not to pre-pandemic levels. “We started the Covid period with a lot of excess capital and now we’ve only built it more,” he says.

Still, Michaud believes the industry will return to positive operating leverage — when revenues are growing at a faster rate than expenses — in 2022. “We also think it’s likely that bank earnings estimates are too low, and usually rising earnings estimates are good for bank stocks,” he says.

In other words, better days are ahead for the banking industry.

Disney’s Lesson for Banks

When Robert Iger became The Walt Disney Co. CEO in 2005, the company’s storied history of animation had floundered for a decade.

So Iger turned to a competitor whose animation outpaced Disney’s own and proposed a deal.

The relationship between Pixar Animation Studios and Disney had been strained, and Iger was nervous when he called Pixar’s CEO at the time, Steve Jobs. The two sat down in front of a white board at Pixar’s headquarters and began listing the pros and cons of the deal. The pros had three items. The cons had 20, as the now-retired Iger tells it in his Masterclass online.

“I said ‘This probably isn’t going to happen,’’’ Iger remembers. “He said, ‘Why do you say that?’”

Jobs could see that the pros had greater weight to them, despite the long list of the cons. Ultimately, Disney did buy Pixar for more than $7 billion in 2006, improving its standing, animation and financial success. In the end, Iger says he “didn’t think it was anything but a risk worth taking.”

I read Iger’s memoir, “The Ride of a Lifetime,’’ in 2021, just as I began planning the agenda for our annual Acquire or Be Acquired Conference in Phoenix, which is widely regarded as the premier M&A conference for financial industry CEOs, boards and leadership teams.

His story resonated, and not just because of the Disney/Pixar transaction.

I thought about risks worth taking, and was reminded of the leadership traits Iger prizesspecifically, optimism, courage and curiosity. Moreover, many of this year’s registered attendees wrestle with the same issues Iger confronted at Disney: They represent important brands in their markets that must respond to the monumental changes in customer expectations. They must attract and retain talent and to grow in the face of challenges.

While some look to 2022 with a sense of apprehension — thanks to Covid variant uncertainty, inflation, supply chain bottlenecks and potential regulatory changes — I feel quite the pep in my step this January. I celebrate the opportunity with our team to return, in-person, to the JW Marriott Desert Ridge. With over 1,350 registered to join us Jan. 30 through Feb. 1, I know I am not alone in my excitement to be again with people in real life.

So what’s in store for those joining us? We will have conversations about:

  • Examining capital allocation.
  • Balancing short-term profitability versus long term value creation.
  • Managing excess liquidity and shrinking margins.
  • Re-thinking hiring models and succession planning.
  • Becoming more competitive and efficient.

Naturally, we discuss the various growth opportunities available to participants. We talk about recent merger transactions, market reactions and integration hurdles. We hear about the importance of marrying bank strategy with technology investment. We explore what’s going on in Washington with respect to regulation and we acknowledge the pressure to grow earnings and the need to diversify the business.

As the convergence of traditional banking and fintech continues to accelerate, we again offer FinXTech sessions dedicated to delivering growth. We unpack concepts like banking as a service, stablecoins, Web3, embedded finance and open banking.

Acquire or Be Acquired has long been a meeting ground for those that take the creation of franchise value very seriously — a topic even more nuanced in today’s increasingly digital world. The risk takers will be there.

“There’s no way you can achieve great gains without taking great chances,’’ Iger says. “Success is boundless.”

Digital Deniers Need Not Apply

There are few bankers who understand the process of digital transformation better than Mike Butler.

Beginning in 2014, Butler oversaw the evolution of Boston-based Radius Bancorp from a federally chartered, brick-and-mortar thrift to one of the most tech-forward banks in the country. Radius closed all its branches except for one (federal thrifts are required to have at least one branch) and adopted a digital-only consumer banking platform.

The digital reinvention was so successful that in February 2020, LendingClub Corp. announced a deal to buy Radius to augment that marketplace lender’s push into digital banking. Now Butler is off on another digital adventure, this time as president and CEO of New York-based Grasshopper Bancorp, a five-year-old de novo bank focused on the small business market. Like Radius, Grasshopper operates a digital-only platform.

Butler will moderate a panel discussion at Bank Director’s upcoming Acquire or Be Acquired Conference focusing on the importance of integrating bank strategy with technology investments. The conference runs Jan. 30-Feb. 1, 2022, at the JW Marriott Desert Ridge Resort and Spa in Phoenix.

Butler says that successful transformation begins with the bank’s executive management team and board of directors, where discussions about technology need to be an integral part of strategic planning. And most importantly, management and the board need to see digital transformation as crucial to the bank’s future success. Butler says there are still plenty of “digital deniers” among bankers who believe they can be successful without strengthening their institution’s digital capabilities.

“Have you embraced the kinds of changes that are taking place inside the industry?” Butler says. “And do you have a very strong cultural commitment to be a part of that change? When you do that, you start to look to technology as the enabling driver to get you to that place.”

Management teams that are just starting out on a path to digital transformation can easily find themselves overwhelmed by the sheer number of potential projects. “The most important thing to do is to prioritize and recognize that you cannot do this all at once,” Butler says. “It would be a mess if you tried. Pick two to three things that you think are critically important.”

A third element of a successful transformation process is finding the right person to lead the project. “You’ve got to have the right talent to do it,” Butler says. “That leader better be somebody who has been pushing it rather than you push it on them as CEO. You can’t say, ‘Joe, you’ve been running branches for 30 years, do you believe in digital? Eh, kind of. Okay, I want you to put in a digital platform.’ That’s not going to work.”

Butler goes so far as to say that only true believers should run those fintech projects. “You cannot do this without people that have the passion and the belief to get to the other side, because you will hit a lot of roadblocks and you’ve got to be able to bust through those roadblocks,” he says. “And if you don’t believe, if you don’t have the passion, there’s a lot of reasons to stop and go a different way.”

Butler might not seem the most likely person to be a digital change agent. He spent 13 years at Radius and pursued a branch banking strategy in the early years. Prior to joining Radius, Butler was president of KeyCorp’s national consumer finance business. He did not come from the fintech sector. He has a traditional banking background. And yet as Butler is quick to point out, Radius didn’t reinvent banking, it reinvented the customer experience.

The fact that Butler lacked a technology background didn’t deter him from pursuing a transformational strategy at Radius. He was smart enough to see the changes taking place throughout the industry, so he understood the business case, and he was also smart enough to surround himself with highly committed people who did understand the technology.

In building out its digital consumer banking platform, Radius worked with a number of third-party fintech vendors. “I wasn’t making technology decisions about whose technology was better, but I surely was making decisions about the companies that we were partnering with and what type of people we were willing to work with,” Butler says. “I met every single CEO of every company that we did business with, and that was a big part of our decision as to why we would partner with them.”

At Grasshopper, Butler says he prefers the challenge of building a new digital bank from scratch rather than converting a traditional bank like Radius to a digital environment. Sure, there are all the pain points of a startup, including raising capital. But the advantages go beyond starting with a clean piece of paper from a design perspective. “It’s really hard to transform a culture into something new inside of an organization,” Butler says. “So, I’d say the upside is that you get to start from scratch and hire the right people who have the right mindset.”

Fintech Acquisitions Are Rare Among Banks; Here’s One Exception

Few banks seem interested in purchasing financial technology firms. Just five such deals were announced this year as of July 14, based on a list of acquisitions compiled by Piper Sandler & Co. for Bank Director, using data from S&P Global Market Intelligence. Six of these deals were announced in 2020. Bank Director’s 2021 Bank M&A Survey found that a paltry 11% of respondents — primarily representing banks above $1 billion in assets — said their bank was likely to purchase a technology company in 2021.

Piper Sandler Managing Director Chris Donat believes banks are more interested in the tools and the solutions — more easily obtained through vendor relationships and collaborations — than in owning these companies outright.

Our list of recent fintech acquisitions by banks finds that as a group, big banks are the most active acquirers. But one small bank has been exceptionally active in this space: $2.7 billion MVB Financial Corp., based in ​​Fairmont, West Virginia. Working with fintechs has become a core element of the bank’s strategy.

MVB’s strategic shift dates back to 2016, when CEO Larry Mazza and CFO Don Robinson were trying to come up with a strategy to generate deposits to fuel the bank’s loan growth. They were inspired, says Robinson, by companies outside the banking sector that were housing deposits in loyalty programs and digital apps.

Examples include Starbucks Corp. and DraftKings, a sports betting app that reported $288 million in “cash reserved for users” — essentially deposits — in its 2020 annual report. Meanwhile, Starbucks recorded $1.6 billion in “stored value card liability” as of June 27; these funds are tied to the coffee purveyor’s prepaid cards, which customers can purchase and replenish online or in stores. Neither of these companies aim to be a bank, but they do draw dollars that their customers can use to buy coffee or gamble online — money that isn’t going to their primary bank account.

To better understand this evolving landscape, Robinson and Mazza reallocated marketing dollars to invest in fintech companies, viewing it as research and development. They took an active role in their investments, sitting on their boards. “We had a day-to-day involvement, kind of front row seat to their interactions,” says Robinson.

Today, the bank provides banking-as-a-service (BaaS) to fintech clients such as the personal finance company Credit Karma, which was itself acquired by Intuit last year. (Other BaaS banks include Coastal Financial Corp., NBKC Bank and Celtic Bank Corp.) The business has led to a huge increase in deposits. Fintech deposits totaled $533 million at the end of 2020, an increase of $382 million (255%) over the previous year — accounting for more than a quarter of MVB’s $1.98 billion in total deposits. Most of the fintech deposits ($358 million) come from the gaming industry. MVB’s return on average equity has more than doubled in the last two years, to 16.7% in 2020. Its return on average assets was 1.7%, up from 0.7% in 2018.

MVB has specific requirements for investing in fintech companies. There needs to be a market for the solution, which must solve problems faced by the industry or the bank’s clients. The management team should have a proven track record and resources for growing and scaling the company. And MVB wants to see what it can bring to the table. “We’re looking at that strategic partnership,” says Robinson. “How can we work with this [company]?”

The approach has resulted in a diverse array of acquisitions and investments, including Invest Forward, which offers a digital savings account; Paladin, focused on fraud prevention; and Trabian Technology, a software developer.

In a release explaining the rationale behind the Trabian acquisition, Mazza noted that the company adds “a new revenue stream and profit center and technological expertise that will benefit MVB and all of our stakeholders.”

Acquisitions that extend MVB further into areas like software development and fraud protection help the bank turn cost centers into profit centers, explains Robinson. “Trabian does work for, not only MVB, but it also does work for third parties,” he says. “As we look at the fintech world, one of the key pieces for us was looking at, how do you bring that expertise in house?”

The bank launched MVB Edge Ventures in June to oversee its technology investments and tackle two challenges that would vex any bank considering putting its capital into a fintech: valuation and culture.

To address valuations, MVB does its homework. “These are not public companies, right? So there’s a lot of diligence we have to do to make sure we understand the overall market,” says Robinson. “[We] try to stay away from pre-revenue companies, and we don’t invest in concepts.”

And the new venture arm addresses the cultural piece, along with regular communication with Robinson and Mazza.

“We have a team [that] work[s] together on a regular basis [to] integrate the companies and provide that platform,” says Robinson. He and Mazza regularly communicate with their portfolio fintechs, and Robinson says they have a lot to learn from one another. “They’re sharing the challenges and pitfalls they’re seeing,” he says, “and also the opportunities.”

Of course, MVB is not the only bank looking to fintech acquisitions to fuel growth. Earlier this month, Fifth Third Bancorp closed its acquisition of Provide. The digital platform offers deposit accounts, insurance coverage and financing to healthcare providers, originating $300 million in loans in the first half of 2021, according to Fifth Third’s July 21 earnings call.

“Our focus is on nonbank transactions that enhance our product and service capabilities,” Fifth Third CEO Greg Carmichael said on the call. “Provide would be a great example of that.” Fifth Third started investing in the company in 2018, and began funding loans through the platform around two years later. Provide will continue to operate as a subsidiary of the Cincinnati-based regional bank, which expects the platform to generate around $400 million in originations in the second half of 2021 and $1 billion in 2022.

2020-2021 (YTD) Fintech Acquisitions by Banks

Acquiring Bank Name Ticker Fintech Target Announcement Deal Value ($M)
Fifth Third Bancorp FITB Provide 6/22/2021 Undisclosed
Axos Financial AX E*TRADE Advisor Services 4/20/2021 $55
MVB Financial Corp. MVBF Trabian Technology 4/16/2021 Undisclosed
Bank of America Corp. BAC Axia Technologies 4/1/2021 Undisclosed
PNC Financial Services Group PNC Tempus Technologies 1/27/2021 Undisclosed
Alliance Data Systems Corp. (Comenity Bank) ADS Lon Operations 10/28/2020 $450
CRB Group (Cross River Bank) n/a Synthetic P2P Holdings Corp. (d/b/a PeerIQ) 8/21/2020 Undisclosed
American Express Co. AXP Kabbage 8/17/2020 Undisclosed
MVB Financial Corp. MVBF Invest Forward 8/7/2020 $1
MVB Financial Corp. MVBF Paladin 4/17/2020 Undisclosed
Bank of Montreal BMO Clearpool Group 1/22/2020 $147

Source: Piper Sandler & Co. using data from S&P Global Market Intelligence.

The Growing Imperative of Scale


bank-scale-2-1-16.pngWhy are there so many people attending Bank Director’s 2016 Acquire or Be Acquired Conference this year, which at over 900 people is the largest number of attendees in the 22 years that we have been holding this event? Clearly the participants are interested in learning about the mechanics of bank M&A and the trends that are driving the market. But something seems to be different. I sense that more boards and their management teams are seriously considering M&A as a growth plan than perhaps ever before.

The heightened level of interest could certainly be explained by the continued margin pressure that banks have been operating under for the last several years. The Federal Reserve increased interest rates in December by 25 basis points–the first rate hike since 2006. But Fed Chairman Janet Yellen has said that a tightening of monetary policy will occur gradually over a protracted period of time, so any significant rate relief for the industry will be a long time in coming.

Other factors that are frequently credited with driving M&A activity include the escalation in regulatory compliance costs – which have skyrocketed since the financial crisis – and management succession issues where older bank CEOs would like to retire but have no capable successor available. But these challenges have been present for years, and there’s no logical reason why they would be more pressing in 2016 than, say, 2013.

What I think is different is a growing consensus that size and scale are becoming material differentiators between those banks that can look forward to a profitable future as an independent entity and those that will struggle to survive in an industry that continues to consolidate at a very rapid rate.

In a presentation this morning, Tom Michaud, the president and CEO at Keefe, Bruyette & Woods, showed a table that neatly framed the challenge that small banks have today in terms of their financial performance. Michaud had broken the industry into seven asset categories from largest to smallest. Banks with $500 million in assets or less had the lowest ratio of pre-tax, pre-provision revenue as a percentage of risk weighted assets – at 1.41 percent – of any category. Not only that, but the profitability of the next four asset classes grew increasingly larger, culminating in banks $5 billion to $10 billion in size, which had a ratio of 2.27 percent. Profitably then declined for banks in the $10 billion to $50 billion and $50 billion plus categories. Banks in the $5 billion to $10 billion are often described as occupying a sweet spot where they are large enough to enjoy economies of scale but still small enough that they are not regulated directly by the Consumer Financial Protection Bureau or are subject to restrictions on their card interchange fees under the Durbin Amendment.

Size allows you to spread technology and compliance costs over a wider base, which can yield valuable efficiency gains. It makes it easier for banks to raise capital, which can be used to exploit growth opportunities in existing businesses or to invest in new business lines. And larger banks also have an easier time attracting talent, which is the raw material of any successful company.

There will always be exceptions to the rule, and some smaller banks will be able to outperform their peers thanks to the blessings of a strong market and highly capable management. But I believe that many banks under $1 billion is assets are beginning to see that only by growing larger will they be able to survive in an industry becoming increasingly more concentrated every year. And for banks in slow growth markets, that will require an acquisition.

A Front Row Seat on Bank M&A


bank-manda-1-28-16.pngJanuary 30 will mark the kick off of Bank Director’s 22nd annual Acquire or Be Acquired Conference at the Arizona Biltmore resort in Phoenix. Although he is not the architect of record—that distinction belongs to the lesser known Albert Chase McArthur—the famed Frank Lloyd Wright is generally credited with designing the iconic structure, and it bears his formidable imprint. We’ve held many of our AOBA conferences at the Biltmore (and at the Phoenician resort in nearby Scottsdale), and both venues have given us a front row seat on history.

By my count, this will be the 15th AOBA event that I have attended and the architects of countless M&A deals have spoken there. Interestingly, the number of U.S. banks and the number of AOBA attendees have had a dichotomous relationship over that period of time. The conference has gotten bigger—this year we are expecting over 900 attendees, which would make it the largest ever—while the number of banks has gotten smaller. There were approximately 12,000 depository institutions in 1994—the first year of the conference—compared to just over 6,000 today. While we would love to take full credit for driving that dramatic level of consolidation, the Acquire or Be Acquired conference has at least provided tens of thousands of attendees with important information to make one of the most important decisions of their business lives.

I don’t believe that any single trend or event has had a greater impact on the industry since 1994 than the long wave of consolidation, with the possible exception of the 2007 to 2008 financial crisis. Of course, those two dynamics—consolidation and the crisis—are intertwined, as I’ll get to in a moment. Consolidation has created a bipolar industry of extremes. According to SNL Financial, the nine largest U.S. banks hold about 44 percent of the country’s banking assets, the other 6,000-plus institutions hold the balance. 

The impact of this great disparity between the biggest of the big and everyone else has been profound. It was out of a deep well of concern about the systemic risk posed by the country’s largest financial institutions (including investment banks, insurance companies and other giant non-bank financial companies) that Congress passed the Dodd-Frank Act of 2010, which greatly increased the regulatory burden for all institutions regardless of their size. Compared to the Big Five, community banks and larger regionals pose very different public policy challenges in such areas as regulation, capital adequacy and risk—although this distinction isn’t fully reflected in the reality of the laws or regulatory attitudes that impact the industry today. With the exception of Citigroup, which has never been a significant factor in the domestic M&A market other than its historic 1998 merger with the Travelers Group, four of the Big Five—JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and U.S. Bancorp—are products of consolidation. You can see a personalized history of bank M&A in any of their family trees.

In recent years, the bank M&A market has settled into a steady if somewhat measured annual reduction in the number of banks. There were 225 healthy bank deals in 2013, according to SNL Financial, for an average price to tangible book value (P/TBV) of 123.3 percent. Two years ago, there were 285 deals for a P/TBV ratio of 141.1 percent. And in 2015 there were 284 deals for a P/TBV ratio of 144.9 percent, reflecting a slight increase in pricing if not in activity, according to   data from SNL. That’s a far cry from 1994 when there were a record 524 deals for an average P/TBV ratio of 171.5 percent, but there aren’t as many banks to sell today as there was 22 years ago.

Much of the M&A activity in recent years has been driven by community banks and their regional counterparts since institutions with $50 billion in assets or greater—which are considered to be in a different class by the regulators—have largely been barred from doing acquisitions. There are signs, however, that some of these players are getting back in the game, evidenced by the recent announcement that $71 billion asset Huntington Bancshares would acquire $25.5 billion asset FirstMerit Corp. for $3.4 billion.

Generally, the Acquire or Be Acquired conference is an opportunity for bank CEOs and their directors to gain knowledge about the mechanics of bank M&A. It is not a place where most people come to do deals, although I did have a CEO tell me recently that a contact he made at a past conference lead to an acquisition. So not only has AOBA been a witness to history, occasionally, it helps make it.

Issues & Ideas for M&A Related Capital Raising




During Bank Director’s 2015 Acquire or Be Acquired conference in January, this session explored alternatives for raising capital required to close a specific M&A transaction. The discussion included the pros and cons of both public and private transactions with specific examples of offerings that worked well and those that faltered. The presentation also focused on the evolving role of private equity as a source of acquisition related capital.

Presentation slides

Video length: 54 minutes

About the speakers

Todd Baker – Managing Director & Head of Americas Corporate Development at MUFG Americas Holdings / MUFG Union Bank NA
Todd Baker is managing director and head of Americas corporate development at MUFG Americas Holdings / MUFG Union Bank NA. He has had a lead role in scores of bank and financial services M&A transactions over the past 30+ years. Some of his more recent transactions in the community bank sphere include the 2012 acquisition of Pacific Capital Bancorp by MUFG Union Bank, the 2009 acquisition of The South Financial Group by TD Bank and the 2006 acquisition of Commercial Capital Bancorp by Washington Mutual.

Frank Cicero – Global Head of Financial Institutions, Managing Director Investment Banking at Jefferies LLC
Frank Cicero is the global head of financial institutions, managing director investment banking at Jefferies LLC. He specializes in M&A and capital markets transactions for depository institutions. Previously, Mr. Cicero was the head of investment banking coverage for banks at Lehman Brothers and Barclays Capital.

John Eggemeyer – Founding & Managing Principal at Castle Creek Capital LLC
John Eggemeyer is a founding and managing principal at Castle Creek® Capital LLC which has been a lead investor in community banking since 1990. The firm is currently one of the most active investors in community banking with approximately $700 million in assets under management. Prior to founding Castle Creek®, Mr. Eggemeyer spent nearly 20 years as a senior executive with some of the largest banking organizations in the U.S. with responsibilities across a broad spectrum of banking activities.

2015 L. William Seidman CEO Panel




During Bank Director’s 2015 Acquire or Be Acquired conference in January, a panel of four community bank CEOs, all of whom are publicly traded, above $5 billion in asset size and are active acquirers discuss their different strategies for the future with our president, Al Dominick. This session is named after the former FDIC Chairman and Bank Director’s Publisher, the late L. William Seidman, who was a huge advocate of a strong and healthy community bank system.

Video length: 46 minutes

About the speakers

David Brooks – Chairman & CEO at Independent Bank Group
David Brooks is chairman and CEO of McKinney-headquartered Independent Bank Group, which currently operates 35 Independent Bank locations spanning across Texas. He has been active in community banking since the early 1980s and founded this company in 1988.

Daryl Byrd – President & CEO at IBERIABANK Corporation
Daryl Byrd is president and CEO of IBERIABANK Corporation. He serves on the boards of directors for both IBERIABANK Corporation and IBERIABANK, where he joined in 1999. Headquartered in Lafayette, LA, IBERIABANK is the 126-year-old subsidiary of IBERIABANK Corporation operating 187 branch offices throughout Louisiana, Arkansas, Alabama, Florida, Texas and Tennessee. With $15.5 billion in assets (as of October 31, 2014) and over 2,700 associates, IBERIABANK Corporation is the largest and oldest bank holding company headquartered in Louisiana.

Ed Garding – President & CEO at First Interstate BancSystem, Inc.
Ed Garding is president and CEO of First Interstate BancSystem, Inc. He has been chief executive officer of First Interstate BancSystem since April 2012, chief operating officer from August 2010 and served as an executive vice president since January 2004. Mr. Garding served as First Interstate’s chief credit officer from 1999 to August 2010, senior vice president from 1996 through 2003, president of First Interstate Bank from 1998 to 2001 and president of the Sheridan branch of First Interstate Bank from 1988 to 1996. In addition, Mr. Garding has served as a director of First Interstate Bank since 1998.

Mark Grescovich – President & CEO at Banner Corporation
Mark Grescovich is president and CEO at Banner Corporation. He joined Banner in April 2010 as president and became CEO in August 2010 following an extensive banking career specializing in finance, credit administration and risk management. Under his leadership, Banner has executed an extremely successful turnaround plan involving credit stabilization, improved risk management, a secondary public offering and other capital raising activities and a return to profitability based on net interest margin improvements.