MW Dealmaker sees more urge to merge among smaller banks - yours may be among them
By Steve Gelsi and Philip van Doorn
Citizens Vice Chair Don McCree predicts more tie-ups among banks of $10 billion or less. Here are the ones with the lowest price-to-tangible book value.
A relatively quiet period for bank mergers is expected to come to an end as the environment for dealmaking picks up steam in 2025.
One banker active in mergers and acquisitions said banks with $10 billion or less in assets may be under the greatest pressure to merge among the roughly 4,600 largest U.S. banks.
The most affordable banks in this group based on ratios of stock price to tangible book value include Capitol Federal Financial Inc. (CFFN) of Topeka, Kan.; Trustco Bank Corp. $(TRST)$ of Glenville, N.Y.; Hanmi Financial Corp. $(HAFC)$ of Los Angeles; Heritage Financial Corp. $(HFWA)$ of Olympia, Wash.; and Central Pacific Financial Corp. $(CPF)$ of Honolulu.
In an interview with MaketWatch, Don McCree, senior vice chair and head of commercial banking at Citizens Financial Group Inc. (CFG) of Providence, R.I., declined to talk about any potential deal by name.
Overall, however, he said the background for banking M&A has been improving over the last year, since even before the election.
"When you step back, there's a lot of direction and more certainty," McCree said. "The economy is on a good track and it feels like the [Federal Reserve] will achieve a soft landing or no landing. Things are constructive for M&A in general."
For banks, scale is becoming more important because of the increasing costs of technology, including artificial intelligence and regulatory compliance.
With a few deals under its belt and a ranking of No. 16 among the largest U.S. banks by total assets, Citizens is big enough to deal with those challenges, McCree said.
But regional banks are facing increasing challenges to stay competitive, he said.
"You may see the urge to transact among smaller banks of $10 billion of assets or less," he said, because they don't have the capacity to continue to invest in technology and other growth drivers.
Below is a list of publicly traded banks with $10 billion or less in total assets that are included in the S&P Composite 1500 Index XX:SP1500. The list is ranked by ascending ratios of stock price to tangible book value. This is a commonly used valuation in the banking industry. A bank's tangible book value is its book value less intangible assets, such as goodwill or loan-servicing rights.
Bank Ticker City Total assets ($mil) Price/ TBV Capitol Federal Financial Inc. CFFN Topeka, Kan. $9,528 0.89 Trustco Bank Corp. TRST Glenville, N.Y. $6,110 1.07 Hanmi Financial Corp. HAFC Los Angeles $7,712 1.10 Heritage Financial Corp. HFWA Olympia, Wash. $7,153 1.44 Central Pacific Financial Corp. CPF Honolulu $7,415 1.60 S&T Bancorp Inc. STBA Indiana, Pa. $9,584 1.66 Preferred Bank Los Angeles PFBC Los Angeles $6,872 1.69 Tompkins Financial Corp. TMP Ithaca, N.Y. $8,006 1.74 Westamerica Bancorp WABC San Rafael, Calif. $6,161 1.95 National Bank Holdings Corp. Class A NBHC Greenwood Village, Colo. $9,993 1.99 Southside Bancshares Inc. SBSI Tyler, Texas $8,362 2.27 Lakeland Financial Corp. LKFN Warsaw, Ind. $6,645 2.77 Park National Corp. PRK Newark, Ohio $9,903 3.00 City Holding Co. CHCO Charleston, W.V. $6,434 3.34 The Bancorp Inc. TBBK Wilmington, Del. $8,095 3.40 Pathward Financial Inc. CASH Sioux Falls, S.D. $7,549 4.01 Triumph Financial Inc. TFIN Dallas $5,866 4.43 Source: FactSet
To put these price/TBV valuations into perspective, consider the recent cap set by JPMorgan Chase & Co. $(JPM)$ Chief Financial Officer Jeremy Barnum during the bank's earnings conference call on Oct. 11. "Buying stock back at more than two times tangible book value is not necessarily the best thing to do," he said, "because we think we'll have better opportunities to redeploy it or to buy back at cheaper prices at one point."
Of course, many other factors come into play in mergers, such as geographic overlap and whether the cultures of institutions are a good fit.
When banks merge, it usually doesn't mean much of a change for deposit holders or borrowers, industry players said. Customers often gain access to additional services, and the combined entity may tweak websites, apps or their physical-branch footprint to make sure customers can bank the way they want.
Citizens executive McCree said a fresh deal is not a major priority for the bank right now. In 2022, it acquired Investors Bancorp and 80 HSBC Bank branches, including 66 in New York City.
Citizens has also made strategic acquisitions of six sector-focused M&A advisory firms and JMP Securities' equities platform.
"Our general view is we don't need to do anything," McCree said. "We're building a really strong company. But if an opportunity presented itself, we'd certainly have a discussion."
J. Neely, senior managing director at Accenture Strategy, said the firm sees "untapped potential for regional bank consolidation" up to the asset thresholds of roughly $100 billion in assets, where the stricter requirements of the Dodd-Frank Act kick in.
Bank customers may see some branches close as lenders consolidate, but it doesn't mean the services offered to them will suffer, he said.
"Customers often gain access to a much larger network, and any branch closings tend to be very close geographically," Neely said. "What is important is strong execution to ensure consumers experience a great transition."
-Steve Gelsi -Philip van Doorn
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November 30, 2024 07:05 ET (12:05 GMT)
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