Determining the value of your bank is more complicated than simply taking a financial metric from one of your many financial reports and multiplying it by the relevant market multiple. However, examination of current and long term public pricing trends can shed some light on how certain quantitative factors may affect the value of your bank.
Using data compiled by S&P Global Market Intelligence, we analyzed trends in CDI assets recorded in whole bank acquisitions completed from 2008 through the third quarter of 2017, and we compared CDIs recorded as a percentage of core deposits acquired to 5-year FHLB rates over the same period.
Complying with the revised disclosure requirements of ASU 2016-01 may necessitate that banks adopt new methodologies to determine the fair value of the bank’s loan portfolio.
Current community bank M&A trends are mixed. With the spike in bank stock prices following the November 2016 national elections, the ability of buyers—at least the publicly traded ones—to more easily meet sellers’ price expectations seemingly would lead more banks to sell. However, that has not happened as the pace of consolidation declined.
In this article, we also look at the presence of non-traditional bank acquirers and the impact of FinTech as a growing M&A trend. While FinTech acquisitions of banks have been limited, viewing FinTech as a benefit of a transaction is an increasing trend.
Sometimes deals can go horribly wrong between the signing of a merger agreement and closing. In this article, we consider the recent deal of Canadian Imperial Bank of Commerce’s (CIBC) now closed acquisition of Chicago-based Private Bancorp Inc. (PVTB). While fairness opinions do not cover regret, there are some interesting issues raised when evaluating fairness from a financial point of view of both PVTB and CIBC shareholders.
Banks face a conundrum of whether they should build their own FinTech applications, partner, or acquire. FinTech companies face similar questions, though the questions are viewed through the prism of customer acquisition rather than applications. Noncontrol investments of FinTech companies by banks represent a hybrid strategy. Regulatory hurdles limit the ability of FinTech companies to make anything more than a modest investment in banks absent bypassing voting common stock for non-voting common and/or convertible preferred.
While these strategic decisions will vary from company to company, the stakes are incredibly high for all. We can help both sides navigate the decision process.
While many bankers view FinTech as a significant threat, FinTech also has the potential to assist the community banking sector. FinTech offers the potential to improve the health of community banks by enhancing performance and improving profitability and ROEs back to historical levels.
While the potential regulatory benefits are notable, stress testing should be viewed as more than just a regulatory check-the-box exercise. The process of stress testing can help bankers find silver linings during the next downturn.
An old market saw states “buy the rumor; sell the news” which means stocks move before the expected news comes to pass. In this article, we look back at market and M&A trends of 2016, and while no one knows what the future holds, we assess probabilities of 2017.
This article offers an overview of the robo-advisory space for our community bank readers so that they may gain a better understanding of the key players and their service offerings and assess whether their bank could benefit from leveraging opportunities in this area.
Other than goodwill, core deposit intangible assets are the most commonly recorded intangible assets in bank acquisitions, representing the benefit of having a low-cost, stable funding source. However, CDI values have decreased since the financial crisis, as deposits have less worth, so to speak, in a very low rate environment than in a “normal” environment that existed before the crisis.
While net interest margin is a key metric for banks, focusing on other drivers of profitability is one way to combat margin compression in the face of further delays in interest rate hikes or upward pressure on deposit costs. This article considers opportunities for community banks, despite the current environment.
After weak broad market performance in the first quarter of the year and slow advances during the summer, U.S. stocks generally saw amplified returns in the fourth quarter of 2015. The largest banks (those with over $50 billion in assets) generally performed in line with broad market trends, but most banks outperformed the market with total returns on the order of 10% to 15% for the year.
The bank M&A market in 2015 could be described as steady, bereft of any blockbuster deals. According to SNL Financial 287 depositories (253 commercial banks and 34 thrifts) agreed to be acquired in 2015 compared to 304 in 2014 and 246 in 2013. What accounts for the activity? In this article, we consider bank M&A trends from 2015 against the broader backdrop of M&A bank transactions.
Although farm income is projected to decline for a second consecutive year in 2015, farmers and the broader agricultural industry have had a great run since the Great Recession. The agricultural lending industry? Not so much. In this article, we consider industry trends such as growing demand for financing and steady rates, while also accounting for alternative sources of lending and implications on asset quality.
While July and August are equivalent in terms of the number of days, the market environment in these two months during 2015 bore few similarities. In August, volatility returned, commodity prices sank, and expectations of Federal Reserve interest rate action in September diminished.
Despite much commentary about the significant economic and regulatory headwinds impacting community banks, profitability is on the mend. Key contributors to improving earnings were higher net interest income and lower loan loss provisions. While it is difficult to tell whether community bank earnings have peaked and how long this cycle may last, improving profitability expands the strategic options available to community banks. Selling is one option available to community banks in this environment, but the range of strategic options available is much broader than that as discussed in our article.
During 1980 the Federal Reserve issued the Small Bank Holding Company Policy Statement (“Policy Statement”), which recognized from a regulatory perspective that small bank holding companies have less access to the capital markets and equity financing than large bank holding companies. Although the Fed has sought to limit holding company debt so that the parent can serve as a “source of strength” to its subsidiaries, especially the deposit-taking bank subsidiaries, the Policy Statement allowed small bank holding companies to utilize more debt to finance acquisitions and other ownership transfer-related transactions than would be permitted by large bank holding companies. Considering the updated threshold as of May 15, 2015, we summarize the regulation update and remark on its implications.
Aside from paying tribute to the late B.B. King and playing “Everyday, everyday I have the blues,” what can community bankers do in order to combat the margin blues? While not all encompassing, we have listed a few strategic options to consider including increasing leverage, considering M&A, acquiring/partnering with non-financials, improving efficiency by leveraging financial technology, or maintaining the status quo.
In our view, Employee Stock Ownership Plans (ESOPs) are an important omission in the current financial environment. Many lack a broader understanding of the possible roles of ESOPs as a tool to manage a variety of strategic issues facing community banks. Given the strategic challenges facing community banks, we strive to help our clients, as well as the broader industry, fill this gap, and discuss some common questions related to ESOPs in the following article.
Although successful bank acquisitions largely hinge on deal execution and realizing expense synergies, properly assessing and pricing credit represents a primary deal risk. Additionally, the acquirer’s pro forma capital ratios are always important, but even more so in a heightened bank regulatory environment and merger approval process. Against this backdrop, merger-related accounting issues for bank acquirers have become increasingly important in recent years and the most significant fair value mark typically relates to the determination of the fair value of the loan portfolio. Fair value is guided by ASC 820 and defines value as the price received/paid by market participants in orderly transactions. It is a process that involves a number of assumptions about market conditions, loan portfolio segment cash flows inclusive of assumptions related to expected credit losses, appropriate discount rates, and the like. To properly evaluate a target’s loan portfolio, the portfolio should be evaluated on its own merits, but markets do provide perspective on where the cycle is and how this compares to historical levels.
The Consumer Financial Protection Bureau on Sept. 17 proposed to oversee nonbank auto finance companies, noting that the action was undertaken after it uncovered auto lending discrimination at the banks it supervises. What was striking to me about the release is what appears to be the creeping and maybe soon to be rapid federalization of another credit product.
It is sort of like the pre-crisis days, but not really. Bank acquisition activity involving non-assisted transactions has been gradually building since the financial crisis. The only notable interruption occurred in the second half of 2011 when the downgrade of the U.S. by S&P (but not Moody’s or Fitch) and a funding crisis among many European banks caused markets to fall sharply.
On July 16th, 2014 Boston Private Financial Holdings, Inc. (NASDAQ ticker: BPFH), the holding company of Boston Private Bank & Trust Company, entered an asset-purchase agreement to acquire Banyan Partners, LLC, a Registered Investment Advisor (RIA) headquartered in Palm Beach Gardens, Florida with approximately $4.3 billion in client assets.