Authored by Timothy Kosiek and John Maddente
This year’s Acquire or Be Acquired (AOBA) Conference, presented by Bank Director, brought together over 1,000 banking executives, board of directors and other industry leaders to discuss mergers, acquisitions, growth strategies and tactics for depository and lending institutions in 2018. Of the many topics discussed, highlights included increased investment in financial technology (fintech), trends in mergers and acquisitions (M&A) activity, tax reform’s impacts on the banking industry and the current regulatory environment.
Once viewed as a disruptive threat, fintech is now augmenting and enhancing banking institutions’ operations and customer experience. Major depository and lending organizations in the industry indicate they plan on increasing their investments in payment technologies (e.g., Venmo, Zelle®, etc.), distributed ledger systems (i.e., blockchain), secure communications tools and data analytics software. Not only does integrating these technologies increase the efficiency of a bank’s operations and possibly the valuation, but it helps ease the transition process for institutions looking to make an acquisition or preparing to be acquired.
The majority of banking M&A activity has occurred in the east and west coasts of the U.S., resulting in smaller banking institutions being consolidated in these areas. Due to the consolidation on the coasts and the larger number of smaller banks in the central states, industry experts anticipate that the majority of M&A activity will occur in the central portions of the U.S. during 2018.
Corporate tax rates have been slashed to 21 percent as a result of the Tax Cuts and Jobs Act (TCJA). With an increase in discretionary income, banks must decide what they will do with the increase liquidity and earnings created from tax reform. The consensus included investments in fintech (as discussed above), an increase in dividends and stock buybacks. Many banking institutions are looking to reacquire their company’s stock to increase its value, resulting in a stronger position when going to the marketplace for an acquisition.
The regulatory environment has been more accommodating to M&A transactions under the new administration. Coupled with better awareness of items that can delay a merger or acquisition, institutions have seen reduced time and challenges in their M&A transactions.
The continuing maturation of fintech solutions, economic growth, tax reform and increased valuations are likely to contribute to a highly-active M&A landscape in the banking industry. Banks will continuously be challenged by their shareholders to fully understand their current position in the continued consolidated of their industry.
For more information on these topics, or to learn how Baker Tilly's depository and lending industry specialists can help, contact our team.