Insights from Bank Director’s 2024 Acquire or Be Acquired Conference

This year’s annual Bank Director Acquire or Be Acquired conference was well-represented by banks across the nation. Attendee banks ranged from small family-owned community banks to large public institutions. As in past years, this conference kicks off a weeklong investment banker financial institution connection effort.

The 2024 conference themes focused mainly on: (1) the impact of our current economic cycle and the fallout from the 2023 liquidity crisis (2) the efforts and best practices to get a bank acquisition or combination done amidst regulatory delays and (3) education for banks on the increasing deposit flow to non-traditional institutions and how to retain deposits with relationships and bolt-on deposit products.

The “original” economy

Debate continued at this conference on whether we are in an “original” economic cycle, or whether we are currently in a modified historical point in a standard economic cycle. Economic indicators and multiple federal reserve interest rate hikes, unheard of since the 1980s, continue to cause uncertainty in the lending and investment markets and squeeze net interest margin. Conference sessions focused on how to find alternative sources of new profit for banks, as well as how to retain existing deposit and lending relationships, and expand deposits into new untapped markets, such as cannabis banking. Investment bankers from KBW presented on the recent valuation of US banks, as well as their firm’s predictions for the future interest rate environment. They predicted federal rate cuts as soon as the second half of 2024 and questioned why the movement in the recent past has been in 25 basis point increments.

Multiple session leaders voiced their opinions that the 2023 bank failures were isolated incidences due to specific institution or leadership factors, and that risk is behind us. The bank market continues its consolidation path to look for scale opportunities.

Profit and capital

Capital preservation and generation were a heavy focus also at the conference. Bank balance sheet recovery is coming quickly and is already being represented in Q4 2023 financial reporting. Ideas were presented including divestiture of appreciated assets, minimization of the impact of disposal of debt instruments and securities with built-in losses and bringing in external investors. The best relationship banks continue to grow organically, mitigated with excellent hedging strategies, and they increase profit levels despite the current economic and industry conditions.

While institutions focus on capital preservation, the commercial credit market has not declined to the extent predicted for traditional banks. Speakers noted that most of the biggest city commercial real estate credit risk lies outside of traditional financial institutions. The allowance for loan losses on bank balance sheets have only trended upward slightly in 2023, and uncertainty exists on the timing and extent of the peak of credit losses. Many banks also acknowledged that there still exists a profit limitation on new loan growth due to the inflated cost of expansion of deposit base.