Should Banks Repurchase Stock Right Now?


stocks-2-5-19.pngWith expectations of regulatory reform and growth in organic capital generation, it is generally expected that over the next 12 months banks will continue to return capital to shareholders through continued M&A activity, dividend increases or share buybacks.

Given the current market environment, it is an opportune time for banks to consider initiating a share repurchase program.

As market volatility continues, a growing number of banks have been implementing share repurchase – or stock buyback – strategies to manage capital and shore up stability. During volatile periods, financial companies are frequently the first to feel the pain, and buyback programs are a means of getting in front of potential price dips and preserving value.

The buyback market set records in 2018 across many industries. As of late December, more than $1 trillion in share repurchase programs had been authorized – eclipsing the $655 billion total for 2017. The third quarter of 2018 was especially active, with financial institutions making up the third-largest sector. In the bank buyback space alone, 22 repurchase programs were announced in October, 18 in November and 27 in December.

chart.png

Generally, companies that participate in share repurchase programs are carrying cash on the balance sheet in excess of what is necessary to fund daily operations and growth opportunities. The question then becomes how to use it. Given the relative slowdown lately in the M&A market, buybacks have presented banks with the opportunity to accomplish a variety of goals.

Reasons why banks undertake share repurchase programs:

  • Reducing the number of outstanding shares can be accretive to earnings per share, making the company more attractive to investors 
  • A buyback signals to the market that a bank views its share price as undervalued
  • It can absorb overhang from capital markets transactions
  • These programs can help manage or optimize capital structure 
  • They return excess capital to shareholders 
  • Buybacks can offset or mitigate the dilution from employee equity compensation awards

What banks should keep in mind when pursuing buybacks:

  • It will reduce capital available for future growth and acquisitions
  • A buyback utilizes cash and regulatory capital and may impact book value
  • They will likely reduce the number of shareholders and future share liquidity.
  • The impacts are temporary.
  • Blackout periods may apply.
  • Banks with pending acquisitions where the target shareholder vote has not taken place cannot execute a buyback unless the transaction is paid with solely cash, or unless the bank was repurchasing shares pursuant to SEC Rule 10b-18 in the three months preceding the announcement.

While there is no cookie-cutter profile for companies that elect to participate in share repurchase programs–they vary in terms of market capitalization, balance sheet composition and industry sector – there is a well-defined and strictly regulated process these types of transactions must follow.

While SEC Rule 10b-18 governs the parameters of a buyback, including the manner of purchase, the timing of the repurchases, the prices paid and the volume of shares repurchased, companies executing a buyback program should consider the benefits of Rule 10b5-1.

The rule provides companies the ability to establish a buyback plan in an open window that can be executed during closed trading periods. Many companies establish 10b5-1 plans to ensure continuous execution of their buyback strategy and to take advantage of periods of market volatility where opportunistic purchases may be realized.

The buyback market is busy and breaking records. The Corporate & Executive Services team at Raymond James has discussed repurchase programs with more than 50 regional banks in recent months.

Now is a good time for banks with excess capital to weigh their options and reach out to partner firms that can help develop and execute successful repurchase strategies.

Investment products are: not deposits, not FDIC/NCUA insured, not insured by any government agency, not bank guaranteed, subject to risk and may lose value. © 2019 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. © 2019 Raymond James Financial Services, Inc., member FINRA/SIPC. Raymond James® is a registered trademark of Raymond James Financial, Inc.

Fuel for More M&A in 2019



How will economic factors like today’s strong stock market and rising interest rates, along with the banking industry’s demand for core deposits, impact profitability and growth in 2019? Dory Wiley of Commerce Street Capital predicts we’ll see more deals. Find out why in this video.

  • M&A Drivers in 2019
  • What to Know About Valuations
  • Powering Future Growth
  • Headwinds Facing the Industry

How History’s Playbook Can Help You Grow Today


leadership-1-30-19.pngOne might assume that many attendees at Bank Director’s Acquire or Be Acquired Conference in Arizona left town with an M&A game plan focused solely on their next acquisition, but a legendary banker suggested a different strategy.

John B. McCoy, the former chairman and chief executive officer of Banc One Corp., recommended during a presentation on the final day of the conference that bankers consider a strategy his father used that ended up revolutionizing banking.

This year’s conference, which celebrated its 25th anniversary, was held at the JW Marriott Phoenix Desert Ridge resort in Phoenix.

McCoy’s advice is a page taken directly from the playbook of his father, John G. McCoy, who founded Bank One and turned it into a regional powerhouse before it was eventually acquired by JPMorgan Chase & Co. in 2004.

“One of the things he did, which I suggest for all of you, is he set aside that first year 4 percent of the profits, (which) went to (research and development) to do new things, not fix old problems,” McCoy said.

The advice is especially prescient today because the banking industry is being pressured to keep pace with an evolving digital economy and changing customer preferences for how they bank, especially in the retail sector.

Bank One spent that money building an exceptional retail franchise. It was the first bank to place ATMs in every branch, add drive-thru lanes at its branches, offer a Bank of America credit card and essentially invent the country’s first debit card.

“That set us off,” McCoy said. “One took us to the next.”

That investment strategy played an important role in its growth: Bank One’s assets grew from $140 million in 1958—when it was the smallest of three banks in Columbus, Ohio—to more than $8 billion 25 years later, eventually becoming the sixth-largest bank in the country.

Early in its history, Bank One pursued an ambitious M&A strategy where it bought dozens of small banks—first in Ohio and later in surrounding states—using a concept that it called the “Uncommon Partnership,” where it would leave the management team of the acquired bank in place while centralizing many of its back office functions to save money. In fact, McCoy said they would only acquire a bank if the CEO agreed to stay in place.

Bank One also limited the risks of its acquisition program by never buying a bank that was more than 20 percent of its own asset size.

An announcement on Monday that Detroit-based Chemical Financial Corp. was acquiring Minneapolis-based TCF Financial in a $3.6 billion deal, creating the country’s 27th largest bank with $45 billion in assets, also generated a lot of talk during the conference. Chemical and TCF billed the transaction as a merger of equals even though Chemical’s shareholders will own 54 percent of the merged company.

While some some conference presenters suggested that mergers of equals could occur with more frequency given the recent declines in bank valuations, which has made it more difficult for acquirers to pay a big takeover premium, others were more skeptical.

Tom Brown, founder and CEO of the hedge fund Second Curve Capital, which invests exclusively in banks and other financial companies, doubted that those deals will become regular. For one thing, there are significant social issues to resolve, like which CEO will end up running the company, how many directors from the two banks will constitute the new board and what will the new company’s name be. (In the TCF/Chemical deal, the new company’s headquarters will be in Chemical’s hometown of Detroit, but it will take the TCF name.)

“They’re just really tough to do,” Brown said during the conference’s closing session. “Someone who has been a CEO is not going to take a different role. And, while they all make great sense to me as an investor, the amount of work before the deal could even be agreed upon is just too challenging.”

Several speakers at the conference also said that smaller banks will need to gain scale to compete in a consolidating industry. Conventional wisdom says that scale helps improve efficiency, reduces costs and boosts profitability–but the urge to grow bigger purely for the scale must be tempered, Brown said.

“I talk to all sorts of CEO’s who are $250 billion assets and they still think they don’t have scale,” Brown said. “Let’s just stop using the get bigger to get scale idea because I haven’t seen that work yet.”

Today’s Outlook For Bank M&A



Bank Director’s 2019 Bank M&A Survey finds that many banks see themselves as prospective acquirers. However, as a result of a recent wave of industry optimism—fueled by strong loan demand and regulatory relief—fewer banks may want to sell in 2019. So how can buyers position themselves to win in a more competitive M&A marketplace? Rick Childs, a partner at survey sponsor Crowe LLP, shares how a strong strategy is key to success. He also provides his outlook for the banking environment in 2019.

  • Advice for Prospective Acquirers
  • Expectations for Bank M&A in 2019

In accordance with applicable professional standards, some firm services may not be available to attest clients. © 2019 Crowe LLP, an independent member of Crowe Global. crowe.com/disclosure

Dealing With Nonbank Buyers


merger-1-16-19.pngMergers and acquisitions in the banking industry historically have been relatively straight forward, but things are beginning to change.

Typically, there’s a familiar pattern: Bank A wants to sell. Banks B, C and D bid, and the winner moves forward with a merger at the bank or holding company level.

Over the past few years, there have been more instances where the buyer is not a traditional bank. Investor groups, fintech entities, credit unions and other nontraditional bank acquirers are becoming more interested in acquiring banks. There may be specific regulatory or operational challenges when the buyer is not a traditional bank or bank holding company.

Here are some factors that sellers should keep in mind at the beginning of the process.

The acquirer and transaction will need approval from regulators. If a buyer is not already “known” to banking, regulators may scrutinize the transaction more than if a traditional bank were involved.

Individual investors may need to submit Interagency Biographical and Financial Reports, or IBFRs, and that process may be more invasive and time consuming than a person not familiar with the banking industry would expect. If the buyer is forming an entity that will eventually control the bank, then the Federal Reserve will need to approve it as a bank holding company in connection with the change in control.

Ensure the buyer is prepared for the process. The sophistication and deal experience of nontraditional buyers varies broadly. Working through the process with investor groups and credit unions is important. Regulators may expect to see a detailed business plan regarding how the buyer plans to operate the bank following the transaction.

A seller should carefully review the business plan prior to committing to a transaction to ensure it is viable and to be comfortable regulators will approve the plan. In many instances, it may be appropriate to have pre-transaction conferences with the regulators to get their preliminary indication on any strengths and weaknesses of the proposed acquirers and their business plan.

The seller’s management team may be required post-closing. Many nontraditional buyers will not have their own, full management team in place to run the organization after closing. In those situations, the buyer may have additional pressure to deliver management along with the transaction.

Sellers should ensure management is on board with the transaction and that appropriate compensation tools like change-in-control agreements and stay-bonus arrangements are in place at the start of the process. Additionally, both parties should work early in the process to lock in any post-transaction employment arrangements.

Understand and negotiate the transaction structure. In a bank-to-bank transaction, the buffet of possible deal structures is fairly limited. The menu may expand with a nontraditional buyer, if it does not already have a holding company or existing entity formed. Depending on the situation, particularly the desired tax treatment by both parties, transactions can be structured as a stock purchase or merger at either the holding company or bank level. It is important to plan the transaction structure early, as it will impact what regulatory and corporate approvals are needed to complete the transaction.

Be sure the board is aware of, and understands, alternative strategies. There is enhanced risk that it will be more difficult to obtain regulatory approval for a transaction with a nontraditional buyer, and it may take longer to close the transaction. Therefore, it is that much more important that the board understands the process. For a potential seller, the board should be aware of the alternatives, so the company can change gears and execute a different strategy if the nontraditional buyer ends up not being a viable partner.

Every potential bank deal should be approached with the realization that the process can be lengthy. When a nontraditional buyer is involved, both the buyer and seller should work closely with one another in the beginning to help ensure that it will go as smoothly as possible. Fully understanding in the beginning what the resulting entity will look like at the end of the transaction (financially, structurally and operationally) is critical to being able to properly plan the transaction and to receive regulatory approval.

What You Should Know About M&A in 2019



Deal values have been rising, and economic factors—including regulatory easing and increased deposit competition—could drive more deals for regional acquirers, explains Deloitte & Touche Partner Matt Hutton in this video. He also shares how nontraditional acquisitions could impact deal structures, and the importance of due diligence and stress testing at this stage in the credit cycle.

  • Today’s M&A Environment
  • Deal Structure Considerations
  • Expectations for 2019
  • Advice for Boards and Management Teams

Enticing Compensation Strategies In An Active M&A Market


compensation-1-8-18.pngA recent Deloitte study indicates community bank merger and acquisition activity has been on the rise in 2018, though not necessarily at levels predicted by most experts.

A key benefit of a merger or acquisition is the resulting increase in talent for the surviving bank. Conversely, one of the greatest risks to consolidation is the loss of key employees; particularly talented loan officers. To mitigate this risk, many community banks ensure that director and employee benefit offerings are at or above the market.

The plans offered by the acquiring bank should not be perceived as non-competitive by the acquired talent they wish to retain.

Executive and director benefit plans are also part of the cost of consolidation. The latest report by community bank advisory group Vining Sparks highlighted several “hidden” costs of a merger or acquisition, including executive salary continuation plans (SCPs), director retirement agreements, stock options and employment contracts.

Acquiring banks need to understand the change-in-control stipulations outlined in such benefit plan agreements. These may include stay bonuses designed to retain critical staff through the closing of the consolidation, severance pay arrangements and accelerated accrual and payout requirements for certain nonqualified plans.

While retaining local talent after an acquisition is crucial to the acquiring bank, it should also be a consideration for banks who do not want to be acquired. The 2016 Bank Director M&A Survey found that 85 percent of banks sold because of shareholder liquidity, CEO/management succession, or board succession issues. One year later, Bank Director asked banks why they think they might sell in the future, 67 percent noted the same succession issues. Although many banks recognize succession issues as a driver, nearly 20 percent more of the banks who actually sold noted this as the main motivator.

Though it may be a challenge to find young local talent to establish an effective succession plan, banks can attract and retain the future leaders of their institution. Traditional bank deferred compensation plans, such as SERPs or SCPs usually interest the older generation. More creative plans, such as short-term deferrals and synthetic equity, can attract the younger generations.

When properly designed, short-term deferral plans can interest a young potential executive while simultaneously providing the bank with a hook to retain their services. Typically, a bank would identify a handful of potential candidates for the succession group and offer them a bonus that is deferred for a few years, and then pay out in cash. The bank continues to do so in subsequent years, building an account balance of 3-4 years of bonuses. If the employee leaves, they forfeit the bonuses. This strategy provides the employee with more immediate cash incentive, rather than waiting until retirement like traditional plans. It also gives the bank a few years to vet candidates of the successor pool. 

Synthetic Equity, such as Phantom Stock and Stock Appreciation Rights plans, is another approach banks utilize to align the interests of the executive with the success of the bank. Often, younger executives are not shareholders, but these plans are designed to make them feel and act like it. Simply stated, fake shares are awarded to each executive in the plan. These fake shares perform exactly like actual bank stock, giving the executive a stake in the success of the bank, while not diluting any actual ownership or voting rights of current shareholders.

Looking beyond 2018, short-term deferral and synthetic equity plans will certainly be among the more prevalent compensation plan designs in community banks, as the market continues to trend toward performance-based programs that more readily accommodate regulatory guidance. Plans are likely to include claw-back provisions and more deferrals of incentive pay that allow banks to take back all or a portion of incentive earned by an executive if the bank suffered losses, or was subjected to undue risk, as a result of the executive’s actions.

Bank owned life insurance (BOLI) continues to serve as the primary strategy used by community banks for recovering the costs of executive and director compensation plans. Rising employee benefits costs and competitive market pressures continue to challenge banks to explore unique and innovative ways to maintain profitability and growth while not abandoning their fundamentals.

BOLI helps a bank achieve this in two ways: tax-deferred growth of cash value (recorded as annual non-interest income) and non-taxable insurance proceeds paid to the bank at the time of death of the insured officer or director. These features of BOLI create an earning asset for the bank in addition to providing an effective means of informally funding executive or director compensation plans.

The Three M&A Virtues of M&T


merger-1-4-19.pngM&T Bank Corp.—the $117 billion asset bank holding company headquartered in Buffalo, New York—is well-known for its disciplined approach to M&A, a strategy that has served the big regional bank well through the 18 whole-bank acquisitions it has made since 1987.

Its most recent deal, which closed in November 2015, was also its biggest—the purchase of Hudson City Bancorp, a Paramus, New Jersey-based regional thrift that expanded M&T’s reach in New Jersey, Connecticut and parts of New York City, adding $37 billion in assets and $18 billion in deposits.

The well-priced deal led to M&T’s first-place tie with Phoenix, Arizona-based Western Alliance Bancorp. for the Best M&A Strategy in Bank Director’s 2019 RankingBanking study.

Given M&T’s three decades of successful deals, Bank Director interviewed M&T Chief Financial Officer Darren King to explore the bank’s philosophy around M&A. He says three values drive its M&A strategy.

The first—and perhaps most important value—is patience. Put simply, if a deal doesn’t align with M&T’s strategy, it won’t happen.

“We’ve never been a bank that’s been interested in growth just for growth’s sake,” says King. M&T is laser-focused on getting a return on the dollars invested, whether that’s for an acquisition, an investment in technology or any other investment made to grow and improve the business.

“Our job is to provide our shareholders with a better-than-average return on their investment,” says King. That focus on returns—rather than chasing growth—yields the discipline the bank needs to execute on its strategy.

Part of that patience means the bank will wait for the right partner—one that is committed to the long-term success of the deal. This is the second value that drives dealmaking at M&T.

“One of the places that helps you earn that return [on investment] is the price that you pay,” says King. Committed partners tend to hold to a more long-term view on that point. “Our hope is that anyone who is a willing partner—which is precondition for us for the combination—would like to be paid in our stock, and therefore the price [paid] isn’t necessarily a reflection of the value that would be created for both [entities’] shareholders by putting the two organizations together.” A lower price in a successful transaction will have a positive impact on M&T’s stock—which benefits the seller as a stockholder.

Having so-called skin in the game by taking stock in the transaction also represents a commitment from the seller that the acquired bank’s management team will stay on board to ensure the future success of the merged entity—and raise the value of the stock.

“They don’t want someone to sell their bank to M&T, and go away and retire,” says Brian Klock, a managing director at Keefe, Bruyette and Woods, who covers M&T. “They want to have those local managers and executives that will make a difference and be the M&T leader in that market, so they want those executives to stay around. If they take M&T stock and don’t take as big a price, that’s a commitment from the bank that’s selling to them.”

The final value for M&T is its consideration for the size and location of the target.

“We’re cautious not to go too big, because then it increases the risk,” says King. Integrating a large deal can get out of hand if a bank bites off more than it can chew. But a deal can’t be too small either, he says, because some of the risks related to integration and conversion aren’t scalable. “If you’re going to take on that risk, it needs to be worth the trip,” King says.

M&T also prefers in-market deals or locations in contiguous markets, where its brand is well known.

Outsiders may see M&T as a bank focused on price, but that’s not the case, says King. “If you look at our history, people would describe us as focused on price, and we buy troubled assets,” he says.

Economic downturns tend to yield troubled franchises with strong long-term potential. Having the discipline to focus on long-term returns—not just price—puts M&T in a position to take advantage of opportunities in the marketplace. M&T scooped up four banks—totaling more than $10 billion in assets—from late 2007 through August 2009. It gained another $10.8 billion through its acquisition of Wilmington Trust in May 2011.

It’s often said the best deal is the one you don’t make. By making deals that adhere to three key M&A virtues—patience, focusing on in-market targets that are the right size, and finding a committed partner—M&T’s disciplined approach has served it well.

Why Purchase Accounting Matters So Much During a Bank Deal


accounting-12-24-18.pngBank management must understand how purchase accounting works, how it can impact a transaction, and being involved can ensure all assumptions are complete and accurate. Here’s a specific look at interest rate mark and Core Deposit Intangible (“CDI”) purchase accounting analyses.

These analyses establish fair value of balance sheet assets and liabilities through a series of mark-to-market valuations. In addition to cost savings and transaction expenses, purchase accounting is one of the transaction adjustments that can have the largest impact on the metrics of a deal. Purchase accounting, however, is often seen as less straight-forward than other transaction adjustment components.

Overview of Mark-to-Market Impact of Assets and Liabilities
To evaluate and engage in discussions with a financial advisor, management must first understand the mechanics of interest rate mark adjustments. A premium on an asset marked-to-market will increase the value of the asset and in capital on day 1, which is then amortized through interest income over the remaining life of the asset. Conversely, a discount on an asset marked-to market will decrease the value of the asset and in capital on day 1, which is then accreted into interest income over the life of the asset. 

As an offsetting entry in purchase price allocation, the higher fair value of an asset the lower the amount of goodwill created. A premium on an asset will increase tangible book value per share (TBVS) but decrease forward earnings as the mark is amortized, while a discount on an asset will decrease TBVS on day 1 but increase forward earnings as the mark is accreted. Liabilities are intuitively the opposite of assets, with a premium resulting in a negative hit to capital on day 1, but lower forward interest expense over the life of the products. A discount will bolster capital on day 1 but will increase forward interest expense over time.

One item of note in the mark-to-market of loans is exit pricing. To represent additional risk assumed with a loan acquisition, an exit premium should be applied to each loan type and should capture a liquidity discount as well as an underwriting discount. Exit prices should vary by loan type. The liquidity and underwriting risk on a 1-4 family residential loan is very different than a speculative construction loan, and the different characteristics should be captured in market values and exit prices.

Publicly reporting institutions now have to to begin reporting the fair value of its loan portfolio under the “exit” price application, which illustrates the importance and proliferation of exit price methodology across the industry, not just in M&A transactions.

Land and buildings are assessed by comparing the net book value (with accumulated depreciation) against a third-party valuation. The mark on buildings will be accreted/amortized over the remaining life of the property.

The CDI takes into account the qualitative value of deposit relationships. There are multiple variables that can impact a CDI but the following provides an overview of major components: weighted average life of a product, cost of core deposit related activities, fee income on core deposits and alternative cost of funding and discount rates. The higher the values for any of these components, the higher the CDI. These variables may be offset by noninterest expense associated with core deposit related activities and the discount rate, for which higher values will reduce the CDI.

Management Involvement
Given the intricacies with mark-to-market purchase accounting, it is clear management should engage a financial advisor to explain the assumptions driving each adjustment and the impact. 

Mark-to-market purchase accounting is not something that should be approached only as a requirement of closing. The financial advisor in a transaction should also be conducting purchase accounting as part of due diligence.

If detailed purchase accounting is not occurring, there could be material marks not accounted for that can drastically affect the metrics of a transaction. Your financial advisors should on a regular basis explain the fair value assessment process and the methodologies.

Key Takeaways
Transaction adjustments are rarely detailed in pro forma analytics, which limits management’s ability to engage in meaningful conversation with its financial advisor. The best financial advisors provide a detailed breakout of all transaction adjustments to provide management with as much knowledge as possible. Without that, it is impossible for management to have the understanding required to ask important questions and actively participate in review of assumptions.

Always request full detail on all adjustments and to have management walked through each adjustment, along with the assumptions and methodologies used. Have calls throughout the process, and remember that fair value analyses are not reserved for closing. This should start early in due diligence. Interest rate marks and CDI can have a meaningful effect on the metrics of a transaction and, if not modeled properly, can create a misleading picture. It is crucial to first verify that the firm has the capacity to model with management and have a meaningful dialogue on critical assumptions.

These assumptions will make or break a deal and will continue drive the resultant entity’s accounting long after the transaction closes.

Your M&A Success Could Depend On This One Thing


merger-12-19-18.pngBenchmarking key performance indicators (KPIs) can help you more fully understand your bank’s financial condition and operating results, as well as the true value in a potential M&A market.

The success of your M&A strategy – whether buy, sell or stay – measurably increases with a sound grasp of the metrics that drive shareholder value.

KPIs as M&A drivers
KPIs can help you to identify important strengths in your target organization and your own institution. This can help determine the areas you could strengthen in an acquisition, or understand where your bank’s value lies within a merger. You can also learn about your organization’s, or your target institution’s, primary challenges and how this might impact the transaction.

These metrics can also help the organization evaluate the success of the transaction after completion. Have the key performance indicators drastically changed? Was that change different from the anticipated adjustment from the combination of the two entities? Understanding the metrics, and some of the forces impacting them, can be a strong foundation for successful M&A transactions.

Q3 2018 KPI observations
Community banks throughout the U.S. used the strong economy and relatively stable interest rate environment to maintain steady operations throughout the third quarter of 2018.

Baker Tilly’s banking industry key performance indicator (KPI) report reflected almost no change in comparison to the same benchmarks for the second quarter of 2018. Earnings, credit quality and capital adequacy benchmarks all remained essentially the same. This consistency appears to reflect a more stable economic environment, disciplined management of credit pricing and quality, notwithstanding a continued highly competitive environment, and the early stages of a move to higher interest rates.

M-A-chart.png

If there is anything to take away from the relatively unchanged KPIs over the first nine months of 2018, it is that community bankers have diligently pursued the opportunities emerging from the strong economy.

Loan growth, reflected in the comparison of the loan-to-deposits ratios each quarter, has been somewhat subdued. Potential drivers of this include increasing liquidity pressures arising from changes in interest rates, early stages of the potential for a downward credit cycle and the uncertainty of the November midterm elections. These factors kept many community bankers focused on internal matters such as compliance and technology during the second and third quarters of 2018.

Many banks continued to assess consolidation opportunities on both the buy and sell side. Until the recent series of market declines, bank equity currency remained quite strong, supporting a continued active consolidation of the industry, at price points that, on average, exceed 1.5 – 1.7 times book value.

We expect more of the same consistency in the KPIs as we have seen throughout 2018. It does not appear there will be any significant shifts in either direction arising from changes in economic policy. However, the pace of deregulation may subside due to the change in leadership in the U.S. House of Representatives.

If equity markets rebound following the midterms and the Federal Reserve pauses its increase of interest rates, we may see a re-acceleration of the consolidation of community banks, especially those with assets of $500 million or less. Other than an increased emphasis on securing and maintaining low cost deposits, we anticipate community banks to maintain a steady course into early 2019.