Small bank stocks are the place to be right now. There are powerful social, economic and demographic trends that are going to create an ongoing merger wave. There is an enormous amount of money to be made by patient disciplined investors. We know that Roger Ibbotson of Yale discovered that illiquid value stocks outperform everything else in the market by a wide margin. Now we have Charlie Munger telling us that “I just thank God that they didn’t give me the assignment of managing $200 billion and beating the indexes. I would not have welcomed that challenge. The people who still have value in investing are people who are willing to work very diligently and intelligently in less efficient markets.” That’s the definition of small bank stocks.
Here just the latest sampling of investors, bankers and analysts and their thoughts of what is going on in the small banks. Read it over, realize the opportunity and join us at Banking on Profits by clicking here
In college, a group of friends and I created an investment club. I received a small amount of stock in a small regional bank from my grandfather, who always had an interest in investing. While I watched people trying to get rich quickly losing money quickly, this small regional bank compounded in value at a nice clip. It taught me the importance of a well-positioned business, prudently managed and purchased at the right price. – Kimball Booker First Eagle Investment Management
M. Ray Cole Jr., president and CEO of Hattiesburg, Miss.-based First Bancshares Inc., acknowledged at the conference that multiples have risen some in the Southeast, but not necessarily in his company’s market in Mississippi and along the Alabama coast. While he said offers for high-performing banks have increased, he is not sure that multiples have moved much higher for other sellers. He believes that a number of smaller banks could consider selling as they recognize that economic growth remains slow and continue to face pressure from their boards and regulators. Cole said he is receiving more inbound calls from potential sellers and believes that technology will allow the company to take out up to 50% of a target’s cost base even if there is no direct overlap between the two franchises. – Nathan Stovall SNL Financial
Although the much-trumpeted surge in bank mergers and acquisitions generally expected over the last few years has not yet occurred, we think investors still need to prepare for a material pickup as industry dynamics still favor increased consolidation but for slightly different drivers than those in the first years after the financial crisis.Each bank is different, but ultimately community and smaller regional banks depend on solid economic growth in their markets or taking share from competitors to drive net interest income expansion in order to increase profitability. Although some markets are more vibrant than others, our discussions with a number of bank managements indicate banks are largely taking share as opposed to enjoying solid organic growth, which should support increased bank mergers and acquisitions (M&A). – Guggenheim Securities
M&A activity in the non-SIFI group of banks is expected to continue rising among small community banks, as these institutions struggle to deal with the increasing cost of regulations, keep up with technology and deal with extreme levels of competition from larger banks and nonbanks. Many community banks have found it difficult to effectively walk the line between cutting enough costs to help boost their bottom lines and keeping the cuts from impacting the overall quality of customer service. As such, some community banks have shifted their focus to specializations where they can carve out a niche or where minimal competition provides an edge. Those specializations can be geographic, product or demographic specific. As such, merging with like-sized, like-minded banks with similar business models and customer bases remains a seemingly easy way for small banks to leverage fixed costs.- – Mortgage News Daily
The Nashville region, and state for that matter, has seen an uptick in bank consolidation in the past two years after a dry spell following the financial crisis. Since the beginning of 2014, there have been 15 deals inked involving Tennessee banks, a pace that has made Tennessee one of the most active state’s for bank M&A.- Nashville Business Journal
Unless you do something specific to safeguard the community banks, at the same time letting the market operate… it’s going to affect small business lending and the local community,” said Kabir Hassan, PhD.
He says this could result in bank mergers and higher interest rates on small business loans and mortgages. US Senator David Vittter, who chairs the Senate Small Business and Entrepreneurship Committee, says he is taking Dr. Hassan’s results to Washington as proof community banks are worth saving.- WAFBTV Baton Rouge, Lousiana
In an era of bank mergers and acquisitions, American Community Bank of Indiana remains one of the only locally-owned financial institutions and continues to grow in its niche market, shareholders heard Wednesday at the annual meeting.Michael J. Mellon, president and CEO, gave shareholders financial updates and discussed why the bank’s charter and name were changed earlier this year from American Savings, FSB, at the shareholders meeting held at the Munster location, 8230 Hohman Ave.American Community Bank also has locations in Dyer, Hammond and Schererville.“This is the second best year in the bank’s history and the best year in more than five years,” Mellon said, pointing to a 6 percent increase in total assets that rose $10.4 million to $184.9 million on Dec. 31, 2014, from $174.5 million on Dec. 31, 2013. – Northwest Indiana Times
Austin Associates marked its fifth transaction of 2015 with the announcement on April 9 that Andover Bancorp, Inc., Andover, Ohio, will acquire Community National Bank of Northwestern Pennsylvania, Albion, in an all cash transaction valued at $19 million. Andover lists assets of $353 million and operates The Andover Bank with eight offices in northeast Ohio. Community National has $77 million in assets with five branches in northeastern Pennsylvania. Austin served as financial advisor to Andover Bancorp. – Austin Associates
State Bank Financial Corp. Chairman and CEO Joe Evans also said that any acquisition has to be a good fit and serve a strategic purpose and that any buyer needs to exhibit patience. However, he said that at some point, if any acquirer cannot find a target that makes sense, they might need to consider selling themselves. If a larger bank is looking for a larger presence in Georgia, “I think we are a very attractive franchise,” Evans said at the event.- SNL Financial
Bridge Bank agreed to be sold to Western Alliance Bancorporation for $425 million in cash and stock.
The deal’s timing reflects striking while the iron is hot. It’s hard to imagine a better time to sell a Bay Area bank than right now, especially for a bank that competes against Silicon Valley Bank in serving the fast-growing technology sector.”This is a sign of things to come. The question is simply who will come together,” said Michael Natzic, a senior vice president at Crowell, Weedon & Co., which makes a market in about 75 community banks.- San Francisco Business Times
Just last month, FIG Partners gathered clients in San Francisco, where the firm’s Director of Research Chris Marinac said he anticipates bank mergers to heat up this year as more bank boards decide it’s time to join forces with rivals. He said several CEOs at small banks think it’s going to be some time before profit margins expand on lending. On Monday, Bridge Bank’s Myers said the compressed lending margins amid today’s low-interest-rate environment have lasted far longer than he and other bankers had expected. – San Francisco Business Times
Chris Marinac, director of research at boutique broker/dealer FIG Partners, which specializes in financials, said that smaller, regional banks are largely undervalued. “Dividends have increased, and more are coming,” he said. “That’s a big plus.” –CNBC
New data compiled by SNL Financial shows Wisconsin has led the nation in bank location closures over the past year, with the state’s southeastern corner hardest hit.It’s no big surprise that the numbers are high. Locally and nationally, banks have followed a steady trend toward consolidation, which is only likely to continue. It’s driven by technology (customers doing more banking online or via mobile device), and by regulation. In both cases, costs can be high, meaning mergers or consolidations make sense- Milwaukee Business Journal