During 2016, the U.S. banking industry experienced 284 mergers and acquisitions, with sixty-seven of them coming in the first quarter. Given the uncertainty of a new administration in Washington; its promise to roll back bank regulation, reduce corporate income tax rates and promote economic and financial growth, there is a potential for increased M&A activity in the banking sector. How has that played out so far? The following is a summary of first quarter bank M&A activity, by the numbers.
On average and consistently since 2010, twenty-seven percent of the annual M&A activity has occurred in the first quarter of the year. If 2017 simply falls in line with this trend, we can expect the year to end with 275 to 285 bank mergers. This number could increase, however, if President Trump follows through on his promises to reduce regulation and corporate taxes, and we continue to see increases in bank stocks. According to S&P Global Market Intelligence, transaction premiums rose to 187% of seller’s tangible book value in the first quarter, compared to 145% a year ago.
There were sixty-five bank M&A transactions in the first quarter of 2017. As previously stated, this number is consistent with the 2016 start. However, it’s down significantly from the 99 transactions in the first quarter of 2015 and is the lowest number of first quarter transactions since the 53 mergers in 2012.
Three M&A transactions transpired in the first quarter of 2017 in the FDIC’s Southwest region, the lowest in the last five years. Only the New England region had a lower number of transaction in the first quarter, with only one. However, that number is consistent with historical trends for the region. The Southwest region, on the other hand, had been averaging seven transactions in four of the last five first quarters.
Compared to 2016, first quarter M&A activity overall has been fairly consistent, with 65 total transactions in 2017 compared to 67 in 2016. However, if not for the nineteen mergers in the Chicago FDIC region, the comparison would be significantly different, as all other areas of the country have either remained constant or declined compared to the 2016 start.
The Chicago region M&A activity was led by a four bank consolidation by Farmers Capital Bank Corporation in Frankfort, KY, now doing business as United Bank & Capital Trust Company. The state of Kentucky experienced a total of seven mergers and acquisitions in the first quarter. In Illinois, $14B First Midwest Bancorp, Inc. expanded its market footprint with the acquisition of $2.3B Standard Bank in Hickory Hills, IL. Other Chicago region acquirers include Ohio-based First Federal Bank of the Midwest and The Home Savings and Loan company of Youngstown as well as Bank of Ann Arbor in Michigan.
Buoyed by some larger transactions, the average assets of acquisition targets varied between $445MM and $874MM over the last five years, the median, however, has been consistent at approximately $150MM. The size of the average acquiring bank has varied significantly over the same period, falling from $19.7B in 2013 to $4.2B in the first quarter of 2017. And, the median acquiring bank asset size has gone from $1.3B to just under the $1B mark.
In terms of number of M&A transactions, Valley View Bancshares, parent company of Security Bank of Kansas City, has had the most M&A activity in the last five years, merging seven banks into one. But the eight banks below have been consistent acquirers, acquiring at least one bank in three of the last five years.
What the remainder of 2017 holds for bank M&A is still uncertain but one thing is for sure, Integrated Legacy Solutions (ILS) will continue to be a key vendor for many of these banks. With more than 350 financial institution clients, including half of those listed above, ILS is a trusted strategic partner for acquiring banks.
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