What’s happening on the M&A front? Prices paid for banks are rising, as credit quality and earnings improve. Banks are returning some profitability gains to shareholders in the form of dividends or share buyback programs. Below is a quick list of trends and developments in capital and strategic planning.
THE FED TO REDUCE M&A REVIEWS
The Federal Reserve is easing the hurdles involved in getting a bank deal done. As part of its approval of People’s United Financial’s acquisition of Suffolk Bancorp in March of this year, the Federal Reserve Board said it would no longer need to review deals where the target was less than $10 billion in assets, or combined assets were less than $100 billion, absent evidence that such a transaction would increase complexity, cross-border activities and other risks. The change will allow such deals to be reviewed at the district reserve bank level, which might expedite regulatory approval.
WHAT’S THE VALUE OF A BRANCH?
The industry is still fairly divided on the value of bank branches. While the biggest banks have been shedding them by the thousands, and many banks report dwindling branch traffic while mobile use keeps growing, some banks are still buying them as a way to get into particular geographic regions or neighborhoods. In Bank Director’s 2017 Bank M&A Survey, 34 percent of respondents said the purchase of a branch was more attractive than it was five years ago. One third said it was about the same, and 28 percent said it was less attractive.
FEW BIG BANKS ARE SOLD
There were 119 deals year-to-date through June of this year, and most of them were acquisitions of pretty small banks, with an average asset size of the target of just $769 million, according to S&P Global Market Intelligence. The average price to tangible equity was 164 percent, a slight increase from last year, as credit quality, stock prices and earnings continue to improve. Only two deals this year involved banks where the target was more than $10 billion in assets: Sterling Bancorp’s purchase of Astoria Financial Corp., announced in March, and First Horizon National Corp.’s purchase of Capital Bank Financial Corp., announced in May.
SHAREHOLDERS BENEFIT AS BANKS RETURN CAPITAL
Banks have benefited from higher share prices of late, and many of them are returning capital to shareholders. More than 80 percent of a sample group of 600 publicly traded banks returned capital to shareholders in the 12 months prior to June, in the form of dividends and share repurchases, according to FIG Partners, an investment banking and research firm that specializes in banks. Banks that traded at higher multiples, such as price to earnings and price to tangible book value, returned the most as a percentage of net income, in some cases exceeding 100 percent of net income.