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How to Create Strategic Value in the Current Environment | AOBA 2017

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In this session originally presented at Bank Director's 2017 AOBA conference, Jay Wilson and Andy Gibbs of Mercer Capital, alongside Chris Nichols of CenterState Bank, examined how banks can utilize a hybrid approach and co-opt, partner with or acquire FinTech companies, wealth management and trust operations and insurance brokerages. By pairing traditional banking services with other financial services and means of delivery, banks can obtain more touch points for customer relationships, enhance revenue and ultimately improve the bank’s valuation.

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How to Create Strategic Value in the Current Environment | AOBA 2017

  1. 1. How to Create Strategic Value in the Current Environment Acquire or Be Acquired Conference January 30, 2017 | Phoenix, Arizona Andy Gibbs Chris Nichols Jay Wilson CenterState Bank MERCER CAPITAL
  2. 2. About the Presenters How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 2 Andrew K. Gibbs, CFA, CPA/ABV Mercer Capital Senior Vice President gibbsa@mercercapital.com 901.322.9726 Jay D. Wilson, Jr., CFA, ASA, CBA Mercer Capital Vice President wilsonj@mercercapital.com 901.322.9725 Chris Nichols CenterState Bank Chief Strategy Officer cnichols@centerstatebank.com 925.202.8944 Chris Nichols is the Chief Strategy Officer for CenterState Bank, a $5 billion, publicly traded Florida bank. As Chief Strategy Officer, Chris specializes in predictive analytics, marketing, pricing, technology/innovation, risk management and creating superior bank performance. Chris has 25+ years of banking experience, is an active bank investor, small business owner, banking school instructor, a frequent speaker and author on a multitude of banking topics including his new book the Successful Lender’s Field Guide. In addition, Chris is producer and host to a weekly podcast show on iTunes called Bank To Bank. Jay Wilson, Vice President, is a senior member of Mercer Capital’s Depository Institutions practice. Jay also leads Mercer Capital’s Financial Technology industry team and publishes research related to the FinTech industry. He is also the author of the upcoming book, Creating Strategic Value through Financial Technology (Wiley Finance Series, Summer 2017). Jay’s practice involves in the valuation of depository institutions and FinTech companies for purposes including ESOPs, mergers and acquisitions, profit sharing plans, estate and gift tax planning, compliance matters, and corporate planning. Andrew Gibbs leads Mercer Capital’s Depository Institutions Group. Andy provides valuation and corporate advisory services to financial institutions for purposes including mergers and acquisitions, employee stock ownership plans, profit sharing plans, estate and gift tax planning and compliance matters, corporate planning and reorganizations. He also works with financial institutions in merger and acquisition advisory engagements. In addition, Andy is a frequent speaker on topics related to community bank valuation and co- authored several books.
  3. 3. Outline of Today’s Presentation Community Banks Are Facing Challenging Market Conditions Why Do Large Banks Outperform? Is There Any Hope? How FinTech Can Help Create Strategic Value How Banks Can Develop a FinTech Framework Bank and FinTech Case Studies Conclusion / Questions How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 3
  4. 4. Community Banks Are Facing Challenging Conditions
  5. 5. Community Banks Are: Not Earning Their Cost Of Capital… How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 5 Source: Mercer Capital Research and S&P Global Market Intelligence
  6. 6. Declining in Number… How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 6 - 2,000 4,000 6,000 8,000 10,000 12,000 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 9/16 # of Banks Overview of U.S. Banks Assets >$10B Assets $1B-$10B Assets $100-$1BN Assets <$100MSource: QBPR, www.fdic.gov
  7. 7. Facing Elevated Regulatory Burdens… How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 7 Call Reports Are Significantly Longer • < 10 Pages up until the mid-1980s • Today > 80 pages Sharp increase in both the number of new banking acts and the length of those acts in each decade since the 1960s • From 2001–2010, there were 10 new banking acts that became law and totaled approximately 2,000 pages of new legislation Hiring additional staff to handle this growing regulatory and compliance burden can have a significant impact on bank profitability • Feldman, Schmidt, and Heinecke (2013) at the Federal Reserve Bank of Minneapolis found a reduction in profitability of 45 basis points for increasing staff by two people for smallest banks (less then $50 million in assets) Source: First Two Bullet Points http://mail1.dallasfed.org/assets/documents/banking/firm/fi/2015/fi1504.pd Last Bullet Point “Quantifying the Costs of Additional Regulation on Community Banks,” by Ron J. Feldman, Jason Schmidt, and Ken Heinecke, Economic Policy Paper 13-3, Federal Reserve Bank of Minneapolis, May 30, 2013.
  8. 8. Developing Greater Concentration Risk… How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 8 Source: Mercer Capital Research and S&P Global Market Intelligence 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1990 1995 2000 2005 2010 6/2016 YTD %ofTotalLoans Loan Portfolio Mix Real Estate Loans Commercial / Industrial Loans Agricultural Production Loans Consumer Loans Leases / Other Loans
  9. 9. How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 9 Source: CB Insights https://www.cbinsights.com/blog/disrupting-banking-fintech-startups/ Facing More Competition from Non-Banks…
  10. 10. Losing Market Share to Larger Banks, and… How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 10 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 % of Total Assets Overview of U.S. Banks Assets >$10B Assets $1B-$10B Assets $100-$1BN Assets <$100MSource: QBPR, www.fdic.gov
  11. 11. Less Profitable Than Larger Banks How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 11 Source: Mercer Capital Research and S&P Global Market Intelligence | Big Banks are Assets Greater than $5BN and Community Banks are $100M-$5BN 0.00% 0.15% 0.30% 0.45% 0.60% 0.75% 0.90% 1.05% 1.20% 1.35% 1.50% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 6/2016YTD ReturnonAssets Bank Profitability Trends Return on Assets Big Banks vs. Community Banks Big Bank Median Small Bank Median
  12. 12. Why Do Large Banks Outperform? Is There Any Hope?
  13. 13. Community Banks Tend to Have Higher Net Interest Margins and… Why Do Large Banks Outperform? How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 13 Source: Mercer Capital Research and S&P Global Market Intelligence | Big Banks are Assets Greater than $5BN and Community Banks are $100M-$5BN 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 6/2016 YTD NetInterestMargin Net Interest Margin Big Banks vs. Community Banks Median - Big Bank Median - Comm Bank
  14. 14. Lower Provisions (i.e., Higher Credit Quality) Than Larger Banks Why Do Large Banks Outperform? How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 14 0.00% 0.25% 0.50% 0.75% 1.00% 1.25% 1.50% 1.75% 2.00% 2.25% 2.50% 2.75% 3.00% 3.25% 3.50% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 6/2016 YTD LoanLossProvision/AverageLoans Trend in Loan Loss Provision Median Big Banks Median Community Banks Source: Mercer Capital Research and S&P Global Market Intelligence | Big Banks are Assets Greater than $5BN and Community Banks are $100M-$5BN
  15. 15. Why Do Large Banks Outperform? How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 15 Large Banks Outperform Small Banks Primarily Due to Greater Non-interest Income and… 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 6/2016 YTD Non-InterestIncome/AverageAssets(%) Trend in Non-Interest Income (as % of average assets) Big Banks vs. Community Banks Non-Int't Inc. / Avg. Assets Big Bk Non-Int't Inc. / Avg. Assets Comm Bk Source: Mercer Capital Research and S&P Global Market Intelligence | Big Banks are Assets Greater than $5BN and Community Banks are $100M-$5BN
  16. 16. Lower Efficiency Ratios Than Community Banks Why Do Large Banks Outperform? How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 16 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 6/2016 YTD EfficiencyRatio(%) Efficiency Ratio Big Banks vs. Community Banks Efficiency Ratio - Big Bks Efficiency Ratio Comm. Bks Source: Mercer Capital Research and S&P Global Market Intelligence | Big Banks are Assets Greater than $5BN and Community Banks are $100M-$5BN
  17. 17. How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 17 Is There Any Hope?
  18. 18. How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 18 Many FinTech companies are focused on areas where community banks have historically underperformed: efficiency and non-interest revenues… What About FinTech? Source: “The Future of Financial Services and Technology Explained,” BI Intelligence, April 7, 2016 http://www.businessinsider.com/fintech-ecosystem-financial-technology-explained-2016-3
  19. 19. How FinTech Can Help Create Strategic Value
  20. 20. How FinTech Can Help Create Strategic Value How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 20 What is FinTech? A number of definitions exist but consider the following: • First applied to back-end software of established financial institutions • More recently expanded to include any technological innovation in finance • My definition is: Companies that use technology to provide financial services to customers either directly or through partnerships with traditional financial institutions How many FinTech companies are there? Reports vary in a number of publications and it is growing daily • Per McKinsey: 12,000 FinTech companies worldwide as of August 2015 • Per AngelList: • 1,887 FinTech Startups with an average valuation of $4.8 million • 2,469 Payments Startups with an average valuation of $4.1 million • 1,525 Mobile Payments Startups with an average valuation of $4.5 million
  21. 21. Enhance Customer Satisfaction… How FinTech Can Help Create Strategic Value How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 21 FinTech equals the Great Equalizer We cannot hope to compete with a mega-bank’s branch footprint, but we can compete against their innovation Some Reasons for Bank Innovation: • Cut costs • Increase Revenue • Increase Engagement • Lengthen lifetime value / retention • Capture imagination / leadership Source: Crossroads Banking & FinTech Conference, April 2016 Chris Nichols, CenterState Bank
  22. 22. How FinTech Can Help Create Strategic Value How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 22 FinTech Investment vs. Branch Build – Traditional Strategy Comparing FinTech Investment vs. Branch Build Decision Branch Cost Online / Mobile Cost To Build (2) $750,000 To Build (2) $650,000 To Maintain $949,000 To Maintain $324,000 To Serve 2,500 To Serve 23,000 Cost Per Customer $390/Yr Cost Per Customer $20/Yr Engagement 24/Yr Engagement 122/Yr (1) Online Mobile: Online banking, bill pay, geolocation, payments, alerts, specialty apps (2) Depreciation: 30 years for building / 5 years for online/mobile Source: Crossroads Banking & FinTech Conference, April 2016 Chris Nichols, CenterState Bank
  23. 23. How FinTech Can Help Create Strategic Value How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 23 Lowering Expenses… Source: Crossroads Banking & FinTech Conference, April 2016, Chris Nichols, CenterState Bank
  24. 24. How FinTech Can Help Create Strategic Value How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 24 Improve Profitability… Trad'l Comm. Bank FinTech Comm. Bank Net Interest Income 36,000 36,000 Non-Int't Income 10,000 12,500 Non-Int't Operating Expenses (31,050) (30,313) Pre-Tax, Pre-Provision Inc. 14,950 18,188 Provision Expenses (2,160) (2,160) Pre-Tax Inc. 12,790 16,028 Taxes (4,477) (5,610) Net Income $8,314 $10,418 ROAA 0.83% 1.04% ROTE 9.24% 11.58% Avg. Equity 90,000 90,000 Avg. Loans 720,000 720,000 Avg. Earning Assets 900,000 900,000 Avg. Assets 1,000,000 1,000,000 Net Int't Margin 4.00% 4.00% Non-Int't Inc./Avg. Assets 1.00% 1.25% Efficiency Ratio 67.50% 62.50% Provision Exp. / Avg. Loans 0.30% 0.30%
  25. 25. How FinTech Can Help Create Strategic Value How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 25 Valuation Multiple Expansion… Banks with higher levels of non-interest income and efficiency are more profitable and receive higher valuation multiples (Holding asset size constant) Price / Price / Tangible LTM Core Book Core Public Banks (Assets between $500M-$1BN) EPS Value ROATCE National Banks: Assets $500M - $1B 13.4x 1.02x 8.36% High Non-Int't Income Banks: Assets $500M - $1BN* 14.2x 1.18x 9.47% Low Efficiency Ratio Banks: Assets $500M - $1BN** 13.7x 1.19x 9.23% Source: S&P Global Market Intelligence Market Pricing Information as of 6.30.2016 * Non-Interest Income / Assets > 1% in LTM Period ** Efficiency Ratio < 60% in LTM Period
  26. 26. How FinTech Can Help Create Strategic Value How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 26 Creating Strategic Value for Shareholders… Implied Fin'l Performance Price to Earnings Multiple Net Income ROAA ROTE 10.0 12.5 15.0 17.5 7,000 0.70% 7.78% 70,000 87,500 105,000 122,500 Trad'l Bk 8,000 0.80% 8.89% 80,000 100,000 120,000 140,000 9,000 0.90% 10.00% 90,000 112,500 135,000 157,500 FinTech Bk 10,000 1.00% 11.11% 100,000 125,000 150,000 175,000 11,000 1.10% 12.22% 110,000 137,500 165,000 192,500
  27. 27. How Banks Can Develop a FinTech Framework
  28. 28. FinTech Framework How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 28 1. Determine the FinTech niche to pursue further 2. Identify potential FinTech companies/partners 3. Develop a business case with estimated Internal Rates of Return (IRRs) • Examine Build, Partner (And Possibly Invest) Strategic Decision 4. Execute strategy and compare IRRs from FinTech strategies to traditional strategies
  29. 29. Step 1. Identify Attractive FinTech Niches How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 29 Key objectives from Bank’s strategic plan: • Grow and diversify revenue base in less capital intensive businesses, particularly non-interest income • Customer surveys indicate an interest in providing more financial and wealth management solutions • Would like to create an additional touch point with customers • However, historically haven’t been able to attract traditional asset managers/RIAs to the bank due to cultural differences • Bank would like to explore robo-advisory offerings further
  30. 30. Step 1. Identify Attractive FinTech Niches How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 30 0% 4% 8% 12% 16% 20% Bank Tech Robo-Advisory Insurance Tech Alt Lending Payments Trad'l Bank Deals ExpectedReturn
  31. 31. How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 31 Key Takeaway’s From Robo-Advisory Industry Trends • Lot of interest in sector with VC funding up from non-existent levels to hundreds of millions annually in last few years • Noted as the FinTech innovation most likely to have the greatest impact on the financial services industry in the short-term (one year) and medium-term (five years) by CFA Institute Key Advantages Over Traditional Wealth Management Services Include: • Low Cost • Accessible • Personalized Strategies • Transparent • Convenient Step 1. Identify Attractive FinTech Niches
  32. 32. How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 32 Robo-advisors are separated into three tiers 1. Tier I consists of early robo-advisory firms who have positioned themselves at the top of the industry. 2. Tier II consists of more recent robo- advisory startups that are experiencing rapid growth and are ripe for partnership. 3. Tier III consists of robo-advisory services of traditional players who have decided to build and run their own technology in-house Step 2. Identify Attractive FinTech Companies
  33. 33. Step 3. Develop a Business Case How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 33 Once the FinTech niche and target companies are identified, there are a number of strategic options to consider Each has varying degrees of commitment Key question is often: Should we build, buy, or partner (and possibly make an investment)? One way to answer that question is to look at potential returns from each strategy and compare
  34. 34. IRR Comparisons of Different Approaches Step 3. Develop a Business Case How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 34 FinTech Partnership (Licensing) Initial Year 1 Year 2 Year 3 Year 4 Year 5 Cost Outlay (100,000) (275,000) (275,000) (275,000) (275,000) (275,000) Revenue Enhancement 300,000 306,000 312,120 318,362 324,730 Total Cash Flows (100,000) 25,000 31,000 37,120 43,362 49,730 Internal Rate of Return 22% FinTech Partnership + Minority Invt't. Initial Year 1 Year 2 Year 3 Year 4 Year 5 Cost Outlay (100,000) (250,000) (250,000) (250,000) (250,000) (250,000) Equity Investment (1,000,000) IPO / Sale Proceeds 4,000,000 Revenue Enhancement 300,000 300,000 300,000 300,000 300,000 Total Cash Flows (1,100,000) 50,000 50,000 50,000 50,000 4,050,000 Internal Rate of Return 32% FinTech (Full Acquisition) Internal Rate of Return (Full Acquisition) Closing Year 1 Year 2 Year 3 Year 4 Year 5 Deal Consideration (25,000,000) Closing Costs (2,000,000) Opportunity Cost of Cash (1,000,000) (1,000,000) (1,000,000) (1,000,000) (1,000,000) Cash Flows Generated from Target 0 1,000,000 2,000,000 3,000,000 4,000,000 Terminal Value 60,000,000 Total Cash Flows (27,000,000) (1,000,000) 0 1,000,000 2,000,000 63,000,000 Internal Rate of Return 19%
  35. 35. Step 3. Develop a Business Case How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 35 IRR Comparisons of Different Approaches 0% 5% 10% 15% 20% 25% 30% 35% 40% Partner Only - No Invt't. Partner + Minority Eqty. Invt't. AcquisiBon ExpectedReturn FinTech Analysis Partner vs. Investor vs. Acquirer
  36. 36. Step 4. Execute Strategy and Compare FinTech vs. Traditional Strategies How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 36 0 2 4 6 8 10 12 14 16 18 20 ExpectedReturn(%) FinTech Build? Partner? Buy? Ignore? TradiConal Bank Growth
  37. 37. Some Common Challenges with FinTech for Banks Include: FinTech Can Be Challenging Though How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 37 Vast array of start-ups to consider FinTech acquisitions/investments can be difficult to consider and structure • Valuations of FinTech companies can be challenging and significantly different from traditional bank valuations • FinTech acquisitions can result in goodwill creation Is the bank comfortable with the risk profile of the FinTech company? What will the regulatory reaction be? Is the partnership consistent with the bank’s long-term plan?
  38. 38. FinTech Case Studies
  39. 39. How Are Banks Approaching FinTech? How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 39 Source: “The Future of Financial Services and Technology Explained,” by BI Intelligence, April 7, 2016, http://www.businessinsider.com/fintech-ecosystem-financial-technology-explained-2016-3
  40. 40. How Are Banks Approaching FinTech? How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 40 Source: Crossroads Banking & FinTech Conference, April 2016 Chris Nichols, CenterState Bank
  41. 41. FinTech Case Studies – Build Strategy How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 41 Some traditional financial services companies have elected to build their own robo-advisory offering Examples of those who elected to build or are in the process of building their own robo-advisory platform include: Schwab, Vanguard, Morgan Stanley, TD Ameritrade and Fidelity
  42. 42. FinTech Case Studies – Partnership Strategy How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 42 Community Bank Robo-Advisory Partnerships • Partnership between Cambridge Savings Bank, a $3.5 billion bank located near Boston, and SigFig, a robo-advisor founded in 2007 • Built a service called “ConnectInvest“, which is available to Cambridge’s customers digitally (mobile and website), and “allows customers to easily open, fund, and manage an automated investment account tailored to their goals.” • Personal Capital, a robo-advisor started in 2009, announced a partnership with AlliancePartners to offer its digital wealth management platform to approximately 200 community banks • Other Robo-Advisory partnership examples involving larger financial services companies include: • UBS/SigFig, Wells Fargo, Future Advisor / RBC, BBVA Compass, LPL, Motif / JP Morgan
  43. 43. Ally Financial, Inc. (ALLY) & TradeKing FinTech Case Studies – Acquisition Strategy How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 43 ALLY acquired TradeKing, a discount online brokerage firm (~$5 equity trades) for $275 million in cash • Deal announced in April 2017 and completed in June 2017 TradeKing also had a robo-advisory platform that appeared to be a key piece of the puzzle Strategic rationale reflect creative thinking on the part of Ally executives and/or its investment bankers • FinTech acquisition that is focused on revenue synergies as TradeKing enhances wealth management offering to their existing bank customers • Versus traditional bank acquisition strategy that often focuses on expense savings “Banking and brokerage should be together so you can save and invest—and easily move money between the two.” – Don Montanaro TradeKing, CEO “We have a good composition of customers across all demographic segments, from affluent boomers to millennials… Our customers have been happy with our deposit products, but are asking for more from the online bank.” – Diane Morais Ally Bank, CEO Other Robo-Advisory Acquisitions by Traditional Financial Services Companies Include: • Invesco/Jemstep, Goldman/Honest Dollar, Blackrock/Future Advisor
  44. 44. FinTech Case Studies – CSFL Projects How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 44 • International services • Invoicing / AR Management • Fixed asset management • Alert functionality • Budget management • Prepaid cards • Lock Box • Risk management • Loan structuring Striving for a goal of 40% plus from fee (i.e., non-interest) revenue Source: Crossroads Banking & FinTech Conference, April 2016 Chris Nichols, CenterState Bank
  45. 45. FinTech Case Studies – CSFL Branch Innovation How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 45 Universal banker model More automated tellers - IVTs Cash recycling – branch + at the customer Smaller, open footprint Video conferencing Positioned for less transaction more sales/consultative focused Source: Crossroads Banking & FinTech Conference, April 2016 Chris Nichols, CenterState Bank
  46. 46. About Mercer Capital Mercer Capital is a national business valuation and financial advisory firm. Financial institutions are the cornerstone of Mercer Capital’s practice. Founded in 1982, in the midst of and in response to a previous crisis affecting the financial services industry, Mercer Capital has served clients through a variety of market environments. Today, as in 1982, Mercer Capital’s largest industry concentration is financial institutions. Despite industry cycles, Mercer Capital’s approach has remained the same – understanding key factors driving the industry, identifying the impact of industry trends on our clients, and delivering a reasoned and supported analysis in light of industry and client specific trends. The Financial Institutions Group of Mercer Capital provides a broad range of specialized advisory services to the financial services industry. The Financial Institutions Group broadly assists: • Depository institutions • Private equity, hedge funds, trust companies, and TrustCos / RIAs • FinTech companies • Specialty finance and real estate investment companies • Insurance companies • Investment funds For more information please visit www.MercerCapital.com How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 46
  47. 47. Mercer Capital’s Core Services for Financial Institutions Advisory Services • Strategic consulting • Buy-side and sell-side financial advisory services • Fairness opinions • Advisory and consultation regarding capital transactions (raising, deploying, and restructuring capital) Corporate Valuation Services • Equity transactions (share repurchases, issuances, and conversions) • Corporate transactions (recapitalizations, divestitures, reorganizations, and the like) • Employee benefit plans (ESOPs, KSOPs, stock option plans, and restricted stock) • Tax compliance (income, estate, and gift) • Buy/sell agreement consulting and the valuation of securities with contractual restrictions on transfer • Valuation of complex securities (convertibles, options, warrants, and the like) • Valuation of securities with impaired marketability • Litigation support Financial Reporting Services • Purchase price allocations (ASC 805) • Stock-based compensation (ASC 718) • Goodwill impairment (ASC 350) • Illiquid financial instruments (ASC 820) • Portfolio investments held by business development companies, private equity firms, and other financial intermediaries 47How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital
  48. 48. About CenterState Bank CenterState Banks, Inc., headquartered in Winter Haven, Florida, is a financial holding company with one nationally chartered bank: CenterState Bank of Florida. The Company, formed in June 2000, operates through 74 branches in 22 counties throughout Florida, providing traditional deposit and lending products and services to its commercial and retail customers. Since 2009, the Company has utilized its strong capital levels and financial stability, positioning the Bank to be opportunistic within the fluid banking environment. Acquisitions and new business lines have helped the Company grow to approximately $6.5 billion in assets. Activity during this time includes: FDIC Acquisitions Non-FDIC Acquisitions Ocala National Bank TD Bank Branches in Putnam County, Florida Olde Cypress Community Bank Federal Trust Acquisition from The Hartford Insurance Company Independent National Bank Gulfstream Business Bank Community National Bank of Bartow 1st Southern Bank Central Florida State Bank Community Bank of Florida First Guaranty Bank and Trust Company of Jacksonville 1st National Bank of South Florida Platinum Bank (Pending) Business Lines Gateway Bank (Pending) Correspondent Banking Division Prepaid Card Division Wealth Management Division For more information please visit www.CenterStateBanks.com How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 48
  49. 49. New Book Coming in Spring 2017 Creating Strategic Value Through Financial Technology How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 49 While many bankers view FinTech as a potential threat, FinTech offers the potential to improve the health of community banks for those banks that can selectively leverage FinTech to enhance performance, customer satisfaction, and improve profitability and returns. FinTech can also help level the playing field for community banks to compete more effectively with larger banks and non-bank lenders. Creating Strategic Value Through Financial Technology illustrates the potential benefits of FinTech to banks, both large and small, so that they can gain a better understanding of FinTech and how it can create value for their shareholders and enhance the health and profitability of their institutions. The book contains 13 chapters broken into three sections. Section I introduces FinTech. Section II explores FinTech niches such as bank technology, alternative lending, payments, wealth management, and insurance niches. Section III illustrates how both community banks and FinTech companies can create strategic value. Visit http://mer.cr/FinTechBook for more information.
  50. 50. Contact How to Create Strategic Value in the Current Environment // © 2017 Mercer Capital 50 Andrew K. Gibbs, CFA, CPA/ABV Mercer Capital Senior Vice President gibbsa@mercercapital.com 901.322.9726 Jay D. Wilson, Jr., CFA, ASA, CBA Mercer Capital Vice President wilsonj@mercercapital.com 901.322.9725 Chris Nichols CenterState Bank Chief Strategy Officer cnichols@centerstatebank.com 925.202.8944

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