In this month’s article we summarize key metrics we track regarding equities, fixed income, and commodity markets leading up to the Ukrainian invasion on February 23, 2022 and thereafter.

In this month’s issue of Bank Watch we discuss four themes from the 2022 Acquire or Be Acquired Conference sponsored by Bank Director.

At this time last year, bank M&A could be described as “on the runway” as economic activity accelerated following the short, but deep recession in the spring. Next year, activity should gain altitude. Should and will are two different verbs, however.

Against this backdrop of the potential for an active bank M&A environment in 2022, we consider the top three factors that, in our view, should be considered by bank acquirers to help make a successful bank acquisition.

No one knows for sure; the future is always uncertain. For banks, two key variables have an outsized influence on earnings other than credit costs: loan demand and rates. In other industries the variables are called volume and price.

Fairness opinions are more than a 3 or 4 page letter that opines as to the fairness from a financial point of view of a contemplated transaction. A fairness opinion should be backed by a robust analysis of all the relevant factors considered in rendering the opinion, including an evaluation of the shares to be issued to the selling company’s shareholders. In this article, we present key questions that should be asked about the buyer’s shares.

In the latest issue of Mercer Capital’s Bank Watch, we update our analysis of trends in CDI assets recorded in bank acquisitions completed through the second quarter of 2021.

2020 was a tough year for most of us. Schools and churches closed, sports were cancelled, and many lost their jobs. There were a select few, however, that thrived during 2020. Jeff Bezos and Elon Musk saw a meteoric rise in their personal net worth over the past 12 months. Mortgage bankers are another group showered with unexpected riches last year (and apparently this year).

The January Bank Watch provided an overview of the mortgage industry and its importance in boosting bank earnings in the current low-rate environment. As we discussed, mortgage volume is inversely correlated to interest rates and more volatile than net interest income. In this article, we discuss key considerations in valuing a mortgage company/subsidiary, including how the public markets price them.

Maybe not for the best of reasons, the stars have aligned for bank investors who have significant interests in banks to undertake robust estate planning this year. Bank stock valuations are depressed as a result of the recession that developed from the COVID-19 policy responses, including a return to a zero interest rate policy that is now known as the effective lower bound. The result is severe compression in net interest margins

Amid many events brought on this year, many banks and their directors are evaluating strategic options and ways to create value for shareholders. While the Federal Reserve has prohibited the largest U.S. banks from share repurchases, the current environment has prompted many community banks to announce share buyback plans. In our view, there are four primary reasons that many community and regional banks are announcing or expanding share repurchase programs in the current environment. In this article, we expand on those four reasons.

In this article, we update our analysis of trends in CDI assets recorded in bank acquisitions completed through the second quarter of 2020.

In this article, we outline the four primary steps that we take to help clients conduct a stress test in light of the current economic environment and also discuss what you should do with the end results.

Goodwill impairment testing is typically performed annually. But the unprecedented events precipitated by the COVID-19 pandemic now raise questions whether an interim goodwill impairment test is warranted. In this article, we discuss if your bank might need an interim impairment test and describe how an impairment test works.

One emerging trend prior to the bank M&A slowdown in March 2020 was credit unions (“CUs”) acquiring small community banks. Based upon our experience of working on transactions where CUs acquire banks, we have compiled a list of three primary valuation considerations for CUs to consider when evaluating and hopefully ultimately closing successful acquisitions of bank targets.

In the March 2020 Bank Watch, we provided our first impressions of the “reshaping landscape” created by the COVID-19 pandemic and its unfolding economic consequences.  This month, we expand upon the potential asset quality implications of the current environment. 

March 2020 probably will prove to be among the most dramatic months for financial markets in US history.  Likewise, the fallout for banks may take a year or so to fully appreciate.  Nonetheless, in this issue of BankWatch, we offer our initial thoughts as it relates to the industry.

To close our series on community bank valuation, we focus on concepts that arise when evaluating a controlling interest in another bank, such as arises in an acquisition scenario.  While the methodologies we described with respect to the valuation of minority interests in banks have some applicability, the M&A marketplace has developed a host of other techniques to evaluate the price to be paid, or received, in a bank acquisition.

This article discusses a number of considerations that buyers may want to assess when performing due diligence on a potential FinTech target. While the ultimate goal is to derive a sound analysis of the target’s earning power and potential, there can be a number of different avenues to focus on, and the QoE study should be customized and tailored to the buyer’s specific concerns as well as the target’s unique situations.

Bank fundamentals did not change a lot between 2018 and 2019; however, bank stock prices and the broader market posted strong gains following a short but intense bear market that bottomed on Christmas Eve 2018. Our expectation is that 2020 will not see much change in fundamentals either, while bank stocks will require multiples to expand to produce meaningful gains given our outlook for flattish earnings.

While it would streamline the valuation process, there is no single value for a bank that is applicable to every conceivable scenario giving rise to the need for a valuation. Instead, valuation is context dependent. This edition of the series focuses on the valuation of minority interests in banks, which do not provide the ability to dictate control over the bank’s operations. The next edition focuses on valuation considerations applicable to controlling interests in banks that arise in acquisition scenarios.

Alongside fluctuations in the interest rate environment, the banking industry has seen increasing competition for deposits in recent years. Improved loan demand in the post-recession period has led to greater funding needs, while competition from traditional banking channels has been compounded by the increased prevalence of online deposit products, often offering higher rates. All of these trends have combined to make strong core deposit bases increasingly valuable in bank acquisitions in the post-recession years. One question to ponder, however, is how much the value attributable to core deposits may ease given the reduction in rates that has occurred recently.