What Matters Most: Size, Profitability or Something Else?




During Bank Director’s 2015 Acquire or Be Acquired conference in January, it was said “you don’t have to get bigger… you need to get more profitable.” So what matters most? Size, profitability or something else? A panel considers this question and discuss what it takes to build strong franchises.

Presentation slides

Video length: 50 minutes

About the speakers

Gary R. Bronstein, Partner, Kilpatrick Townsend & Stockton LLP
Gary Bronstein is a partner at Kilpatrick Townsend & Stockton LLP and is the team leader of the firm’s financial institutions practice. Mr. Bronstein provides a broad spectrum of strategic advice to financial institution and public company clients. He concentrates on initial public offerings and other specialized public and private capital raising transactions, mergers and acquisitions, proxy contests and a host of other corporate and securities law matters that arise during the life of clients.

Steven D. Hovde, President & CEO, Hovde Group, LLC
Steve Hovde is the president and CEO of Hovde Group, LLC. In this capacity, Mr. Hovde is responsible for managing its investment banking activities, the strategic development of mergers and acquisitions of bank and thrift institutions and its private equity activities. In this role, he has negotiated transactions in excess of several billion dollars in deal value and provides the firm’s investment bankers with technical and strategic advice on client transactions. Mr. Hovde is also involved in the firm’s capital markets business, including placements of equity and trust preferred securities, and the conversion to stock form of mutual thrift institutions.

Christopher D. Myers, President & CEO, CVB Corporation
Chris Myers is the president and CEO at CVB Corporation. Prior to his tenure at Citizens, Mr. Myers served as chairman and chief executive officer of Mellon First Business Bank, where he spent a total of ten years in various assignments. He began his banking career with First Interstate Bank where he completed extensive commercial loan training and progressed through their management ranks.

Terry Turner, President & CEO, Pinnacle National Bank and Pinnacle Financial Partners
Terry Turner is president and CEO at Pinnacle National Bank and Pinnacle Financial Partners. Following his graduation, Mr. Turner worked for Arthur Andersen & Company as a consultant in Atlanta, GA and joined one of his clients, Park National Bank in Knoxville, TN where he held various management positions including senior vice president of the bank’s commercial division.

Outlook for Banking in the U.S.




During Bank Director’s 2015 Acquire or Be Acquired Conference in January, John Duffy and Thomas Michaud, both from Keefe, Bruyette & Woods, Inc., reviewed capital markets and operating conditions for banks nationwide. Additionally, they looked at how M&A fits within a broad range of strategic alternatives and how M&A can help the bank achieve strategic goals.

Presentation slides

About the speakers

John Duffy, Vice Chairman at Keefe, Bruyette & Woods, Inc., A Stifel Company
John Duffy has been with KBW for 34 years.  He was appointed to the position of vice chairman in October 2011, after having served as chairman and CEO since September 2001.  Prior to that, he was president and co-CEO, a position he assumed in July 1999.  From 1990 to 1999, Mr. Duffy was executive vice president and director of investment banking.  In that role, he was responsible for managing the firm’s substantial merger & acquisition practice in the financial services industry as well as KBW’s corporate finance activities in the equity and debt markets.

Tom Michaud, President and CEO at Keefe, Bruyette & Woods, Inc., A Stifel Company
Under Tom Michaud’s leadership, KBW has become one of the top traders of financial services stocks and developed an industry leading equity research effort. KBW has also emerged as a top manager of small, mid and large cap equity offerings and remains a leading M&A advisor to companies across the financial services industry. KBW became a wholly owned subsidiary of Stifel Financial Corp. in February of 2013. Mr. Michaud also sits on Stifel’s board of directors.

A Postcard from AOBA 2013


Bank Director recently completed its 19th annual Acquired or Be Acquired (AOBA) conference in Scottsdale, Arizona, and I would describe the mood — not just about the bank mergers and acquisition market, but about banking in general — as generally upbeat. I think the dark clouds that have hung over the industry since 2008 have begun to part and the future looks a little brighter.

We drew a record crowd of 700-plus attendees to the fabled Phoenician resort (once owned, temporarily, by the Federal Deposit Insurance Corp. when the former publisher of Bank Director magazine, the late Bill Seidman, was the agency’s chairman) for four days of peer group discussions, general sessions and breakouts on a wide variety of topics relating to M&A, capital and strategy.  Most of the attendees at this conference are bank chief executive officers and outside directors, so it’s almost impossible to spend a couple of days here and not come away with a strong sense of how the industry’s leadership feels about things. 

Jack_2-6-13.jpg(Unfortunately, the weather was not particularly cooperative during our stay. It rained the first couple of days — which is quite unusual for the Sonoran Desert this time of year — and in an effort to coax out the sun our managing director and executive vice president, Al Dominick, and I opened the conference by walking on stage with opened umbrellas. Our little voodoo trick was marginally successful — the sun finally appeared to stay on the final day of the event.)

If there was general consensus among the attendees about the future of the bank M&A market, it was this: We should see more deals this year than we saw in 2012 — when there were 230 acquisitions of healthy banks totaling $13.6 billion, according to SNL Financial. And one of the primary drivers will be the Federal Reserve’s ongoing monetary policy of keeping interest rates low, which has had the unhappy effect for most banks of squeezing their net interest margins. Remember, most banks make most of their money on the spread between their cost of funds and the interest rates they charge on loans. And even though deposits are dirt cheap at the moment, weak loan demand and intense competition for whatever good loans can be found have driven down loan pricing as well. Several speakers at this year’s conference predicted that the industry’s margin pressure — one might even call it a margin crisis—could last well into 2014.

A second driver could turn out to be the pending Basel III capital requirements, which in their current form apply equally to all sizes of institutions — and would force many community banks to raise capital. More than one speaker said that institutional investors are wary of putting their money into any bank that doesn’t have a compelling growth story to tell. Unless the U.S. regulators decide to apply a less stringent version of the requirements to small banks — let’s call it “Basel III Lite” — many such institutions could find themselves in the unenviable position of needing to raise capital from an unfriendly market. For them, selling out to a more strongly capitalized competitor might be their only option.

A third factor in the M&A market’s anticipated resurgence this year is the oppressive weight of banking regulation, including (but certainly not limited to) the Dodd-Frank Act. Smaller institutions will have a harder time affording the rising cost of compliance, and I’ve even heard some people suggest that banks will need to grow to $1 billion in assets before they begin to achieve what one might call “economies of compliance scale.” Although there are exceptions (including some provisions of Dodd-Frank), most regulations apply equally to all banks regardless of their size, which means it costs small banks disproportionately more as a percentage of revenue to comply than it does bigger banks with larger revenue bases. Will a large number of banks sell out solely because of the rising compliance burden? Probably not. But for an institution that is struggling with intense margin compression and needs to raise capital to meet yet another regulatory mandate, the higher cost of regulatory compliance could be the final straw.

Next year’s AOBA — set for Jan. 26 through Jan. 28 at the Arizona Biltmore resort in Scottsdale — will be the conference’s 20th anniversary and it will be interesting to see how well these predictions held up. Until then, ciao.

Optimists, Welcome.


Since returning from the west coast a few weeks ago, I’ve read a number of reports, white papers and yes, promotional pieces that suggest a wide-spread optimism for the financial industry in 2011. With U.S. banks expanding their loans to consumers for the first time in years, and a number of institutions releasing earnings this week (expectations are high for stellar Q4 numbers), one can see why. In fact, JPMorgan Chase may have laid the foundation when it reported a 47% jump in fourth-quarter earnings to $4.8 billion, or $1.12 per share on Friday.

So all of this enthusiasm and excitement has me grabbing as much data and financial information as possible to form my own opinions. While sifting through a number of bank analyst reports, I randomly came across a sentence on Bain‘s website that I wholly endorse: 

…turbulence does present opportunities for savvy players in all regions to out-perform the overall “average” through such means as cost reduction, strategies to gather new deposits and customers, challenging troubled competitors and, where strength exists, targeted M&A activities.

To the management consulting firm’s last point, I’ve been hearing from a number of our investment banking partners speculation that the pent up demand to buy and sell banks might pop this year. If the record numbers of officers and directors signing up to attend our annual “Acquire or Be Acquired” conference serves as an indicator, how right they will be. 

For those attending this year’s event, expect to hear the case made for buying and/or owning bank stocks thanks to “greater clarity on the regulatory front, historically attractive normalized EPS and book value multiples, and the prospect of a revival in whole bank mergers” (*I can’t claim credit for this outlook; the good folks at Stifel Nicolaus offered such an opinion in a recent analyst report entitled “Random Thoughts on Banking: Why Own Banks?”). 

In a few weeks, more than 600 of the industry’s leaders will discuss how recent financial reform (and revised capital standards) has impacted capital structure, valuation and strategic activity. And we’ll prepare for what seems inevitable: a coming wave of M&A. So are things looking up? I guess you can say all signs point to becoming cautiously optimistic.