Tales From Bank Boardrooms

If anyone in banking has seen it all, it’s Jim McAlpin. 

He’s sat in on countless board deliberations since he got his start under the late Walt Moeling, a fellow Alabamian who served as his mentor at Powell, Goldstein, Frazer & Murphy, which later merged with Bryan Cave in 2009. 

“That’s how I started in the banking world, literally carrying Walt’s briefcase to board meetings. Which sometimes was a very heavy briefcase,” quips McAlpin. Moeling made sure that the young McAlpin worked with different attorneys at the firm, learning various ways to practice law and negotiate on behalf of clients. “He was my home base, but I also did lending work, I did securities work, I did some real estate work. I did a lot of M&A work” in the 1990s, including deals for private equity firms and other companies outside the banking sector.

But it’s his keen interest in interpersonal dynamics and his experience in corporate boardrooms, fueled by almost four decades attending board meetings as an attorney and board member himself, that has made McAlpin a go-to resource on corporate governance matters. Today, he’s a partner at Bryan Cave Leighton Paisner, and he recently joined the board of DirectorCorps, Bank Director’s parent company. 

“I’ve gone to hundreds of meetings, and each board is different. You can have the same set of circumstances more or less, be doing the same kind of deal, facing the same type of issue or regulatory situation,” he says. “But each set of people approaches it differently. And that fascinates me.”  

McAlpin’s a consummate storyteller with ample anecdotes that he easily ties to lessons learned about corporate governance. Take the time he broke up a physical fight during the financial crisis. 

“During that time period, I saw a lot of people subjected to stress,” he says. “There are certain people who, under stress, really rise to the occasion, and it’s not always the people you think are going to do so. And then there are others who just fall apart, who crumble. Collectively as a board, it matters.”

Boards function based on the collection of individual personalities, and whether or not those directors are on the same page about their organization’s mission, goals and values. McAlpin’s intrigued by it, saying that for good boards, the culture “permeates the room.”

McAlpin experienced the 1990s M&A boom and the industry’s struggles through the financial crisis. On the precipice of uncertainty, as interest rates rise and banks weather technological disruption, he remains bullish on banking. “This is a good time to be in banking,” he says. “It’s harder to get an M&A deal done this year. So, I think it’s caused a lot of people to step back and say, ‘OK, what are we going to do over the next few years to improve the profitability of our bank, to grow our bank, to promote organic growth?’. … [That’s] the subject of a lot of focus within bank boardrooms.”

McAlpin was interviewed for The Slant podcast ahead of Bank Director’s Bank Board Training Forum, where he spoke about the practices that build stronger boards and weighed in on the results of the 2022 Governance Best Practices Survey, which is sponsored by Bryan Cave. In the podcast, McAlpin shares his stories from bank boardrooms, his views on corporate culture and M&A, and why he’s optimistic about the state of the industry. 

Banks Inherited a Wholesale Balance Sheet During the Pandemic. Here’s What to Do.

Bank managements and directors must recognize how cash has changed significantly over the past seven quarters, from the fourth quarter of 2019 to the third quarter of 2021. The median cash-to-earning assets for all publicly traded banks has grown to 10% in recent quarters, up from 4% pre-pandemic. This is a direct impact of the Covid-19 pandemic on deposit flows from government stimulus and the reluctance to deploy cash in a time of historically low interest rates.

The result is a healthy “wholesale” balance sheet that is separate and distinct from banks’ normal operations. This must be factored into growth plans for 2022 and 2023. We think it may take several quarters to properly deploy the excess liquidity. Investors already demand faster loan growth and their tolerance towards low purchases of securities may wane. The pressure to take action on cash is real, and it should be seen as an opportunity and certainly not a curse. We see excess cash as a high-class problem that can be met with a successful response at all banks.

We expect financial institutions will become far more open about their two balance sheet positions in the near future. First, let’s talk about the “normal” operation with stated goals and objectives on growth (e.g. loans, earnings per share and returns on tangible equity). Next, segment the “wholesale” balance sheet, which contains the cash position and any extra liquidity in short-term securities. Using our industry data above (10% cash in earning assets, up from 4% pre-pandemic), a $3 billion community bank has $300 million in cash instead of the usual $120 million it carried two years earlier — this establishes a $180 million wholesale position. Company management should directly communicate how this separate liquidity will be used to enhance earnings and returns in future quarters. Likewise, boards should stay engaged on how this cash gets utilized within their risk tolerance.

Late in the fourth quarter of 2021, certain company acquisitions disclosed the use of excess cash as a key rationale of the deal. An example is Ameris Bancorp, whose executive team stated in its December 2021 purchase of Balboa Capital that the transaction was funded by excess cash. Back in May 2021, Regions Financial (which is neutral-rated by Janney) acquired EnerBank with a home improvement finance strategy that would deploy its liquidity into new loans. Regions has since completed additional M&A deals with the same explanation. Many more small M&A transactions seem likely in 2022 using cash deployment as an underlying theme.

It has been my experience for three decades as an equity analyst that banks miss chances to explain their strategy in a succinct yet powerful manner. Remaining shy under the pretense of conservatism does not generally reward a higher stock valuation. Instead, banks who are direct and loud about their strategy (and then execute) tend to be rewarded with a stronger stock price. Hence, it is a far better idea to express a game plan for cash and a bank’s distinct “wholesale” balance sheet.

The current cash positions (which produced little to no earnings return in prior quarters) are now a superb opportunity to make a difference with investors. We encourage banks to be direct on how they will utilize excess cash and liquidity separate from their existing operations. The Janney Research team estimates banks can generate nearly a 10% boost to EPS by 2023 from managing excess cash alone. This is separate from any benefit from higher interest rates and Federal Reserve policy shifts that may occur.

Outlining a cash strategy in 2022 and 2023 is a critical way to differentiate the bank’s story with investors. Bank executives and directors must take advantage of this opportunity with a direct game plan and communicate it accordingly.

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.

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.

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.

A Successful Acquisition: Four Tips for Buyers and Sellers


four.jpgIn the current banking environment, two areas are receiving heavy attention from financial institutions large and small: risk management from regulators, and mergers and acquisitions. As I assist my clients with both, I think about the concept of risk management in an acquisition setting. The following are four tips for managing risk in financial institution mergers and acquisitions.

Tip 1: Get your ducks in a row prior to a transaction.

Whether buying or selling a financial institution, it will lessen risks if both sides are prepared and have a team identified and educated. The team should consist of internal employees and management along with external legal counsel, accountants and investment bankers. A qualified team should ensure that the cost of the acquisition will be more predictable. A prepared internal team will provide better due diligence materials for the seller, and, ultimately, better disclosure schedules. An educated and engaged board of directors is also essential to managing risk. Both the buyer and seller boards of directors have a fiduciary duty to maximize shareholder value, along with their duty of care. 

Tip 2:  Identify “deal breaker” issues early.

Whether a buyer or seller, there are issues or terms that a financial institution may consider unacceptable, and it is prudent to identify them at the beginning. For a buyer, these may include regulatory problems, large loan issues, expensive change of control agreements, and contracts with large termination payments or outstanding litigation. For a seller, deal breakers typically are more financial in nature regarding purchase price adjustments, but they can also include employee issues, as well as indemnification and survival provisions (past the closing date of the seller’s representations and warranties).

Tip 3: Build risk mitigation into the definitive purchase agreement.

Management and boards of directors should be aware of what is being included in purchase agreements to understand and mitigate the risks. In the typical acquisition scenario, the buyer obtains all of the assets and the liabilities by law. What that means is the buyer gets the good, the bad and the ugly. An asset purchase can reduce the liability and narrow the scope of the purchase, but most financial institution transactions are mergers.

One way the acquirer can mitigate risk is through due diligence. If certain assets in the loan portfolio do not pass muster, there may be opportunities to sell those loans prior to the consummation of the deal. Robust indemnification provisions in the purchase agreement also can protect the buyer from some problems and should be considered carefully. In a merger scenario, there typically is no surviving entity to pay indemnification to the buyer, so it may be prudent to consider an escrow of some of the purchase price to cover claims post-closing. There are a multitude of ways to structure indemnification, survival of representations and warranties and purchase price hold-backs, and the buyer should contribute to the discussion of the best avenue for their institution.

Another risk mitigation strategy is to consider offering key employees of the seller bonuses to stay with the combined company. From the time a transaction is announced to closing can take four to six months or longer, and bonuses may help maintain stability.

The most important thing a seller can do is prepare complete and accurate disclosure schedules. Full disclosure is the seller’s insurance policy against indemnification or other claims in the future. Couple this with a tail insurance policy for directors and officers, and seller risk should be fairly well mitigated.

Tip 4: Understand that integration is the most difficult aspect of an acquisition.

Where do most bank mergers fail? It isn’t in the transaction itself. Failure is far more likely after the two institutions become one. The risk of post-merger failure should be mitigated early in the transaction process. Much like getting prepared ahead of a merger deal, it’s crucial to pull the proper integration team together to concentrate on culture, personnel, policies and procedures, as well as training. There also are consultants who specialize in acquisition integration. This effort should not be short changed or undervalued and requires a robust plan to incorporate the merged or acquired bank into the existing company. The planning should begin as early as possible and the integration effort may take a year or two to complete.

There are many more risks to be contemplated when embarking on the purchase or sale of a financial institution, but emphasis on these four should help ensure a successful transaction for both sides.

L. William Seidman CEO Panel



During Bank Director’s 2014 Acquire or Be Acquired conference in January, a panel of three community bank CEOs, all of whom have completed a recent acquisition, look at what the future holds for community banks and share their individual experiences and perspectives. 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: 53 minutes

About the Speakers

G. William Beale, CEO, Union First Market Bank
Billy Beale is the chief executive officer of Union First Market Bankshares, a publicly traded diversified financial services company based in Richmond, Virginia. He has held this position since the formation of the company and its predecessors in July 1993. Prior to joining Union in May 1989, Mr. Beale had spent 18 years working for 3 banks in Texas.

Richard B. Collins, President, CEO & Chairman of United Bank
Dick Collins is the president, CEO & chairman of United Bank since 2001. Prior to joining United Bank, he was president and CEO at First Massachusetts Bank in Worcester, Massachusetts. Other positions Mr. Collins has held are regional president at Bank of Boston from 1994-1995 and president and CEO at Mechanics Bank from 1983-1994.

William H. W. Crawford, IV, President & CEO of Rockville Bank and Rockville Financial, Inc.
Bill Crawford is the president and CEO of Rockville Bank and Rockville Financial, Inc. In this position, he is responsible for the build out of the company’s infrastructure including the addition of a risk department, the expansion of the mortgage banking division, the enhancement of the financial advisory services division, the introduction of the private banking division and the acquisition of a commercial lending team from a competitor bank.

E. Robinson McGraw, Chairman & CEO, Renasant Corporation
Robin McGraw is the chairman and CEO of Renasant Corporation and Renasant Bank. He has been with Renasant for 38 years and assumed his current role in 2001. Mr. McGraw is past chairman of the Mississippi Bankers Association. Also active on the national banking level, he has been a member of the American Bankers Association’s government relations council.

Bank M&A in 2014: What to Expect


In this video, Rick Childs of Crowe Horwath LLP highlights findings from the 2014 Bank Director & Crowe Horwath LLP Bank M&A survey, revealing a shift in which banks are expected to be the active acquirers this year. In addition, Rick shares his insights on regulatory approval trends, mergers of equals and the continued disconnect between buyers and sellers on pricing.


Why Small Banks Will Consolidate


While announced deal volume continues at a tepid pace, key drivers of M&A activity are starting to emerge. With more than 90 percent 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. Six factors that point to a pick-up in M&A activity in this space are as follows:  

1. Bank equity prices are rising with an increasing valuation gap between small and large banks. Bank stocks overall have increased nearly 30 percent in 2013; however, banks with less than $1 billion in assets continue to trade at significant discounts compared to larger banks.   

Austin---Price-Tangible.png

As the chart above indicates, the valuation gap has widened for larger banks, which enjoy a median 51 percentage point premium as of August 31, 2013. Larger banks can use this valuation advantage to present attractive deal pricing to smaller banks.    

2. Very few FDIC-assisted transactions remain. Since 2008, 485 banks have failed representing nearly 7 percent of banking companies in the U.S., according to the Federal Deposit Insurance Corp. Essentially; FDIC-assisted transactions filled the void of traditional open-bank deals. With troubled bank totals dwindling and only a few significantly undercapitalized banks remaining, FDIC-assisted deals are diminishing. Acquisitive companies have moved on from this once lucrative line of business to evaluate more traditional deals.

3. Improved asset quality is leading to reduced credit marks. While merger discussions have occurred in recent years, the due diligence phase often brought deal negotiations to a screeching halt. With elevated credit marks (in some cases exceeding 10 percent), parties were unable to bridge the valuation gap. Over time, banks have made significant progress in reducing classified assets and writing down assets that more closely approximate fair value. With credit marks now modestly exceeding the target’s allowance for loan and lease losses, capital and book value can be preserved, which in turn, translates to more favorable deal pricing.

4. Several high profile deals have been announced at attractive premiums. Achieving certain benchmark pricing levels in M&A often is a catalyst for deal activity. Sellers are always looking for market information to help formulate a strategy on whether or when to sell. On the other side, buyers do not want to be perceived as overpaying, which is usually viewed in the context of pricing relative to other recent deals. Transactions like MB Financial’s acquisition of Cole Taylor Group at 1.82 times tangible book value and Cullen/Frost Bankers’ acquisition of WNB Bancshares at 2.84 times tangible book have already spurred discussion inside many boardrooms.  

5. Economies of scale in the banking industry have never been more crucial. The need and desire to grow exists at virtually every institution. As the chart below indicates, efficiency ratios have remained consistently lower at larger banks.

Austin---Efficiency-Ratio.png

Whether driven by regulatory costs, technology, marketing, pricing power, expanded lines of business/other revenue sources, larger banks appear to have clear performance advantages. This increasingly important trend will spur institutions to grow via acquisitions in order to spread certain fixed costs over a larger asset base and thereby improve operating efficiencies.  

6. Mergers among community banks. None of the preceding points are intended to suggest that banks under $1 billion will not participate as buyers of other community banks. In fact, since 2010, banks of less than $1 billion in assets have announced or completed 280 acquisitions, comprising more than 41 percent of the deal activity during that period.  A recent example of this type of deal involved Croghan Bancshares, which has $630 million in assets and is headquartered in Fremont, Ohio. Croghan is buying Indebancorp, which has$230 million in assets and is headquartered in Oak Harbor, Ohio. After considering other alternatives, Indebancorp chose Croghan, a larger community bank, as a partner. The deal was structured with 70 percent of the consideration in Croghan stock and priced at 134 percent of Indebancorp’s tangible book value. The deal value per share was 28 percent higher than Indebancorp’s stock trading price and cash dividends to Indebancorp shareholders will increase by almost 200 percent. On a pro forma basis, Indebancorp shareholders will own approximately 26 percent of Croghan’s shares following the deal.  

Making M&A predictions is always challenging, but here at Austin Associates, we believe many community banks will make the decision to sell within the next few years. When M&A returns to full capacity, expect at least 300 transactions per year, or 20 percent consolidation of the industry within five years. Pricing will continue to increase, but do not expect to see pre-crisis multiples any time soon. Moreover, pricing will be highly dependent on the target’s unique profile (size and performance), as well as local and regional market factors. 

M&A Case Study: How Selling For Less Created More Value



Selling for a premium is not the only strategy. Kevin Hanigan, CEO of ViewPoint Financial, and C.K. Lee, managing director at Commerce Street Capital, describe the creative strategy behind their 2012 M&A transaction in Texas that solved a management succession problem at ViewPoint and provided liquidity for Highlands shareholders.

Video Length: 45 minutes

Highlights include: 

  • The problem facing the board at Highlands Bancshares Inc.
  • Thinking outside the box – three growth options to weigh
  • Key lessons learned from the deal

About The Presenters:

Kevin Hanigan is president and CEO of ViewPoint Financial Group, Inc. and ViewPoint Bank, positions he has held since completion of the merger of Highlands Banchares, Inc. Prior to ViewPoint, Mr. Hanigan was the chairman and CEO of Highlands Bancshares. His experience in Texas banking spans three decades and includes numerous leadership and management roles.

C. K. Lee is a managing director in the financial institutions group, capital markets division of Commerce Street Capital, LLC. In that capacity, Mr. Lee assists financial institution clients with M&A, capital raising, balance sheet restructuring, business plan development and regulatory matters. In addition, he provides regulatory advisory support to the private equity fund management team. Prior to joining Commerce Street in June 2010, Mr. Lee was regional director for Office of Thrift Supervision’s (OTS) Western region headquartered in Dallas, with offices in Seattle, San Francisco and Los Angeles.