Powering the Web of Partnerships to Make Innovation Easy

The right platform can help banks accelerate innovation, navigate the changing tech landscape and offer next generation solutions to customers. Public clouds are the platform to achieve these outcomes.

The cloud has moved from an ambiguous and amorphous buzzword to the platform that powers much of the innovation happening in the financial industry. Clouds, like Microsoft’s Azure, serve as the modern foundation banks, digital cores and other fintech firms use to build, develop, house and host their solutions. Participating in the cloud eco-system allows these players to seamlessly integrate with each other to expand their customer reach, take advantage of pre-built accelerators, and access third party fintech solutions. This ecosystem, with its multiple connection points, when housed on the same cloud means innovation can happen faster — at every level.

That accelerated innovation is crucial to small and mid-sized banks like Hawthorn Bank, a subsidiary of the Jefferson City, Missouri-based Hawthorn Bancshares. Banks must balance providing high-quality customer service and relevant products to customers while keeping up with nonbank and big bank competitors, but have limited staff and capacity for adding new tech projects and offerings. Hawthorn wanted to add more services and solutions for its business customers, like expedited online and in-person payments, which didn’t always fit into its traditional suite of offerings.

Hawthorn didn’t realize it at the time, but belonging to the right cloud network helped it address a number of their business customer’s pain points. The $1.7 billion bank relies on Jack Henry’s Banno digital banking platform, which now offers embedded invoicing and digital payment acceptance functionality through a partnership with Autobooks, as well as the full Autobooks small business solution as a seamless add-on to Banno platform users.

Both Autobooks and Jack Henry reside in Microsoft Azure, which made it easy for Banno to incorporate Autobooks as an additional service, as well as for Hawthorn to flip a switch to enable the service. And Autobooks proved to be a complementary, revenue-generating solution that Hawthorn Bank could bring to its business customers.

Examples like this show how coexisting in a cloud ecosystem can remove friction at all levels of development, deployment and integration. This has several benefits for banks and the end user. Being in the same cloud means that fintechs like Autobooks and service providers like Jack Henry can roll out new features and updates to their banks faster. It also helps banks control their third-, fourth- and fifth-party risks, which regulators have highlighted as a way to manage operational and cyber risk.

Selecting that cloud provider, however, starts with trusting the tech company as a secure partner who can meet regulatory expectations. Azure’s developers engage with more than 200 global financial regulators to meet compliance and security requirements, including hosting an annual summit to discuss new regulations and threats. Microsoft also accompanies regulators during audits at financial institutions. And Microsoft works with banks at the platform level to help them navigate projects with other partners, including audit, analytics and other digital banking overhauls and core integrations.

A relationship that close requires shared values — and increasingly, banks are noticing that some of their vendors may not be true partners. A number of large tech firms providing cloud, analytics and platform services to banks are also developing financial products on the side that could compete directly for the bank’s customers. Banks may find that their big-tech cloud provider doesn’t share their values or definition of partnership or compliance; they may treat private customer data differently. The ultimate risk for banks is that they partner with a firm that could one day become a competitor. Banks should look for cloud providers with a proven track record of staying focused on delivering value to the institution.

Community banks like Hawthorn are constantly looking for ways to serve customers better through innovative products and services, while keeping a close eye on costs and managing employee workloads. The right digital platform, powering their service providers and fintech partners alike, is key to unlocking and accelerating their digital transformation.

MOE Compensation Considerations, Challenges


Mergers of equals present unusual — and often, more challenging — compensation considerations for executive teams. The deal structure means both institutions will need to consider a variety of factors ahead of and after deal announcement, navigating them carefully to retain talent and incentivize integration. In this video, Todd Leone, partner at McLagan, a division of Aon’s Total Rewards, lays out how bank leaders involved in MOEs can use compensation to support bank culture and communicate with stakeholders.

  • How MOE Compensation Differs
  • Preparing Prior to Announcement
  • Telling Your Story

Data Considerations for Successful Deal Integration

Bank M&A activity is heating up in 2021; already, a number of banks have announced deals this year. Is your bank considering a combination with another institution?

Banks initiate mergers because of synergies between institutions, and to achieve economies of scale along with anticipated cost savings. Acquiring institutions typically intend to leverage the newly acquired customer base, but this can be difficult to execute upon without a data strategy.

Whether your bank is considering are buying or selling, it has never been more important to evaluate whether your data house is in order. Unresolved acquisition data challenges can result in poor customer experiences, inaccurate reporting and significant inefficiency after the merger closes. What causes these types of data challenges?

  • Both institutions possess massive volumes of data and multiple systems, while disparate systems prevent a holistic view of the combined entity. In a merger, the acquirer does not have access to the target’s data until legal close, and data is not consolidated until the core conversion is completed.
  • Systems are often antiquated, and it is difficult to access high-value customer data. Data integrity is often an issue that impedes anticipated synergies that could promote revenue generation.
  • Absence of enterprise knowledge or insight into target’s customer portfolio. This makes it difficult to identify growth opportunities and plan the strategy for the combined institution. It also creates a barrier to pivoting in the event a key relationship manager leaves the institution.

Baltimore-based Howard Bancorp has conducted five successful acquisitions in the last eight years. Steven Poynot, Howard’s CIO, recommends looking internally first and getting your house in order prior to any merger. “If you don’t understand all of the pieces of your bank’s data and portfolio well, how are you going to overlay your information in combination with the other bank’s data for reporting?”

Five solutions to merger data challenges include:

  • Create a data governance strategy before a deal is in the works. Identify the source and location of all pertinent data. Evaluate whether customer data is clean and up to date. Stale customer information such as old land line phone numbers and inaccurate email addresses yield roadblocks for relationship managers attempting to use data effectively. If your bank does identify data issues, implement a clean-up project based on a data governance policy framework. This initiative will benefit all banks, not just those looking to merge.
  • Develop an M&A integration plan that sets expectations and goals. Involve the CIO quickly and identify tools needed for the integration. Make a strategic determination of what data fields need to be integrated for reporting purposes. Acquire tools to allow for enterprise reporting and to highlight sales opportunities. Partner with vendors who understand the specific challenges of the banking industry.
  • Unify Disparate Systems. Prioritize data integration with a seamless transition for customers as the top priority. Plan for mapping and consolidating data along with reporting for the combined institution. Take product and data mapping beyond what is needed for the system mapping required for core integration. Use the information gleaned from the data to support product analytics, risk assessment, business development and cross selling strategies. The goal is to combine and integrate systems quickly to leverage the data as an asset.
  • Discourage Data Silos. Make data available and easily accessible to all who need it to do their jobs. Banking is a relationship business, and relationship managers need current customer relationship information readily available to them.
  • Analyze. Once the data has been consolidated, analyze and leverage it to identify opportunities that will drive revenue.

In a merger, the sooner that data is combined, the earlier decisions can be made from the information. As data silos are removed and data becomes easily accessible across the organization, data becomes an enterprise-wide asset that can be used effectively in the bank’s strategy.

Navigating Four Common Post-Signing Requests for Additional Information

Consolidation in the banking industry is heating up. Regulatory compliance costs, declining economies of scale, tiny net interest margins, shareholder liquidity demands, concerns about possible changes in tax laws and succession planning continue driving acquisitions for strategic growth.

Unlike many industries, where the signing and closing of an acquisition agreement may be nearly simultaneous, the execution of a definitive acquisition agreement in the bank space is really just the beginning of the acquisition process. Once the definitive agreement is executed, the parties begin compiling the information necessary to complete the regulatory applications that must be submitted to the appropriate state and federal bank regulatory agencies. Upon receipt and a quick review of a filed application, the agencies send an acknowledgement letter and likely a request for additional information. The comprehensive review begins under the relevant statutory factors and criteria found in the Bank Merger Act, Bank Holding Company Act or other relevant statutes or regulations. Formal review generally takes 30 to 60 days after an application is “complete.”

The process specifically considers, among other things: (1) competitive factors; (2) the financial and managerial resources and future prospects of the company or companies and the banks concerned; (3) the supervisory records of the financial institutions involved; (4) the convenience and needs of the communities to be served and the banks’ Community Reinvestment Act (CRA) records; (5) the effectiveness of the banks in combating money laundering activities; and (6) the extent to which a proposal would result in greater or more concentrated risks to the stability of the United States banking or financial system.

During this process, the applicant and regulator will exchange questions, answers, and clarifications back and forth in order to satisfy the applicable statutory factors or decision criteria towards final approval of the transaction. Each of the requests for additional information and clarifications are focused on making sure that the application record is complete. Just because information or documents are shared during the course of the supervisory process does not mean that the same information or documents will not be requested during the application process. The discussions and review of materials during the supervisory process is separate from the “application record,” so it helps bank management teams to be prepared to reproduce information already shared with the supervisory teams. A best practice for banks is to document what happens during the supervisory process so they have it handy in case something specific is re-requested as part of an application.

Recently, we consistently received a number of requests for additional information that include questions not otherwise included in the standard application forms. Below, we review four of the more common requests.

1. Impact of the Covid-19 Pandemic. Regulators are requesting additional information focused on the impact of the coronavirus pandemic. Both state and federal regulators are requesting a statement on the impact of the Covid-19 pandemic that discusses the impact on capital, asset quality, earnings, liquidity and the local economy. State and federal agencies are including a request to discuss trends in delinquency loan modifications and problem loans when reviewing the impact on asset quality, and an estimate for the volume of temporary surge deposits when reviewing the impact on liquidity.

2. Additional, Specific Financial Information. Beyond the traditional pro forma balance sheets and income statements that banks are accustomed to providing as part of the application process, we are receiving rather extensive requests for additional financial information and clarifications. Two specific requests are particular noteworthy. First, a request for financial information around potential stress scenarios, which we are receiving for acquirors and transactions of all sizes.

Second, and almost as a bolt-on to the stress scenario discussion, are the requests related to capital planning. These questions focus on the acquiror’s plan where financial targets are not met or the need to raise capital arises due to a stressed environment. While not actually asking for a capital plan, the agencies have not been disappointed to receive one in response to this line of inquiry.

3. List of Shareholders. Regardless of whether the banks indicate potential changes in the ownership structure of an acquiror or whether the consideration is entirely cash from the acquiror, agencies (most commonly the Federal Reserve), are requesting a pro forma shareholder listing for the acquiror. Specifically, this shareholder listing should break out those shareholders acting in concert that will own, control, or hold with power to vote 5% or more of an acquiring BHC. Consider this an opportunity for both the acquiror and the Federal Reserve to make sure control filings related to the acquiror are up to date.

4. Integration. Finally, requests for additional information from acquirors have consistently included a request for a discussion on integration of the target, beyond the traditional due diligence line of inquiry included in the application form. The questions focus on how the acquiror will effectively oversee the integration of the target, given the increase in assets size. Acquirors are expected to include a discussion of plan’s to bolster key risk management functions, internal controls, and policies and procedures. Again, we are receiving this request regardless of the size of the acquiror, target or transaction, even in cases where the target is less than 10% of the size of the acquiror.

These are four of the more common requests for additional information that we have encountered as deal activity heats up. As consolidation advances and more banks file applications, staff at the state and federal agencies may take longer to review and respond to applications matters. We see these common requests above as an opportunity to provide more material in the initial phase of the application process, in order to shorten the review timeframe and back and forth as much as possible. In any event, acquirors should be prepared to respond to these requests as part of navigating the regulatory process post-signing.

Overcoming Cultural Challenges In M&A

Culture is fundamental to the success of the deal, so it’s top of mind for bank leadership teams working with Richard Hall, managing director for banking and financial services at BKM Marketing. In this video, he explains why transparent, candid communication is key to retaining customers and employees, and shares his advice for post-pandemic strategic planning.

  • Ensuring a Successful Integration
  • Retaining Customers and Employees
  • Formulating a Strategy for 2021

Pandemic Challenges, Strengthens Bank’s Deal Integration

One bank found that the Covid-19 pandemic actually accelerated its deal integration, creating a stronger pro-forma institution to serve clients after overcoming a number of unexpected hurdles.

The coronavirus crisis has thrown a wrench in bank mergers and acquisitions, challenging everything from due diligence to pricing to regulatory and shareholder approvals. Only two bank deals were announced in May, according to S&P Global Market Intelligence; potential buyers and sellers seem to be focusing on assisting customers while they wait for a normalized environment. But Sandy Spring Bancorp found itself with no choice but to adapt its deal integration with Rockville, Maryland-based Revere Bank, even as both banks shifted to a remote work environment.

For us, it’s very important to understand that not just the successful integration, but a successful acquisition is centered around finding the right partner to begin with,” says Sandy Spring President and CEO Daniel Schrider. “And it’s really important … to find an organization that either complements what we do or provides access to a different market that maybe we’re not in, but has a shared vision around client relationships.”

The Revere team was well-known to Sandy Spring, with executives serving on their state bank association as well as competing against each other for local deals. After talking for about 18 months, they announced their merger agreement in September 2019; the deal pushed the Olney, Maryland-based bank above $10 billion in assets.

For months, deal integration proceeded as expected. The banks kicked off internal communication campaigns to keep both groups informed of the timeline, process and upcoming changes, and increase comradery before merger close. They formed 20 cross-functional teams of employees from both companies that tackled specific integration-related tasks or objectives, which met through mid-February.

“Both companies had tremendous first quarters. We were very excited about bringing the two organizations in a new structure and pulling the trigger on a number of things, based upon our ability to be together,” he says. “Then obviously, things came to a screeching halt.”

Once the pandemic closed physical offices, Sandy Spring used video and electronic communication to continue integration work. The pro-forma executive team created welcome videos featuring Schrider, along with digital and virtual orientations, instead of the usual face-to-face interactions.

But the integration encountered yet another unexpected challenge: the Paycheck Protection Program. The Small Business Administration loan program began accepting applications on April 3, two days after the Revere acquisition closed.

All of a sudden, two companies were faced with trying to solve the problems that many of their clients are having,” Schrider says. “That actually accelerated our integration.”

The newly combined teams, which pride themselves on being relationship focused, worked together to fulfill the unsolicited loan demand. They hosted daily PPP calls and involved more than 200 employees to process applications from customers at both banks. The undertaking combatted any inertia they may have felt about actually combining and functioning as one company.

“In a strange way, we’re probably in a better place today than we would have been, absent a pandemic, from the standpoint of being together,” he says. “Even though we’re not physically together.”

Sandy Spring believes picking a bank partner with similar values and staying focused on its strategy helped the pro-forma institution navigate deal-specific challenges. For instance, the all-stock deal for Revere originally carried a price tag of $460.7 million when it was announced in September; at close, it was valued at $287 million based on Sandy Spring’s quarter-end stock price, according to S&P Global Market Intelligence. Schrider says potential buyers and sellers should avoid fixating on absolute deal price, and instead consider the relative value and potential upside of the combined entity’s shares.

So far, the only integration activities that the pandemic has paused are reorganization efforts the bank believes are best done in person, including the planned appointment of Revere co-CEO Ken Cook as executive vice president. The systems conversion and branch consolidation are still on track for the third quarter. Until then, the pro-forma institution will continue to integrate while serving clients during the pandemic.

“It’s been a wild ride but a good one,” Schrider says.

Building a Stronger Bank



Following an acquisition or merger, many banks struggle to build and strengthen their brand. The branch channel is an important part of the franchise for most institutions, so determining which locations to keep, and which to close, is a key strategic decision post-merger. In this video, Anthony Burnett of Level 5 explains how to approach these decisions. He also shares how banks can position themselves for future growth by evaluating opportunities and staffing, and developing a long-term growth plan for the back office.

  • Strategies that Strengthen Your Bank’s Brand
  • Making Decisions About Branch Redundancies
  • Addressing the Back Office
  • Positioning the Bank for Future Growth

Integration: Keeping The Best



Bank leadership teams that approach an acquisition with an open mind will have the best odds for successfully integrating the target, says Kim Snyder of KBS Results. In this video, she shares the three most common misconceptions held by acquirers. She also outlines how banks should communicate to employees and customers about an acquisition, and explains how to approach technology integration—so acquirers can ensure the target’s customers stay with the merged institution.

  • Common Misconceptions
  • Communicating to Employees
  • Explaining Benefits to Customers
  • Getting Technology Integration Right

 

Advice for Buyers & Sellers in 2019



The need for stable, low-cost deposits is driving deals today, and the increasing use of technology is changing how banks should approach integrating an acquisition. In this video, Bill Zumvorde of Profit Resources shares what prospective buyers and sellers need to know about the operating environment. He also explains how bank leaders can better integrate an acquisition and how potential sellers can get the best price for their bank.

  • Today’s M&A Environment
  • Common Integration Mistakes
  • Maximizing Acquisition Success
  • Tips for Prospective Sellers

The Story Behind 2018’s Most Transformative Deal


acquisition-2-8-19.pngMalcolm Holland, the CEO of Veritex Holdings in Dallas, Texas, wanted to expand in the Houston market in 2017 and was looking for a deal. He pursued three targets, but they were all snapped up by competing buyers.

Just as Holland was resigning himself to expand more slowly through de novo branch expansion, his phone rang. It was Geoffrey Greenwade, the president of Green Bancorp, a Houston-based bank with $4.4 billion in assets.

Would Holland be interested in meeting with Greenwade and Manuel Mehos, Green’s CEO and chairman? Greenwade asked.

Holland thought the executives were courting him. Instead, they asked if Veritex wanted to acquire Green.

It’s a unique story, as the now-$8 billion Veritex was smaller than Green when the deal was announced—Green’s balance sheet was 40 percent larger than Veritex’s.

The acquisition of Green—which closed on Jan. 1, 2019—has more than doubled the size of Veritex, and significantly increased its share in a second Texas market. It’s for these reasons that Bank Director identified this deal as the most transformative of 2018.

A deal as transformative as this—in which the seller is bigger than the buyer—is rare. With good reason: Most banks prefer bite-sized deals to minimize integration risk.

But this kind of deal can work well for the right buyer—expanding its capabilities and markets in one fell swoop.

To measure which of the deals announced in 2018 were the most transformative, Bank Director calculated seller assets as a percentage of buyer assets, using data from S&P Global Market Intelligence. The larger the seller compared to the buyer, the greater the opportunity and the more complicated the integration. We also examined seller size as an absolute value, to represent the deal’s transformative impact in its market.

You’ll find a list of the top ten deals at the end of this story.

Because the list does not award deal size alone, the two largest deals announced last year—Fifth Third Bancorp’s acquisition of $20 billion asset MB Financial and Synovus Financial Corp.’s acquisition of $12 billion asset FCB Financial Holdings—did not make the list. MB represented just 14 percent of Fifth Third’s assets and FCB 38 percent of Synovus.

Despite the difference in size, the deal between Veritex and Green made sense. “What we provided for them [was] a really clean credit history, and our stock had a higher value,” says Holland.

Just as importantly, says Holland, “I needed to mark their balance sheet. If they were going to be the accounting acquirer …. The deal would not have penciled out. So, I needed to acquire them, from an accounting standpoint, and mark their balance sheet down where it was appropriate.”

“Investors viewed the Veritex franchise maybe a little better than Green,” says Brett Rabatin, a senior research analyst at Piper Jaffray who covers Veritex. In 2015, a troubled energy sector resulted in a higher level of charge-offs in Green’s loan portfolio, raising concerns among investors that there could be further credit problems down the road.

Green addressed the energy exposure, and oil and gas represent a small portion of Veritex’s loan portfolio today, says Holland.

The combination roughly doubled Veritex’s branch footprint and has greatly expanded its presence in Houston—from one office to 11, giving Veritex the scale it needs to better compete in that market. The bank also gained expertise in commercial and middle market lending, as well as new treasury management products and services.

Green CFO Terry Earley has stayed on with Veritex in the same role, and Donald Perschbacher, Green’s chief credit officer, also joined the executive team. Greenwade is now president of the Houston market. Six directors from Veritex and three from Green, including Mehos, form the current board.

Holland isn’t afraid to adopt new practices from a seller that will improve his bank. It’s a lesson he’s learned over the years integrating the bank’s six previous acquisitions. “Individually, none of us could probably get where we can get together, and so let’s pick the best of each side, and together we will be better,” says Holland.

He’s also learned that integrating people—not technology and systems—ultimately determines the success of a transformative deal.

“The question is, how do you take that culture, your culture that’s been so successful, and institute it into their culture, yet picking up some of the things they do and putting into yours,” says Holland. The integration team spends time reviewing employee handbooks, for example, picking up new practices from the seller.

Culturally, Holland believes the Green acquisition is the best deal his bank has done. “Everybody pulling in the same direction, everybody working toward the same target. The openness and the collaboration have been unbelievable,” he says.

Veritex is now the 10th largest Texas-based banking franchise as a result of this transformative merger. “We think this bank has the ability to be a Texas powerhouse,” says Holland.

Ten Most Transformative Deals in 2018

Rank Buyer Seller Size of acquired bank (millions) Impact on size of acquirer Score*
1 Veritex Holdings (VBTX) Dallas, TX Green Bancorp (GNBC) Houston, TX $4,392 140% 3.33
2 WSFS Financial Corp. (WSFS) Wilmington, DE Beneficial Bancorp (BNCL) Philadelphia, PA $5,770 81% 8.33
3 Vantage Bancorp San Antonio, TX Inter National Bank McAllen, TX $1,379 250% 9.33
4 North Easton Savings Bank South Easton, MA Mutual Bank Whitman, MA $518 94% 24.7
5 CVB Financial Corp. (CVBF) Ontario, CA Community Bank (CYHT) Pasadena, CA $3,747 45% 27.0
6 Allegiance Bancshares (ABTX) Houston, TX Post Oak Bancshares Houston, TX $1,431 50% 27.7
7 Adam Bank Group College Station, TX Andrews Holding Co. Andrews, TX $639 60% 27.7
8 Ameris Bancorp (ABCB) Moultrie, GA Fidelity Southern Corp. (LION) Atlanta, GA $4,812 42% 28.3
9 Cadence Bancorp. (CADE) Houston, TX State Bank Financial Corp. (STBZ) Atlanta, GA $4,924 42% 28.7
10 Independent Bank Group (IBTX) McKinney, TX Guaranty Bancorp (GBNK) Denver, CO $3,722 42% 29.3

Source: S&P Global Market Intelligence
*The score reflects how each deal ranked in terms of the impact of the seller’s size on that of the acquiring bank and the absolute size of the seller.