ICBA Community Bank Day - The Independent Community Bankers

Transcription

ICBA Community Bank Day
Mergers & Acquisitions, Capital
Markets & Bank Valuation
Presented by: Thomas R. Mecredy
Senior Vice President
M&A Outlook
• Scale has never been more important; it is the biggest driver of
acquisitions/combinations
• More than 50% of deal activity is driven by banks with assets under $200
million
• MOEs of all sizes are being actively discussed even though many face
significant social challenges
• The market is rewarding strategic deals with reasonable economic results
• Very few all cash deals due to capital preservation
• There is an increasing percentage of negotiated transactions versus
auctions
3
Industry Outlook
•
•
•
•
•
Margin pressure continues
Legislative and regulatory costs and pressure on non-credit products
Cost reduction pressures
Declines in industry employment
Changes in talent needed, including more risk management and
compliance
• Need cost savings and/or revenue growth to offset higher
regulatory/compliance costs
• Need for greater size to absorb costs and attract capital with better
returns - M&A as a solution
4
Financial Industry Overview
Performance and Profitability- A Declining Net Interest Margin
Net Interest Margin
All FDIC Insured Institutions
5.00%
4.50%
4.00%
3.50%
3.00%
2.50%
YTD
6/15
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
2.00%
Source: SNL Financial
5
Performance and Profitability by Asset Size (All FDIC Insured Institutions)
Net Operating Expense / AA
Efficiency Ratio
90.00
3.00
80.00
2.50
2.00
70.00
1.50
60.00
1.00
50.00
0.50
40.00
0.00
<$100M
$100M-$1B
$1B-$10B
>$10B
Source: FDIC
<$100M
$100M-$1B
$1B-$10B
>$10B
6
Performance and Profitability by Asset Size (All FDIC Insured Institutions)
NPAs / Total Assets
Reserves / Nonperforming Loans
4.00
120.00
3.50
100.00
3.00
80.00
2.50
2.00
60.00
1.50
40.00
1.00
20.00
0.50
0.00
0.00
<$100M
$100M-$1B
$1B-$10B
>$10B
<$100M
Source: FDIC
$100M-$1B
$1B-$10B
>$10B
7
3.50%
3.00%
2.50%
2.00%
1.50%
1.22%
1.41%
1.62%
2.66%
2.36%
2.54%
2.56%
2.62%
2.61%
2.45%
2.16%
1.99%
1.87%
1.81%
1.74%
1.66%
1.65%
1.83%
1.82%
1.71%
1.50%
1.28%
1.16%
1.34%
2.29%
3.29%
3.31%
2.66%
2.16%
1.75%
1.54%
1.40%
4.00%
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
6/30/15
Banks continue to release reserves
Loan Loss Reserves / Total Loans
1.00%
0.50%
0.00%
8
The search for efficiency is a driver for consolidation
• Capturing efficiencies continues to be one of the most compelling forces driving industry
consolidation
• Larger banks are more efficient than their smaller peers, with $5 billion to $10 billion banks
having approximately $2 million more assets per employee than banks less than $500
million in assets
Assets Per Employee
9
M&A Outlook
Valuation
– Key Characteristics
– Still primarily driven by buyer capacity vs. seller aspirations
– Tangible book value dilution earnback remains the most critical
financial measure
– Highest valuation deals usually executed with premium valued stock
buyers
– Market receptivity to “smart deals” using stock allows sellers to realize
higher effective price than announced value
10
Earnings are the Key Driver for Bank Valuations
•
•
•
Earnings have re-emerged as the primary driver of bank valuations
In 2015, banks with LTM ROAA above 1.00% sold at an average P/TBV of 171%
Comparatively, the average P/TBV for banks with LTM ROAAs between 0% to 0.50% was only
135%
Average P/TBV by Seller ROAA
170.8
148.6
135.4
180.0
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0.0
78.8
2010
2011
ROAA < 0%
2012
ROAA 0.0% - 0.50%
2013
2014
ROAA 0.51% - 1.0%
2015 YTD
ROAA > 1.0%
11
Indiana, Kentucky & Ohio Transactions
Institutions with an ROA > 0.00% & Announced in 2014 & 2015
Date
Announced Buyer
01/21/14
03/18/14
04/04/14
04/07/14
04/21/14
04/22/14
06/04/14
07/03/14
07/15/14
07/22/14
08/04/14
08/14/14
08/29/14
09/08/14
09/11/14
10/09/14
10/14/14
11/21/14
12/15/14
01/06/15
01/21/15
01/27/15
02/19/15
05/11/15
06/04/15
06/24/15
06/29/15
09/16/15
Peoples Bancorp Inc.
Ohio Farmers Insurance Company
MainSource Financial Group, Inc.
Community Bank Shares of Indiana
Old National Bancorp
Financial Services Holding Corp.
Community Bancshares, Inc.
First Merchants Corporation
Citizens National Corporation
Hartland Financial, Inc.
BB&T Corporation
First Citizens Banc Corp
Independent Alliance Banks, Inc.
First Southern Bancorp, Inc.
Hambac, Inc.
Northwest Bancshares, Inc.
Kentucky Bancshares, Inc.
Farmers National Banc Corp.
Horizon Bancorp
First Commonwealth Financial Corp.
First Capital, Inc.
First Cecilian Bancorp, Inc.
City
Marietta
Westfield Center
Marietta
Greensburg
Marietta
New Albany
Evansville
Henderson
McArthur
Muncie
Marietta
Paintsville
Hartford
Winston-Salem
Sandusky
Fort Wayne
Stanford
Hodgenville
Warren
Muncie
Paris
Canfield
Michigan City
Indiana
Corydon
Canfield
Muncie
Cecilia
State Seller
OH
OH
OH
IN
OH
IN
IN
KY
OH
IN
OH
KY
KY
NC
OH
IN
KY
KY
PA
IN
KY
OH
IN
PA
IN
OH
IN
KY
City
Midwest Bancshares, Inc.
Valley Savings Bank
Ohio Heritage Bancorp, Inc.
MBT Bancorp
North Akron Savings Bank
First Financial Service Corporation
LSB Financial Corp.
Ohio Valley Bancorp, Inc.
Citizens Bank of Ashville, Ohio
Community Bancshares, Inc.
NB&T Financial Group, Inc.
Peoples Security Bancorp, Inc.
Citizens Bank
Bank of Kentucky Financial Corp.
TCNB Financial Corporation
First State Bank, Bourbon
First United, Inc.
Kentucky Home Bancshares, Inc.
LNB Bancorp, Inc.
C Financial Corporation
Madison Financial Corporation
National Bancshares Corporation
Peoples Bancorp, Inc.
First Community Bank
Peoples Bancorp Inc. of Bullitt Cty
Tri-State 1st Banc, Inc.
Ameriana Bancorp
Farmers Bancshares, Inc.
State
Wellston
Cuyahoga Falls
Coshocton
West Harrison
Akron
Elizabethtown
Lafayette
Henderson
Ashville
Noblesville
Wilmington
Louisa
Hartford
Crestview Hills
Dayton
Bourbon
Central City
Bardstown
Lorain
Dublin
Richmond
Orrville
Auburn
Columbus
Shepherdsville
East Liverpool
New Castle
Hardinsburg
Summary Statistics:
High
Median
Mean
Low
OH
OH
OH
IN
OH
KY
IN
KY
OH
IN
OH
KY
KY
KY
OH
IN
KY
KY
OH
OH
KY
OH
IN
OH
KY
OH
IN
KY
Total
Assets
Target Financials
Return Return Equity
on
on
to
NPAs/
Price
to
$(000)
Assets Equity
Assets
Equity Tang. Equity Earnings
Assets
Announcement Terms
Price
Price
Price
to
to
to
Premium
on Core
Assets Deposits
91,529
127,187
251,852
225,187
147,758
858,617
366,080
258,476
104,638
272,071
652,196
48,418
26,889
1,857,787
104,786
87,630
148,651
108,446
1,241,099
136,243
120,612
529,599
486,555
100,420
239,214
139,484
482,680
231,753
0.42
0.70
0.56
0.83
0.23
0.08
0.67
1.57
0.98
1.08
0.69
0.25
0.32
1.14
1.02
0.73
1.02
0.87
0.60
0.24
0.10
1.16
0.74
1.33
0.64
0.71
0.45
NA
3.36
7.36
5.75
7.62
2.58
1.97
6.02
16.15
12.35
8.41
6.56
1.75
1.78
11.52
9.56
3.98
9.85
6.17
6.80
3.03
1.07
11.92
5.75
11.03
5.33
8.77
5.33
NA
12.84
9.62
10.18
10.62
9.40
3.82
11.28
9.57
8.29
13.12
10.88
14.22
17.75
10.35
10.94
18.43
10.69
14.75
9.11
7.33
9.97
9.92
12.60
12.26
12.56
7.85
8.62
17.75
2.88
0.96
1.12
2.55
1.22
5.27
NA
0.19
1.05
8.58
1.41
1.88
0.96
1.64
1.59
3.07
0.71
2.12
1.85
0.90
4.13
0.65
NA
2.82
4.22
NA
3.60
NA
107.31
NA
146.88
141.97
145.01
133.45
158.57
NA
140.90
131.64
143.37
87.68
104.78
189.72
150.04
113.63
109.79
114.82
157.15
186.92
105.46
129.97
119.54
119.84
103.31
130.30
163.91
121.90
107.31
NA
146.88
141.97
145.01
133.45
158.57
NA
140.90
131.64
151.51
87.68
104.78
216.31
150.04
113.63
114.32
114.82
194.98
186.92
105.46
142.82
124.27
119.84
103.31
NA
168.83
121.90
32.00
NA
26.45
19.62
56.88
NM
27.31
NA
12.33
26.64
22.63
NM
58.82
17.35
17.19
29.03
12.31
19.59
23.88
NM
45.15
11.69
21.43
17.17
17.11
15.04
31.30
16.32
13.78
NA
14.95
15.10
13.63
6.20
18.38
NA
11.69
17.05
16.01
13.69
18.59
19.78
16.47
20.94
11.71
17.25
15.87
10.64
9.59
13.33
15.07
14.69
12.45
10.21
14.28
21.14
1.22
NA
7.42
5.75
6.30
0.70
9.99
NA
4.48
4.97
6.86
-2.41
1.10
13.58
7.32
3.75
2.84
3.42
11.23
7.74
0.46
5.94
4.27
3.57
0.49
2.90
8.30
5.21
1,857,787
186,919
337,352
26,889
1.57
0.70
0.71
0.08
16.15
6.17
6.73
1.07
18.43
10.65
11.24
3.82
8.58
1.75
2.31
0.19
189.72
130.97
132.99
87.68
216.31
133.45
137.09
87.68
58.82
21.43
25.10
11.69
21.14
14.82
14.71
6.20
13.58
4.73
4.90
(2.41)
12
Publicly Traded Indiana Banking Organizations
With Total Assets Between $150 Million & $5 Billion & an ROA > 0.00%
Price to:
Company
Ticker
City
State
AMB Financial Corp.
Ameriana Bancorp
Bancorp. of Southern Indiana
CITBA Financial Corporation
Community First Bank of Indiana
Crystal Valley Financial Corporation
F.S. Bancorp
Farmers Bancorp
FCN Banc Corp.
First Bancorp of Indiana, Inc.
First Financial Corporation
First Internet Bancorp
First Savings Financial Group, Inc.
German American Bancorp, Inc.
Horizon Bancorp
Independent Alliance Banks, Inc.
Lafayette Community Bancorp
Lakeland Financial Corporation
Logansport Financial Corp.
MainSource Financial Group, Inc.
MutualFirst Financial, Inc.
Northeast Indiana Bancorp, Inc.
River Valley Bancorp
STAR Financial Group, Inc.
Your Community Bankshares, Inc.
AMFC
ASBI
BCSO
CBAF
CFHW
CYVF
FXLG
FABP
FBVI
FBPI
THFF
INBK
FSFG
GABC
HBNC
IALB
LFYC
LKFN
LOGN
MSFG
MFSF
NIDB
RIVR
SFIGA
YCB
Munster
New Castle
Seymour
Mooresville
Kokomo
Middlebury
Lagrange
Frankfort
Brookville
Evansville
Terre Haute
Indianapolis
Clarksville
Jasper
Michigan City
Fort Wayne
Lafayette
Warsaw
Logansport
Greensburg
Muncie
Huntington
Madison
Fort Wayne
New Albany
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
9/23/2015
Closing
Price
$11.000
$22.305
$70.000
$32.060
$9.000
$30.500
$59.500
$46.500
$29.500
$17.000
$32.500
$30.970
$33.970
$29.300
$25.310
$26.000
$8.750
$42.040
$29.110
$21.300
$23.480
$29.100
$22.250
$37.850
$28.500
Date of
Financial
Data
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
LTM
EPS
$1.17
$0.58
$7.97
$1.74
$1.71
$3.09
NA
$5.21
$2.28
$0.87
$2.46
$1.56
$2.73
$2.26
$2.06
NA
$0.26
$2.69
$2.70
$1.50
$1.61
$2.85
$2.17
$3.76
$1.74
Book
Value
$14.38
$13.68
$100.17
$42.28
$17.15
$31.01
$50.98
$46.92
$28.11
$21.09
$31.09
$22.28
$34.27
$17.88
$20.49
$27.87
$9.43
$22.73
$32.72
$17.02
$17.71
$26.13
$21.44
$48.02
$21.71
Tang.
Book
Value
Tang.
Earnings Equity Equity
Dividend
Yield
$14.38
$13.28
$100.17
$42.28
$17.15
$31.01
$48.10
$46.92
$26.70
NA
$27.74
$21.23
$29.97
$16.21
$17.06
$24.17
$9.43
$22.43
$32.72
$13.42
$17.36
$26.02
$21.24
$46.52
$19.49
9.4
38.5
8.8
18.4
5.3
9.9
NA
8.9
13.0
19.6
13.2
19.9
12.4
13.0
12.3
NA
33.3
15.6
10.8
14.2
14.6
10.2
10.3
10.1
16.4
0.76
1.63
0.70
0.76
0.52
0.98
1.17
0.99
1.05
0.81
1.05
1.39
0.99
1.64
1.24
0.93
0.93
1.85
0.89
1.25
1.33
1.11
1.04
0.79
1.31
0.76
1.68
0.70
0.76
0.52
0.98
1.24
0.99
1.10
NA
1.17
1.46
1.13
1.81
1.48
1.08
0.93
1.87
0.89
1.59
1.35
1.12
1.05
0.81
1.46
3.27%
0.72%
3.71%
1.50%
2.32%
1.70%
3.56%
4.04%
3.53%
3.65%
3.02%
0.77%
1.41%
2.32%
2.37%
3.23%
0.00%
2.33%
2.75%
2.63%
2.04%
2.75%
4.13%
2.43%
1.68%
Median:
13.0
1.04
1.11
2.43%
Total
Assets
($M)
Selected Financial Information
Equity Return Return NPAs/
to
on
on
Total
Assets Assets Equity Assets
Efficiency
Ratio
$186.3
$480.7
$492.1
$424.1
$221.8
$447.5
$584.8
$483.0
$410.7
$398.0
$2,973.8
$1,104.6
$730.9
$2,259.7
$2,219.3
$1,026.6
$159.6
$3,572.1
$166.3
$3,240.2
$1,445.4
$277.1
$520.1
$1,746.4
$1,587.3
9.65%
8.62%
9.22%
9.24%
9.90%
10.74%
9.76%
10.13%
10.30%
9.27%
13.42%
9.04%
12.58%
10.49%
9.11%
11.12%
11.51%
10.52%
12.63%
11.36%
9.06%
11.35%
10.36%
10.60%
9.16%
0.64%
0.36%
0.78%
0.40%
1.11%
1.11%
1.17%
1.17%
0.82%
0.39%
1.07%
0.73%
0.87%
1.35%
0.96%
0.97%
0.33%
1.31%
1.05%
1.05%
0.85%
1.24%
1.10%
0.83%
0.59%
6.66%
4.23%
7.82%
4.28%
10.27%
10.25%
11.68%
11.93%
8.21%
4.14%
7.93%
7.30%
7.05%
13.12%
10.17%
8.59%
3.07%
12.46%
8.44%
9.12%
9.57%
11.23%
10.68%
8.05%
6.05%
75.26%
84.93%
72.83%
83.80%
61.75%
73.62%
64.57%
63.58%
60.78%
87.01%
62.61%
67.26%
67.82%
55.63%
60.15%
67.09%
84.85%
49.20%
58.45%
65.35%
71.45%
61.34%
65.30%
77.87%
66.86%
$520.1 10.30%
0.96%
8.44%
0.78%
4.29%
3.15%
0.51%
2.21%
NA
1.11%
NA
1.47%
NA
0.83%
0.54%
1.85%
0.37%
1.05%
0.87%
2.71%
0.61%
1.43%
0.68%
0.97%
1.60%
2.09%
0.94%
2.24%
1.08% 66.86%
13
Publicly Traded Kentucky Banking Organizations
Price to:
Company
Ticker
City
State
Boyle Bancorp, Inc.
Citizens First Corporation
Citizens National Corporation
Community Trust Bancorp, Inc.
Farmers Capital Bank Corporation
FCB Bancorp, Inc.
First Security, Inc.
HFB Financial Corporation
HopFed Bancorp, Inc.
Kentucky Bancshares, Inc.
Republic Bancorp, Inc.
Stock Yards Bancorp, Inc.
BYLB
CZFC
CZNL
CTBI
FFKT
FCBE
FIIT
HFBA
HFBC
KTYB
RBCAA
SYBT
Danville
Bowling Green
Paintsville
Pikeville
Frankfort
Louisville
Owensboro
Middlesboro
Hopkinsville
Paris
Louisville
Louisville
KY
KY
KY
KY
KY
KY
KY
KY
KY
KY
KY
KY
9/23/2015
Closing
Price
$65.000
$12.750
$40.000
$34.730
$25.500
$17.500
$23.600
$22.050
$11.950
$30.160
$24.390
$35.920
Date of
Financial
Data
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
LTM
EPS
$5.08
$1.37
$4.32
$2.54
$1.95
NA
$1.68
$1.26
$0.31
$2.57
$1.56
$2.48
Book
Value
$60.64
$15.43
$55.85
$26.39
$22.39
$18.24
$24.55
$29.04
$12.65
$28.98
$27.48
$18.34
Tang.
Book
Value
Tang. Dividend
Yield
$60.24
$13.20
NA
$22.63
$22.36
$18.24
$22.27
$29.04
$12.65
$24.13
$27.00
$18.18
12.8
9.3
9.3
13.7
13.1
NA
14.0
17.5
38.5
11.7
15.6
14.5
1.07
0.83
0.72
1.32
1.14
0.96
0.96
0.76
0.94
1.04
0.89
1.96
1.08
0.97
NA
1.53
1.14
0.96
1.06
0.76
0.94
1.25
0.90
1.98
3.69%
0.78%
2.00%
3.57%
0.00%
3.14%
2.88%
3.17%
1.34%
3.45%
3.25%
2.67%
Median:
13.7
0.96
1.06
3.01%
Total
Assets
($M)
Equity Return Return NPAs/ Effito
on
on
Total ciency
Assets Assets Equity Assets Ratio
$436.0 12.64%
$430.1 8.84%
$566.1 10.57%
$3,770.1 12.24%
$1,750.4 9.58%
$499.4 7.55%
$568.7 10.29%
$340.3 10.46%
$877.6 10.06%
$853.0 9.26%
$4,066.2 14.09%
$2,482.7 10.97%
1.05%
0.83%
0.87%
1.19%
0.88%
0.57%
0.73%
0.46%
0.23%
0.85%
0.86%
1.49%
8.70%
9.16%
8.09%
9.81%
8.95%
7.74%
6.89%
4.37%
2.27%
8.90%
5.76%
14.16%
NA
1.22%
NA
2.54%
3.45%
NA
NA
2.51%
1.38%
1.30%
1.79%
0.57%
NA
68.95%
71.66%
56.67%
71.00%
NA
66.51%
89.44%
83.61%
74.39%
66.17%
58.49%
$710.8 10.38% 0.86% 8.40% 1.58% 69.97%
14
Publicly Traded Ohio Banking Organizations
Price to:
Company
Ticker
City
State
Andover Bancorp, Inc.
Citizens Independent Bancorp, Inc.
Civista Bancshares, Inc.
Commercial Bancshares, Inc.
Comunibanc Corporation
Consumers Bancorp, Inc.
Cortland Bancorp
Croghan Bancshares, Inc.
CSB Bancorp, Inc.
DCB Financial Corp
Farmers & Merchants Bancorp, Inc.
FFD Financial Corporation
First Bancshares, Inc.
First Bank of Ohio
First Citizens National Bank
Heartland BancCorp
Killbuck Bancshares, Inc.
LCNB Corp.
Middlefield Banc Corp.
Ohio Legacy Corp
Ohio Valley Banc Corp.
SB Financial Group, Inc.
United Bancorp, Inc.
United Bancshares, Inc.
ANDC
CZMO
CIVB
CMOH
CBCZ
CBKM
CLDB
CHBH
CSBB
DCBF
FMAO
FMNB
FFDF
FIBH
FBOO
FSDK
HLAN
KLIB
LCNB
MBCN
OLCB
OVBC
PEBO
SBFG
UBCP
UBOH
Andover
Logan
Sandusky
Upper Sandusky
Napoleon
Minerva
Cortland
Fremont
Millersburg
Lewis Center
Archbold
Canfield
Dover
Bellevue
Tiffin
Upper Sandusky
Gahanna
Killbuck
Lebanon
Middlefield
North Canton
Gallipolis
Marietta
Defiance
Martins Ferry
Columbus Grove
OH
OH
OH
OH
OH
OH
OH
OH
OH
OH
OH
OH
OH
OH
OH
OH
OH
OH
OH
OH
OH
OH
OH
OH
OH
OH
9/23/2015
Closing
Price
$24.000
$105.000
$10.800
$26.900
$22.000
$18.400
$14.150
$35.750
$25.000
$7.250
$27.200
$8.250
$26.500
$31.000
$605.000
$81.000
$48.250
$110.000
$16.205
$32.750
$10.280
$22.630
$23.340
$10.590
$8.970
$15.480
Date of
Financial
Data
LTM
EPS
Book
Value
Tang.
Book
Value
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
6/30/2015
$1.61
$10.53
$1.00
$2.68
NA
$1.08
$0.79
$3.64
$2.12
$0.08
$2.18
$0.40
$2.84
$1.69
$43.70
$2.91
$4.20
$7.34
$1.25
$3.37
$0.47
$1.99
$0.83
$1.15
$0.59
$1.52
$15.82
$25.42
$12.46
$29.61
$33.00
$15.18
$12.50
$41.74
$21.53
$6.51
$25.36
$7.11
$24.98
$26.00
$1,102.00
$123.49
$39.87
$84.74
$13.91
$31.42
$12.94
$21.59
$22.74
$13.13
$7.63
$20.80
$15.82
$25.42
$8.76
$29.61
$33.00
$15.18
$12.50
$30.35
$19.59
$6.51
$24.22
$5.57
$24.98
$26.00
$1,102.00
$122.86
$39.60
$82.55
$10.33
$29.16
$12.57
$21.28
$14.65
NA
$7.63
$17.49
14.9
10.0
10.8
10.0
NA
17.0
17.9
9.8
11.8
N/M
12.5
20.6
9.3
18.4
13.8
27.8
11.5
15.0
13.0
9.7
21.9
11.4
28.1
9.2
15.2
10.2
1.52
4.13
0.87
0.91
0.67
1.21
1.13
0.86
1.16
1.11
1.07
1.16
1.06
1.19
0.55
0.66
1.21
1.30
1.16
1.04
0.79
1.05
1.03
0.81
1.17
0.74
1.52
4.13
1.23
0.91
0.67
1.21
1.13
1.18
1.28
1.11
1.12
1.48
1.06
1.19
0.55
0.66
1.22
1.33
1.57
1.12
0.82
1.06
1.59
NA
1.18
0.89
2.88%
2.33%
1.85%
3.72%
3.55%
2.61%
1.70%
3.80%
3.04%
0.00%
3.24%
1.45%
3.17%
2.19%
0.00%
2.62%
3.09%
2.73%
3.95%
3.30%
0.00%
3.71%
2.57%
1.89%
4.01%
2.33%
Median:
12.7
1.07
1.18
2.67%
Tang.
Dividend
Yield
Total
Assets
($M)
Equity Return Return NPAs/ Effito
on
on
Total ciency
Assets Assets Equity Assets Ratio
$354.1
$193.7
$1,317.3
$326.4
$265.1
$404.0
$568.8
$777.1
$623.0
$541.6
$942.6
$1,672.4
$272.7
$174.7
$169.2
$227.4
$683.8
$479.3
$1,249.4
$705.5
$298.0
$800.4
$3,210.4
$707.2
$406.7
$628.5
11.10%
8.60%
9.11%
10.88%
10.27%
10.26%
9.92%
12.28%
9.47%
8.76%
12.40%
10.92%
9.07%
8.48%
36.84%
17.42%
9.10%
10.69%
11.02%
9.19%
9.50%
11.11%
13.03%
11.05%
10.09%
11.02%
1.13%
2.93%
0.85%
0.98%
0.22%
0.75%
0.64%
1.07%
0.94%
0.12%
1.07%
0.64%
1.06%
0.58%
1.47%
0.42%
1.02%
0.93%
1.03%
1.01%
0.38%
1.02%
0.47%
0.94%
0.73%
0.82%
10.73%
43.08%
9.30%
9.49%
2.18%
7.16%
6.39%
8.86%
10.04%
1.30%
8.83%
6.10%
11.84%
6.93%
4.05%
2.36%
11.00%
9.05%
9.28%
11.26%
3.91%
9.42%
3.62%
9.36%
7.33%
7.53%
$555.2 10.48%
0.93%
8.85%
0.81%
NA
1.30%
1.80%
2.36%
NA
1.71%
1.20%
1.53%
2.09%
0.54%
1.00%
0.98%
1.17%
0.23%
0.04%
1.00%
0.22%
1.39%
1.43%
0.84%
3.03%
0.73%
0.76%
NA
1.50%
71.16%
92.09%
70.32%
69.01%
71.98%
75.68%
71.43%
64.71%
61.92%
96.03%
62.01%
69.98%
60.44%
80.51%
44.35%
84.00%
62.60%
60.71%
59.64%
60.76%
82.44%
71.35%
72.08%
70.47%
72.35%
71.89%
1.17% 70.82%
15
# of Deals
357
263
# Deals
0
198
281
230
228
163
178
119
143
288
296
271
270
260
1.33
1.34
1.25
1.16
1.05
2.18
2.27
2.18
2.13
2.05
1.71
2.72
2.33
2.05
1.85
1.62
1.22
1.15
504
300
279
100
2.22
600
211
200
464
400
1.91
500
458
2.5
2.0
1.5
1.0
0.5
0.0
Median Price / Tang. Book (x)
Mergers & Acquisitions- U.S. Banks & Thrifts
3.0
Price/Tangible Book Value
16
Stock is More Common in Deals
•
•
Buyers are using stock in almost 9 out of every 10 deals
Many sellers prefer stock transactions in today’s environment as they believe M&A
pricing hasn’t recovered to pre-recession levels and there is the ability to have the
transaction value appreciate with an increase in the buyer’s stock price
Consideration Trends - Healthy Bank Deals
100%
80%
46.2%
42.3%
51.2%
60%
40%
34.6%
38.5%
19.2%
62.9%
15.9%
31.7%
14.5%
19.2%
17.1%
22.6%
2011
2012
2013
20%
0%
2010
Stock
50.0%
Cash
34.1%
2014
Mixture
17
Negotiated or One-on-One
• Process can vary but generally involves seller and buyer exclusively
engaging in discussions to merge, may execute reciprocal NDA with
exclusivity period (30-60 days)
• Material terms typically agreed to through use of term sheets or nonbinding letter before comprehensive due diligence
• Buyer and seller will conduct due diligence on each other and begin
negotiating merger agreement
• No need for “market check” if it is a fair deal (is good for employees,
customers and the community)
18
Typical Pricing Terms
Cash and Cash/Stock Mixture Transaction Example
Fixed Price plus Interim Earnings:
• Interim earnings are typically from the date (quarter end) of original offer
through closing
• Interim earnings excludes (or prohibits) nonrecurring gains
• Carve-out for transaction related costs (professional fees, contract termination
fees, change in control/severance payments, etc.)
Fixed Price with Minimum Equity Provision:
• Minimum equity typically established as of the most recent quarter or month
end prior to agreement
• Minimum equity can be a price adjustment or a closing condition
• Carve-out for transaction related costs (professional fees, contract termination
fees, change in control/severance payments, etc.)
19
Parameters in Bank M&A Today
Earnings Accretion
–
–
–
–
–
Year one earnings accretion becoming less paramount as deal values continue to rise
Depending on buyer/size, accretion in the first year needs to be meaningful
EPS accretion must justify or counteract any TBV dilution
Market wants to see a strong IRR of 15%+
Training (often overlooked)
TBV Dilution
– Wall street equity research analysts generally want to see a sub-4 year earnback period
– Buyers are more willing to stretch TBV dilution, within reason
Efficiency & Cost Savings
– Buyers want to see higher cost savings than previous years to increase pro forma earnings
and book value
– Average expected cost savings in 2014 were 33.3%, the highest in recent years
– Less desire for costly high concentration brick and mortar branches
20
M&A – EPS Accretion
The industry has long focused on earnings accretion resulting from M&A
transactions. The table below shows reported EPS accretion expectations
for transactions over the last ten years where data was available.
21
Tangible Book Value
• Investors are becoming more
comfortable with longer tangible
book value earnback periods
Tangible Book Value Earnback
for Whole Bank Transactions
• The average range of TBV earnback
is currently 3 years, which is up
from 2 years in 2011
• Rising M&A prices are leading to
less EPS accretion and longer TBV
earnback periods (investors are
more comfortable as economy
continues to improve)
22
Exchange Ratio – Publicly Traded Buyer
Fixed Price – It is what you think it is; same as a cash price
Considerations for buyers and sellers:
Buyer
Seller
Pros
Cons
If stock price goes up during
executory period, deal becomes
more accretive
If stock price declines, deal
becomes more expensive
Price certainty
Could be leaving money on the
table if buyer stock performs well
23
Caps, Floors & Collars
•
Caps: One-sided protection that limits upside a seller can receive and a buyer must
pay in a deal
– Example: fixed exchange up to a certain stock price
– Above that stock price, deal to target becomes fixed
•
Floors: One-sided protection that limits downside a seller can receive
– Fixed exchange ratio down to a certain stock price
– Below that stock price, deal to seller becomes a fixed price
•
Collars
– Combination of a cap and a floor
– Almost all deals that employ price protection use collars in order to offer two-sided
protection
– Collars can be used on fixed price (fixed price within collars, fixed exchange thereafter) or
fixed exchange deals (fixed exchange within collars, fixed price outside the collars)
24
Case Study – Publicly Traded Buyer – Leveraged Seller
Art of the Exchange Ratio – Collar/Cuff
Buyer
Financial Performance
Seller
Financial Performance
$5,848,202
$371,862
Tangible Equity/Assets
10.19%
4.22%
LTM ROA
1.65%
1.01%
LTM ROE
14.00%
22.37%
LTM Efficiency Ratio
48.38%
66.07%
NPAs/Assets
0.37%
0.56%
Tangible Book Value
$9.14
$17.24
Earnings Per Share
$1.41
$4.14
Current Market Value
$28.50
-
Price/Tangible Book
3.12x
-
Price/LTM Earnings
20.21x
-
Total Assets ($000)
25
Case Study
Example of Buyer Stock Price Equaling $28.50
(The 10 Day Average Prior to Executing Definitive
Agreement)
Buyer
Stock Price
$22.50
$23.50
$24.50
$25.50
$26.50
$27.50
$28.50
$29.50
$30.50
$31.50
$32.50
$33.50
$34.50
Seller Receives Seller Receives Purchase Price
# Buyer Shares
Cash
(Million)
2,231,941
$6,781,328
$57.0
2,231,941
$4,549,387
$57.0
2,231,941
$3,317,446
$58.0
2,231,941
$2,085,505
$59.0
2,226,415
$0
$59.0
2,145,455
$0
$59.0
2,070,175
$0
$59.0
2,000,000
$0
$59.0
1,934,426
$0
$59.0
1,873,016
$0
$59.0
1,846,154
$0
$60.0
1,820,896
$0
$61.0
1,768,116
$0
$61.0
Price/Required Tangible Equity at closing = 4.06x
Price/2014 Earnings = 16.23x
Premium on Core Deposits = 14.92%
26
Case Study – Price and Volume Chart
$36.00
1,400,000
$34.00
1,200,000
$32.00
1,000,000
$30.00
800,000
$28.00
600,000
$26.00
400,000
$24.00
200,000
$22.00
0
$20.00
Price
1,600,000
Buyer
Price and Volume Activity
Daily: March 10, 2014 - March 9, 2015
volume
27
Prepare for M&A Success
•
•
•
•
•
•
•
•
Strategic plan
Capital and capital planning
Asset quality
Earnings quality
Management and people
Operational capabilities
Cost savings and revenue enhancements
Appropriate valuations
28
M&A – Due Diligence
Due Diligence
– Credit due diligence – consider outside assistance
– Line up your investment banker early
– Utilize senior management – they will “own” this after the deal, so get
their buy-in upfront
– No question is a bad question; due diligence is not the forum to show
how smart you are. Listen, dig deep and ask questions.
– Involve your regulators early in the process
29
Challenges to Overcome with Target CEO
•
•
•
•
•
•
•
•
•
Fat & Happy
No skin in the game
Needs a job until retirement
New owners will hold him responsible for performance
More difficult to BS a good operator
Likes being the Boss
Embarrassed to admit short comings
Afraid of culture change
Sometimes 2nd or 3rd generation bank CEO
30
Wrong Reasons for a Buyer CEO to do a Deal
•
•
•
•
•
•
Bigger bank, bigger salary
Little or no skin in the game
It’s not his money
Ego
May not understand transaction & damage to shareholders
Pressure from analysts or investors
31
Integration Overview
Success Factors
–
–
–
–
–
Fully integrate the acquisition
Maximize the economic value of the acquisition
Minimal customer impact
Capture the strengths of both organizations
Transfer of loyalties of acquired personnel
Common problems
–
–
–
–
–
–
–
Incomplete integration
“Us” vs. “Them” mentality
Lack of adapting to demands of larger scale
Deterioration of quality of customer service
Slow to take advantage of efficiencies of consolidation
Failure to recognize strengths of acquired organization and key people
Failure to deal with known problems up front
32
Purchase Accounting-Loan Portfolio
Treatment of the Allowance for Loan Losses
•
Determine if any loans to be acquired have deteriorated credit quality
–
–
–
Each loan is recorded at its fair value (taking into consideration credit risk and interest rate) and
there is no initial ALLL recorded
Post acquisition an ALLL would be established for credit losses incurred subsequent to the
acquisition date
Starting “Day 2” need to keep separate set of books for acquired loan portfolios
• Example
–
–
–
Bank pays $800 for a loan with outstanding principal balance of $1,000. At date of acquisition, the
expected credit loss on the loan is $150.
Day 1 journal entry is:
Loan Receivable
$1,000
Cash
$800
Non-credit discount
$50*
Credit related discount
$150**
*Account is accreted into interest income over the life of the loan
**Not recognized in interest income, subsequent changes evaluated in same manner as originated loans. May be recharacterized as acceptable if expected cash flows improve.
33
Capital Raise Options
Strategies for a successful capital raise
1. Have a clear business plan
– Size and nature of offering match use of proceeds
2. Start with insiders
– Strong vote of confidence by insider knowledge
3. Find and nurture a lead investor
– Many other investors want both validation and comfort that someone
is “doing the heavy lifting” on diligence
– Often acts as the price setter
4. Be reasonable on terms
– Recognize need for adequate return for given risk
34
Who Invests in Community Banks?
Two types of investors have differing motivations
•
Insiders / Locals
–
–
–
–
•
Control of destiny: insiders
Support of local community
Prestige
Long term
Institutional investors
– Value appreciation
a)
b)
c)
d)
e)
Internal growth of earnings, book value
Consistent, above average performance
M&A control premium potential
Annual income (dividends)
Short term
35
Private Equity / Institutional Investors Weigh in on
Strategic Relevance
Market Valuation:
•
Returns are a function of five factors: entry point, growth, dividends, exit point
and time horizon
•
With industry growth and exit multiples uncertain, investors are more focused
on entry points
•
Focus on lack of liquidity may cause asset size to increase
•
At the same time, large-cap stocks (which typically trade at premiums to microcap stocks) remain conservative, causing investors to favor these names over
small and micro-cap stocks due to favorable liquidity
36
TCE Ratio for the Industry is at 70-Year High
• Bank TCE ratios fluctuated between 4.6% and 8.1% from 1941-2009 (average
of 6.7%). At the end of 2014, the industry TCE ratio equaled 8.9%.
• The 8% Tier 1 common ratio minimum should not be particularly burdensome
for most banks.
37
Stock Repurchase Analysis
Total Assets
$500,000,000
Equity
$40,000,000
Earnings
$4,000,000
# of Shares
500,000
Interest Rate
3%
Tax Rate
35%
Shares Repurchase (10%)
50,000
Current "Market Price" Per Share
$80.00
Earnings Per Share
$8.00
Book Value Per Share
$80.00
ROE
10.00%
Equity/Assets
Offering Price
8.00%
Pro Forma Values
Price/
Share
Debt
Book
Book Value
Book (%)
Price
Assumed
Earnings
70%
$56.00
$2,800,000
80%
$64.00
90%
Equity/
EPS
Value
Per Share
ROE
Assets
$3,945,000
$8.77
$37,200,000
$82.67
10.60%
7.44%
$3,200,000
$3,938,000
$8.75
$36,800,000
$81.78
10.70%
7.36%
$72.00
$3,600,000
$3,930,000
$8.73
$36,400,000
$80.89
10.80%
7.28%
100%
$80.00
$4,000,000
$3,922,000
$8.72
$36,000,000
$80.00
10.89%
7.20%
110%
$88.00
$4,400,000
$3,914,000
$8.70
$35,600,000
$79.11
10.99%
7.12%
120%
$96.00
$4,800,000
$3,906,000
$8.68
$35,200,000
$78.22
11.10%
7.04%
130%
$104.00
$5,200,000
$3,899,000
$8.66
$34,800,000
$77.33
11.20%
6.96%
38
10,324
10,100
9,739
9,456
9,241
9,053
8,843
8,755
8,594
8,430
8,175
7,811
7,513
7,245
6,940
6,659
84,290
85,473
86,051
86,559
87,770
89,772
92,030
94,740
97,263
99,152
99,540
98,509
98,183
97,330
96,329
94,715
Total Branches
14,000
13,000
12,000
11,000
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
# of Institutions
10,711
83,287
11,159
82,079
11,661
81,342
12,248
80,958
12,950
110,000
100,000
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
81,245
# of Branches
Industry Consolidation and Branch Trends
Total Institutions
• The total number of financial institutions declined 49% over the last 20 years while the number of branches increased 14%
• The decline in the number of branches over the last few years is predominantly driven by acquisitions and subsequent branch
footprint consolidations of large financial institutions.
Source: FDIC
39
600
500
400
300
200
100
0
New Charters
Mergers
Failures
40
The total number of insured institutions has decreased 64% since 1984. In 1996, the Small
Business Job Protection Act amended the Internal Revenue Code of 1986 to allow qualifying
institutions to become subchapter S corporations for federal tax purposes.
Source: SNL Financial and FDIC
41
Change in Branches by Year
3,500
2,500
2,710
2,002
2,258
2,523
1,889
1,500
388
500
-500
-326
-1,500
-853
-1,031
-1,001
-1,614
-2,500
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
42
Preferred Banking Method
Internet
31%
Branches
21%
ATM
Mobile
14%
10%
Telephone
7%
Mail
6%
Unsure
•
11%
•
While customer self-service interaction
continues to increase, customers
continue to use the branch to open
accounts, apply for loans and problem
resolution.
Branch transaction volumes are
decreasing and foot traffic is declining
5% annually and overall traffic could
plummet by as much as 60% within 5
years.
Source: SNL Financial and FDIC
43
Pressures Facing Community Banks
• The big banks have gotten bigger, much bigger
• In comparing the top 10 banks (by asset size) 20 years ago to the top 10 banks
today, we see that deposit market share has increased by 40%
1994
Rank
1
2
3
4
5
6
7
8
9
10
Company
Bank of America Corporation
JPMorgan Chase & Co.
KeyCorp
Wells Fargo & Company
PNC Financial Services Group, Inc.
Bank of New York Mellon Corporation
SunTrust Banks, Inc.
Deutsche Bank Trust Corporation
Comerica Incorporated
U.S. Bancorp
Top 50
Top 100
2014
Total
Deposit
Deposits
Market Share
($)
(%)
100,470,395
3.0
96,506,000
2.9
48,564,237
1.4
36,424,000
1.1
35,038,417
1.0
34,090,658
1.0
32,211,364
1.0
24,940,000
0.7
22,432,316
0.7
18,791,000
0.6
$449,468,387
13.3
19.6
21.3
Rank
1
2
3
4
5
6
7
8
9
10
Company
JPMorgan Chase & Co.
Wells Fargo & Company
Bank of America Corporation
Citigroup Inc.
U.S. Bancorp
Bank of New York Mellon Corporation
PNC Financial Services Group, Inc.
State Street Corporation
Capital One Financial Corporation
TD Bank US Holding Company
Top 50
Top 100
Total
Deposit
Deposits
Market Share
($)
(%)
1,334,534,000
12.0
1,131,068,000
10.2
1,114,330,000
10.0
942,655,000
8.5
273,097,000
2.5
264,913,000
2.4
226,483,039
2.0
207,967,596
1.9
204,513,452
1.8
202,766,632
1.8
$5,902,327,719
53.2
74.6
80.4
44
Conclusion
•
•
•
•
•
•
•
•
•
Asset quality concerns are near pre-cycle levels
Growth/earnings growth is now driving pricing
Rising rates will again make deposits attractive
Negotiated transactions are becoming favored, which allows sellers to pick
a buyer with the most upside/best currency
Strategic mergers will continue, but will remain difficult
Diminished importance of branch network
EPS accretion and synergies are most important
Challenges of scale for small banks and challenges of regulation for the
largest banks will continue
Focus on tangible book value dilution and immediate EPS accretion and
earn-back period when pricing a deal
45
Questions?
Intended for institutional investors only. Although the information included in this report has been obtained
from sources we believe to be reliable, we do not guarantee its accuracy. All opinions expressed in this
report constitute the judgments as of the dates indicated and are subject to change without notice. This
report is for informative purposes only and is not intended as an offer or solicitation with respect to the
purchase or sale of any product. The accuracy of the financial projections is dependent on the occurrence
of future events which cannot be assured; therefore, the actual results achieved during the projection
period may vary from the projections. Member FINRA/SIPC.
Tom Mecredy
[email protected]
512-495-9890
46

ICBA Community Bank Day - The Independent Community Bankers

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