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Reinvestment Opportunities Created by Tax Reform

the-bank-accountJonathan and I are back in our studio, and took this opportunity to talk a little about what we’re seeing from our clients, particularly as it comes to reinvesting their tax savings into future opportunities.  Before digging into substance, we first take a little time on the therapist’s couch to address Jonathan’s experience at the College Football National Championship Game. Only 190 days until college football is back!

With regard to tax reform savings, the go to resource for identifying the breadth of ways that banks are addressing is the American Bankers Association’s page at aba.com/EnergizingTheEconomy.  As you can see from that list, the responses really run the gamut of possibilities, including salary increases, increasing employee benefits, greater charitable contributions, new positions and products, fintech investments and addressing margin compression.

As noted on the podcast, we are sponsoring two teams, one of lawyers and one of bankers, for the Atlanta Ragnar Trail Run on April 13th and 14th.  Sixteen of us will be taking turns running five mile legs at the Georgia International Horse Park over a 24-hour (or so) period.  More details to follow, but we’re certainly expanding away from traditional marketing efforts.

We also hope you’ll consider joining us in Macon, Georgia, on April 4, 2018, for the Georgia Bankers Association’s Current Expected Credit Loss (CECL) Workshop.  We’ll be joining our friends from Mauldin & Jenkins to discuss upcoming regulatory changes and the impact of tax reform from a strategic perspective.

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Partnering with Mercer Capital to Discuss Partnering with FinTechs

In our fourth and final podcast recorded onsite at Bank Director’s Acquire or Be Acquired (AOBA) Conference, we were honored to be joined by Jay Wilson with Mercer Capital.  Jay discusses, from start to finish, how banks should explore partnering with fintech companies.  Jay is the author of Creating Strategic Value through Financial Technology that looks how traditional financial institutions and FinTech companies can boost innovation and enhance valuation in a complex regulatory environment.

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We hope you enjoy this episode of The Bank Account.  This is the fourth and final podcast episode we recorded in Phoenix.  As you can see (and hear), we stepped outside on the grounds of the beautiful Arizona Biltmore hotel and enjoyed beautiful February weather.  Unfortunately, while the surrounding area seemed completely quiet before we started recording, once we hit record, every moving van, dump truck and other sound-making person, plant, animal and equipment seemed to invade our lovely spot.  But we think the quality of the conversation with Jay (and the lovely weather and environment) more than makes up for any audio issues.  We hope you enjoy the conversation with Jay as much as we did. 

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2018 Banking Trends with Raymond James

In our third podcast recorded onsite at Bank Director’s Acquire or Be Acquired (AOBA) Conference, we were honored to be joined by Bill Wagner and Matt Paramore with Raymond James.  Bill and Matt shared their outlook for 2018, including the potential of North Carolina serving as a potential preview for community banking across the country and the potential renewed entry of de novo participants.

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Another topic discussed with Bill and Matt is the impact of private equity monetizing some of their investments in financial institutions over the last several years, with the ability to monetize those investments with either M&A or by secondary security sales.  The ability for private equity to exit as reasonable pricing opens significant potential for management teams that believe that continued organic growth and returns can deliver long-term results for all shareholders.  We hope you enjoy this episode of The Bank Account.

This is the third of several podcast episodes we recorded in Phoenix.  Sound quality isn’t quite as good as you may have come to expect as we’re back on an older microphone and, as you can see from the pictures, our recording “studio” was rather large.  But we think the quality of the conversation with Bill and Matt more than makes up for any audio issues.  We hope you enjoy the conversation with Bill and Matt as much as we did. 

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A Recap of the AOBA M&A Simulation with FIG Partners

On the second day of Bank Director’s Acquire or Be Acquired (AOBA) Conference, we were honored to co-host with FIG Partners for the second year, the M&A Simulation.  The M&A Simulation is an exclusive, bankers-only, session at AOBA that attempts to walk through the initial stages of a bank merger.  Like last year, we divided the attending bankers into three groups, representing the boards of directors of three distinct participants: Bank A, a $700 million bank looking to sell, and Banks B & C, two larger potential acquirers.

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Immediately after the simulation, we sat down with Matt Veneri and Dan Flaherty with FIG Partners for a quick recap of the AOBA18 M&A Simulation on The Bank Account.

This is the second of several podcast episodes we recorded in Phoenix.  Sound quality isn’t quite as good as you may have come to expect as we’re back on an older microphone, but we jumped at the opportunity to be able to share our conversations with so many interesting colleagues at Acquire or Be Acquired.  We hope you enjoy the conversation with Matt and Dan as much as we did. We’re already planning a few new tricks for the M&A Simulation at the 2019 Acquire or Be Acquired Conference, and hope you’ll look to join us then.

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A Conversation with Rory McKinney of D.A. Davidson; Day 1 at AOBA

the-bank-accountFor the next several The Bank Account episodes, we’re on the road at Bank Director’s Acquire or Be Acquired (AOBA) Conference.  In our first installment from AOBA, we highlight our respective take-aways from the first day of AOBA and then sit down with Rory McKinney, Managing Director and Head of Investment Banking for D.A. Davison & Co. to discuss Rory’s outlook for bank M&A activity in 2018.

This is the first of several podcast episodes we recorded in Phoenix.  Sound quality isn’t quite as good as you may have come to expect as we’re back on an older microphone, but we jumped at the opportunity to be able to share our conversations with so many interesting colleagues at Acquire or Be Acquired.  We hope you enjoy the conversation with Rory McKinney as much as we did.

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Tax Reform for Sub S Banks and a 2017 Year-end M&A Review

the-bank-accountOn the latest episode of The Bank Account, Jonathan and I analyzed the Rose Bowl, pitting Jonathan’s Georgia Bulldogs against Jonathan’s In-Laws’ Oklahoma Sooners.  With critical generational analysis, Jonathan won me over to support Kirby Smart and the Georgia Bulldogs; I simply have to support Generation X over a Millennial. We then turned our focus to on-topic banking issues: the impact of tax reform on Subchapter S banks and a look in review at the 2017 banking m&a market.

For Subchapter S institutions, tax reform offers/requires a re-evaluation of the tax consequences of a Subchapter S tax election.  While institutions regularly assess the overall tax difference involved in a Subchapter S tax election at the time of making the election, that analysis is often then put in the closet, and only rarely re-addressed upon future strategic decisions.  However, with the decline in the corporate tax rate to 21%, it now behooves Subchapter S institutions, particularly those that retain a significant amount of their earnings to support future growth, to update that analysis. Jonathan and I discuss some of the factors affecting that analysis, as well as the timing implications to make effective for 2018.

Looking at the final M&A statistics for 2017, it looks like we’ll end the year with a slight uptick in the number of deals (259, up from 250 in 2016), but remain significantly below 2014 and 2015 levels.   In addition, the average size of the selling banks in 2017 has declined significantly (almost 25% smaller, based on averages).  Jonathan and I discuss these trends, and make a few predictions on M&A going forward.

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Acquire or Be Acquired 2018 M&A Simulation

We are looking forward to running the M&A Simulation at Bank Director’s 2018 Acquire or Be Acquired Conference with our friends at FIG Partners.  This is the second year we’ve teamed up with FIG Partners to present a simulation of the community bank merger and acquisition sale process.  We’ve identified the basics of this year’s fictional banks, and are looking forward to another exciting simulation.

The simulation is an exclusive session at Acquire or Be Acquired, is open to 45 bank attendees only and fills up quickly.  If you’re planning to attend AOBA and want to ensure your spot in the simulation, please contact us.  If you’re interested in attending and haven’t already registered the conference, please contact us to receive our sponsorship code for a $400 discount.

The 2017 simulation involved competing bidders for a billion dollar community bank, identified as Bank A.  Bank B, a $1.3 billion institution, offered a merger of equals opportunity, hoping that one plus one could equal three, while Bank C, a $6 billion institution with strong organic growth, was able to win the hearts and minds of Bank A with a strong all stock offer.  The simulation ultimately mirrored what we often see, small buyers must be very creative or seek opportunities that are not coveted by larger, more highly valued public buyers. See our write-up of the 2017 M&A Simulation for additional information.

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Snow, Cybersecurity and Data Breaches with Jena Valdetero

the-bank-accountOn the latest episode of The Bank Account, Jonathan and I were joined by our Chicago partner, Jena Valdetero, to discuss snow, cybersecurity and data breaches.  While Jena would normally be the one dealing with winter weather, it was Jonathan and myself watching the snow fall in Atlanta while Jena enjoyed a relatively warm, sunny day in Chicago.

Jena is part of Bryan Cave’s Data Privacy and Security Team, and joined us to discuss some of the current threats in cybersecurity and some of the steps that banks (and bank customers) should be taking, as well as offering some thoughts on how banks can assist their customers in minimizing the ever present cybersecurity risk.

Among the resources discussed by Jena were:

And I’m going to go change my passwords now….

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Thanksgiving: Regulatory Relief and Tax Reform

the-bank-accountOn the latest episode of The Bank Account, Jonathan and I discuss two business reasons for bankers to be thankful this holiday season, the Senate’s proposed regulatory relief legislation and legislative efforts for tax reform.

The Senate Banking Committee has released the text of proposed legislation providing real regulatory relief to community banks.  With ten Republican co-sponsors and nine Democratic co-sponsors, the measure would appear to have better odds than prior regulatory reform actions.   That said, no action is expected until sometime in 2018, and we’re still a long way away from adopted legislation.  The proposed legislation provides for significant regulatory relief for community banks, including:

  • a regulatory “express lane” for community banks with sufficient leverage capital ratios;
  • a limited exemption from the brokered deposit restrictions for CDARS and other reciprocal deposits;
  • Volcker Rule relief for traditional banks will less than $10 billion in assets;
  • an increase in the Small Bank Holding Company Policy Statement threshold from $1 billion to $3 billion; and
  • an increase in the threshold for an 18-month exam cycle for healthy institutions from $1 billion to $3 billion.

Without attempting to predict how the tax reform legislation will ultimately end up, we also look at a few key provisions of the proposed house and senate versions of the Tax Cuts and Reforms Act.  One item discussed is the potential impact on deferred tax assets, including the likely hit to existing deferred tax asset valuations and the elimination of net operating loss carry-forwards going forward.  We also spend a fair amount of time addressing the need for all Subchapter S banks to begin the process of exploring the impact of the prospective reforms, particularly as it relates to the tax treatment for shareholders that are active in the bank’s management.  As Sub S elections have to be withdrawn by March 15th to be effective for the whole year, the time to start planning is now!

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All Dressed Up with No Place to Go

All Dressed Up with No Place to Go

November 3, 2017

Authored by: Robert Klingler

the-bank-accountOn the latest episode of The Bank Account, Jonathan and I discuss the prospects and alternatives for a small bank that finds itself without an interested buyer.   Frequently, we are finding clients and other depository institutions that have reached the internal decision that it’s time to sell, but when they check the market, the anticipated buyers are either not available, not interested, or at least not as interested as expected/hoped.

Before getting to those topics, we have a brief foray into me trying to avoid talking about college football, as well as updates on the proposed tax reform act and the announcement of the appointment of Jerome Powell to serve as Chair of the Federal Reserve Board.

Among the alternatives discussed:

  • A sale to a credit union;
  • A sale to a non-bank buyer;
  • A merger of equals, strategic merger, or stepping stone transaction; and
  • Longer term planning to set up the bank for a future sale.
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