Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

2014 Trends in Bank Mergers & Acquisitions, Social Media & Mobile Banking

830 views

Published on

2014 Trends in Bank Mergers & Acquisitions, Social Media & Mobile Banking; Presentation to Nebraska Independent Community Bankers

Published in: Business
  • Be the first to comment

  • Be the first to like this

2014 Trends in Bank Mergers & Acquisitions, Social Media & Mobile Banking

  1. 1. ©2014 Baird Holm LLP Bank M&A Update Regulatory Developments Jonathan J. Wegner jwegner@bairdholm.com (402) 636-8340
  2. 2. Bank M&A: New & Improved! • Stronger Pricing • Lots of bidders • Clean balance sheets • Excess capital – Stronger loan demand – Fee-based business ©2014 Baird Holm LLP
  3. 3. Regulatory Highlights • Social Media • Mobile Banking ©2014 Baird Holm LLP
  4. 4. Bank M&A Today: To Acquire or Be Acquired? MARKET DRIVERS ©2014 Baird Holm LLP
  5. 5. M&A 2013: U.S. Overview ©2014 Baird Holm LLP Number of Deals % of Banks 2013 248 3.64% 23-Year Hist. Median 292 3.52% 1990-99 Hist. Median 491 3.90% 2000-07 Hist. Median 272 3.06% Source: KBW
  6. 6. Pricing has begun to recover ©2014 Baird Holm LLP
  7. 7. But the market favors size ©2014 Baird Holm LLP
  8. 8. Rising costs reward efficiency ©2014 Baird Holm LLP
  9. 9. M&A drivers in banking today Market Factors • Low rate environment • Strong agricultural income • Weak loan demand • FCS/Credit Union competition • Decline in mortgage revenues • Succession issues ©2014 Baird Holm LLP Cost Drivers • NIM pressure • Rising compliance costs • Basel III capital requirements • Pressure on ROA/ROE
  10. 10. M&A drivers in banking today Sellers turning to market • Sellers presenting cleaner balance sheets – Lower credit marks – Less OREO/Toxic Assets – Higher ALLLs • Pricing coming out of the doldrums • Better performing banks are considering sale ©2014 Baird Holm LLP Buyers are eager to close • Activity is increasing • Interest in M&A is high • Strategic mergers are the latest trend • Buyers are maintaining financial discipline
  11. 11. Bank performance improvement • Strong equity market performance in 2013 – Over $1 billion up 83% (122% since 2011) – Under $1 billion up 37% (60% since 2011) • Pricing differential supported by underlying financial performance • Stronger currency for deals ©2014 Baird Holm LLP
  12. 12. But why still fewer deals? • “Unrealistic” seller expectations • Buyer’s unwilling to close bid-ask spread • But… – Earnings recovery – Lower NPAs & reverse provisions • Sellers unsure where to put proceeds ©2014 Baird Holm LLP
  13. 13. Underlying financials drive divide • Assets: $100 million • TCE: $9 million • Net Income: $850,000 – ROA 0.85% – ROE 9.4% • DCF Value: $9.9MM ©2014 Baird Holm LLP • Assumptions – 5% growth rate – 12% discount rate – 9% capitalization rate • Profile – 110% P/TCE – 11.6x P/E
  14. 14. Bank M&A Today: To Acquire or Be Acquired? LEGAL TRENDS ©2014 Baird Holm LLP
  15. 15. Legal Deal Structures • Broader use of P&A structure – Excluded Assets • Loans • OREO • Correspondent Bank Stock – Escrows – Contingent Liabilities ©2014 Baird Holm LLP
  16. 16. Legal Deal Structures • Traditional stock/merger deals – Special dividend to BHC of excluded assets – Buyers causing sellers to form liquidating LLCs / liquidating trusts • Servicing provided by buyer ©2014 Baird Holm LLP
  17. 17. Buyer Protections • Strong representations & warranties • Affirmative covenants – Board-meeting access – Continuing due diligence • Early involvement with regulators ©2014 Baird Holm LLP
  18. 18. Legal Deal Structures • Key Economic Terms – Minimum Equity and Premium Calculation – Minimum ALLL – AOCI & Unrealized Gain/Loss – Data Processing Termination – Deferred Compensation – Price Protection ©2014 Baird Holm LLP
  19. 19. Current Legal Issues • TARP/SBLF • TRUPS • Bank Stock Loans • Mortgage repurchase obligations • FHLB borrowings ©2014 Baird Holm LLP • HHI/Antitrust • Regulatory orders • BSA/AML Compliance • Fairness opinions (stock deals)
  20. 20. Legal Issues • Asset Quality – Valuation of Investment Securities – Types of Investments – Adequacy of ALLL – Push-down valuation impact on balance sheet ©2014 Baird Holm LLP
  21. 21. Legal Issues • Post-Closing Protections – Indemnification – Escrow/Holdback • 1-3 Years – Non-competition ©2014 Baird Holm LLP
  22. 22. Regulatory Developments SOCIAL MEDIA ©2014 Baird Holm LLP
  23. 23. Defined • Social Media: “a form of interactive online communication in which users can generate and share content through text, images, audio, and/or video.” ©2014 Baird Holm LLP – FFIEC Guidance
  24. 24. ©2014 Baird Holm LLP
  25. 25. JP Morgan’s Epic Twitter Fail ©2014 Baird Holm LLP
  26. 26. JP Morgan’s Epic Twitter Fail • The good… ©2014 Baird Holm LLP
  27. 27. JP Morgan’s Epic Twitter Fail … the Bad… • Did you have a specific number of people’s lives you needed to ruin before you considered your business model a success? #AskJPM • I have Mortgage Fraud, Market Manipulation, Credit Card Abuse, Libor Rigging and Predatory Lending. Am I diversified? #AskJPM ©2014 Baird Holm LLP … and the Ugly • When Jamie Dimon eats babies are they served rare? I understand anything above medium-rare is considered gauche. #AskJPM • Does the sleaze wash off with a regular shower, or do you have to use something special like babies tears? #AskJPM
  28. 28. JP Morgan’s Epic Twitter Fail ©2014 Baird Holm LLP
  29. 29. So Where’s the Love? ©2014 Baird Holm LLP
  30. 30. ©2014 Baird Holm LLP
  31. 31. ICBA Top 50 in Social Media • Engage with your customers. • Popular Posts from MidWestOne – 80%: non-profit event and project information – 15%: financial education – 5%: donations made by the bank and awards received by the bank ©2014 Baird Holm LLP Source: MidWestOne Bank website.
  32. 32. ICBA Top 50 in Social Media ©2014 Baird Holm LLP Source: World Retail Banking Report 2014
  33. 33. Using Social Media Channels • Use Social Media sites for education, customer service, bank announcements, and public service announcements. ©2014 Baird Holm LLP
  34. 34. Using Social Media Channels • Negative feedback will happen • Best practice: Acknowledge negative customer feedback ASAP. ©2014 Baird Holm LLP
  35. 35. Social Media “Command Centers” ©2014 Baird Holm LLP
  36. 36. Social Media Compliance “Likes” • FFIEC Social Media Guidance – Adopt tailored risk management program. – Identify, measure, monitor, and control the risks related to social media. ©2014 Baird Holm LLP
  37. 37. Social Media Compliance “Likes” • Elements of Social Media Policy ©2014 Baird Holm LLP • Governance structure • Policies and procedures regarding the use and monitoring of social media – Methods to address risks from online postings, edits, replies, and retention); • Due diligence process, TPSP Management • Employee training program • Oversight process for monitoring posts • Audit to ensure ongoing compliance • Appropriate reporting parameters
  38. 38. Regulations: Not Friendly • Ads/Disclosures – TISA/Reg DD – ECOA/Reg B – FHA – TILA/Reg Z – RESPA/Reg X – FDCPA – EFTA/Reg E – MAP/Reg N ©2014 Baird Holm LLP • Privacy – UDAAP – GLBA – COPPA – FCRA – TCPA • CRA • Reputation Risk • TPSP Risk Mgmt
  39. 39. FFIEC Comments • High Risk – Integrating social media into customers’ online account – Applications via social media portals • Reputation Risk – Comments by social media users – Spoofing/phishing schemes – Consumer complaints/inquiries ©2014 Baird Holm LLP
  40. 40. FFIEC Comments • Guidance does not require financial institutions to monitor and respond to all Internet communications other than communications on sites maintained by or on behalf of the institution ©2014 Baird Holm LLP
  41. 41. Regulatory Developments MOBILE BANKING ©2014 Baird Holm LLP
  42. 42. Going Mobile • Mobile Banking: a system that allows customers to conduct certain financial transactions via their mobile phone or tablet. • CFPB RFI – Mobile Usage & Unbanked – 87% of the U.S. adult population has a mobile phone (61% of these are smartphones). ©2014 Baird Holm LLP
  43. 43. Going Mobile • Check account balances • Receive alerts • Locate ATM/Branch • Transfer money between accounts • Mobile RDC • Online chat • Personal finance tools • Coupons/discounts • Person-to-Person payments • Mobile picture pay • Block card • Order checks ©2014 Baird Holm LLP
  44. 44. Going Mobile ©2014 Baird Holm LLP Consumers and Mobile Financial Services 2014, Federal Reserve
  45. 45. Going Mobile ©2014 Baird Holm LLP Consumers and Mobile Financial Services 2014, Federal Reserve
  46. 46. Going Mobile • Compliance Issues: – Fine Print – T&Cs + Privacy Policy – mRDC ©2014 Baird Holm LLP
  47. 47. Going Mobile: Fine Print • Regs. B, E, M, Z, DD – 2001 Interim Final Rules (rescinded) • Email & 90-Day requirements • Concerns regarding data security, identity theft, and ‘‘phishing’’ – 2007 Rules (E-SIGN) ©2014 Baird Holm LLP • Exceptions for electronic advertising, applications (Regs. B, M, Z, DD) • No “delayed” disclosures (e.g., telephone app)
  48. 48. Going Mobile: Fine Print • Disclosure Formatting Requirements – “In writing” – “In a form that the consumer may keep” – “Clear and readily understandable” • FRB’s E-SIGN Preamble – Federal Register: 72 FR 63462 ©2014 Baird Holm LLP
  49. 49. Going Mobile: Fine Print • FRB: “Conspicuous” ©2014 Baird Holm LLP • Disclosures comply with the "clear and conspicuous" requirement as long as they are provided in a manner such that they would be clear and conspicuous when viewed on a typical home personal computer monitor. • With regard to disclosures subject to specific font size requirements, the disclosures must be provided such that the required size requirement would be met when viewed on a typical home personal computer monitor.
  50. 50. Going Mobile: Fine Print • FRB: “Retainable Form” – The Board believes that creditors satisfy the requirement for providing electronic disclosures in a form the consumer can retain if they are provided in a standard electronic format that can be downloaded and saved or printed on a typical home personal computer ©2014 Baird Holm LLP
  51. 51. Going Mobile: Fine Print • FTC: “Clear and Conspicuous” – Place the disclosure as close as possible to the triggering claim. – Account for various devices and platforms. – Incorporate the disclosure whenever possible. If not possible, make the disclosure clearly on the linked page. ©2014 Baird Holm LLP
  52. 52. Going Mobile: Fine Print • FTC: Hyperlinks – Make links obvious – Label to convey the importance, nature, relevance of linked info – Consistent hyperlink styles – Close proximity to claim – Direct link to the disclosure – Monitoring click-through rates for effectiveness ©2014 Baird Holm LLP
  53. 53. Going Mobile: Fine Print • FTC: Other Best Practices – Avoid scrolling or use text or visual cues to direct consumers – Review empirical research – Respond to technical limitations – Review total environment – Display for sufficient duration – Plain language and syntax ©2014 Baird Holm LLP
  54. 54. Going Mobile: Fine Print • CFPB Remittance Rule – Disclosure requirements with regard to grouping, proximity, font size, and segregation not required for disclosures made through a mobile application – Expect presentation in a logical sequence, that it be clear and conspicuous, and that it be in equal prominence to one another ©2014 Baird Holm LLP
  55. 55. Going Mobile: Fine Print • CFPB “Know Before You Owe” Initiative ©2014 Baird Holm LLP
  56. 56. Going Mobile: T&Cs • Harmonize with Account Agreement • Specific Terms for Functionality – Consent to Contacts/Data Charges – Limits on Usage – Reliance on Information – Disclaimers – Security – Right to Change Terms/Functionality ©2014 Baird Holm LLP
  57. 57. Going Mobile: T&Cs • Online Privacy Policy should be updated to reflect mobile • Structure relationship to reflect terms of service provider agreement ©2014 Baird Holm LLP
  58. 58. Going Mobile: mRDC • Reg. CC warranties do not apply to mRDC • Reg. E – Warranties made to paying bank that item will not be presented twice – Paying bank may choose against which presenting bank to make a warranty claim ©2014 Baird Holm LLP
  59. 59. Going Mobile: mRDC • Federal Reserve proposed revisions – Reg. CC does apply to mRDC – mRDC bank makes warranty to all others that item will not be presented again ©2014 Baird Holm LLP
  60. 60. Going Mobile: mRDC • Risks in mRDC – NSF – Fraud • Forgery • Stolen Checks • Altered Checks – Duplicate Deposit ©2014 Baird Holm LLP • Up to 75% of returns • Up to 6 months to return or more
  61. 61. Going Mobile: mRDC • Mitigating Risks – KYC/CIP • Database verification • Out of wallet knowledge based questions – Verify image based documentary evidence – Track History • Presenter/Issuer • Fraud M.O. – Restrictive Endorsement ©2014 Baird Holm LLP
  62. 62. Going Mobile: mRDC • Mitigating Risks – Track and Limit Usage • Accounts per device / Devices per account • Cards per account / accounts per card • Accounts per person • Accounts per geographic location • Geographic location of usage • Dollars per day/week/month – Manual Review ©2014 Baird Holm LLP
  63. 63. Going Mobile: mRDC ©2014 Baird Holm LLP
  64. 64. Going Mobile: mRDC ©2014 Baird Holm LLP
  65. 65. Going Mobile: mRDC ©2014 Baird Holm LLP
  66. 66. Going Mobile: mRDC ©2014 Baird Holm LLP
  67. 67. Apple Pay ©2014 Baird Holm LLP
  68. 68. Apple Pay • NFC Contactless Chip Card – 220,000 Merchant Locations – Liability Shift: Oct. 15, 2015 • Biometric Authorization – Mathematical representation of fingerprint – Encrypted on A Series chip ©2014 Baird Holm LLP
  69. 69. Apple Pay • “Secure Element” – Holds EMVCo Secure Token – Token substitutes for 15/16 digit PAN – Linked to Device ID for Authorization • Integrated with Passbook – Stores shipping details – Populates for online purchases ©2014 Baird Holm LLP
  70. 70. Apple Pay • Merchant Integration – Visa, MC, DFS, Amex transactions – No new agreements – No fees (except tokenization security) – Acquirers: TSYS, First Data, Vantiv ©2014 Baird Holm LLP
  71. 71. Apple Pay • Issuer Penetration – Big Issuers on Board • Citi, B of A, Chase, Capital One, Wells, Amex – Large Transaction Volumes ©2014 Baird Holm LLP • 84% of Credit Card Volume • 55% of Debit Card Volume
  72. 72. More Information • http://www.slideshare.net/jonathanwegner/ • https://www.linkedin.com/in/jonathanwegner ©2014 Baird Holm LLP jonathanwegner@bairdholm.com

×