Mercer Capital | Webinar: Outlook for Bank M&A in 2013 | February 12 2013

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Mercer Capital's expectations for bank M&A in 2013, which follows a modest pick-up in activity in 2012 vis-à-vis 2011, are presented. Investors are anxious for M&A to increase given the earnings outlook, but seller expectations and regulatory actions are acting as a governor—at least for the now.

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Mercer Capital | Webinar: Outlook for Bank M&A in 2013 | February 12 2013

  1. 1.       
  2. 2. U.S. Bancorp (USB) Associated (ASBC) Commerce (CBSH) Huntington (HBAN)Yield / Cost of Funds 4Q12 4Q11 Δ 4Q12 4Q11 Δ 4Q12 4Q11 Δ 4Q12 4Q11 ΔCommercial & Industrial 3.41 3.82 (0.41) 3.92 4.13 (0.21) 3.29 3.53 (0.24) 3.88 4.01 (0.13)Commercial Real Estate 4.43 4.57 (0.14) 4.11 4.39 (0.28) 4.33 4.67 (0.34) 4.19 3.99 0.201-4 Residential Mortgage 4.35 4.75 (0.40) 4.59 4.71 (0.12) 4.15 4.64 (0.49) 4.07 4.30 (0.23)Total Loans 3.55 3.60 (0.05) 3.98 4.27 (0.29) 4.64 5.01 (0.37) 4.13 4.28 (0.15)Total Securities (TE) 2.48 2.91 (0.43) 2.79 2.76 0.03 2.59 2.56 0.03 2.43 2.46 (0.03)COF - IB Deposits 0.38 0.48 (0.10) 0.30 0.53 (0.23) 0.28 0.37 (0.09) 0.42 0.61 (0.19)Net Int Margin (TE) 3.55 3.60 (0.05) 3.32 3.21 0.11 3.35 3.44 (0.09) 3.45 3.38 0.0730-Day LIBOR 0.27 0.35 (0.08) <> base for C&I loans5 Year Swap 0.81 1.31 (0.50) <> base for 5-year CRE loansSource: company quarterly reports and the Federal Reserves H.15 (selected interest rates-daily)
  3. 3. 5.0%4.5%4.0%3.5%3.0%2.5%2.0% 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Assets > $10B Assets $1-10B Assets $100M-$1B
  4. 4. 80%75%70%65%60%55%50%45%40% Assets > $10B Assets $1-10B Assets $100M-$1B Assets < $100M 1998 2005 2012
  5. 5. 2.0%1.5%1.0%0.5%0.0% 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12-0.5%-1.0% Assets > $10B Assets $1-10B Assets $100M-$1B
  6. 6. 18%16%14%12%10% 8% 6% 4% 2% 0%-2% 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12-4%-6%-8%-10%-12% Assets > $10B Assets $1-10B Assets $100M-$1B
  7. 7.    Current Current 84-89 90-99 00-07 08-12 00-12 84-12 YTD ROE 10Y UST Spread vs. 84-12Assets > $10B 1.7% 7.4% 9.1% 3.3% 7.6% 7.1% 9.1% 1.8% 7.2% 0.2%Assets $1-10B -1.7% 7.6% 8.3% -1.5% 6.9% 5.6% 9.9% 1.8% 8.1% 2.5%Assets $100M-$1B -4.6% 5.7% 6.6% 0.4% 5.8% 5.0% 7.7% 1.8% 5.9% 0.9%Assets < $100M -2.5% 3.8% 3.3% 0.5% 2.9% 2.3% 6.2% 1.8% 4.4% 2.1%All Insured Institutions -3.0% 7.1% 8.4% 2.2% 7.2% 6.6% 9.0% 1.8% 7.2% 0.6%
  8. 8. 
  9. 9. 600 $300 566 550 504 500 481 $250 463 458 463 450 399 400 $200Bank & Thrift Transactions 357 Deal Value ($B) 350 305 283 309 323 300 280 $150 261 272 278 232 233 250 217 216 215 200 177 175 $100 150 100 $50 50 0 $0 Bank & Thrift Transactions Deal Value
  10. 10. 90 16,000Number of Bank & Thrift Transactions 80 77 14,000 Aggregate Deal Value ($Millions) 70 64 12,000 58 58 58 60 54 53 10,000 52 48 48 48 50 41 40 8,000 38 40 37 36 6,000 30 4,000 20 14 10 2,000 0 0 Number of Deals Total Deal Value ($M) Source: Mercer Capital and SNL Financial, LC
  11. 11. 5.0%4.5%4.0%3.5%3.0%2.5%2.0%1.5%1.0%0.5%0.0% # of Deals as a % of Total InstitutionsSource: Mercer Capital and SNL Financial, LC
  12. 12. 50x 300% 46x 275% 42x 250% 38x 225% 34x 200%Price / Earnings Price / TBV 30x 175% 26x 150% 22x 125% 18x 100% 14x NM 75% 10x 50% Price / Earnings Price / TBV
  13. 13. Bank and Thrift Transactions 2012 to 2/6/2013 40 37 35 30 26 26 25 # of Deals 20 15 12 12 12 10 8 5 5 1 0 0% - 25% 25% - 50% 50% - 75% 75% - 100% 100% - 125% 125% - 150% 150% - 175% 175% - 200% 200% or GreaterSource: Mercer Capital and SNL Financial, LC Price/Tangible Book Value
  14. 14. Bank and Thrift Transactions 2012 to 2/6/2013 30% 20% 10%ROAE 0% -10% -20% -30% 0.0x 0.5x 1.0x 1.5x 2.0x 2.5x 3.0xSource: Mercer Capital and SNL Financial, LC Price/Tangible Book Value
  15. 15. Bank and Thrift Transactions 2012 to 2/6/2013 (excludes targets with ROAA < 0.5%) 20 19 18 16 15 14 12 12# of Deals 10 8 6 5 5 4 3 3 2 0 0x - 5x 5x - 10x 10x - 15x 15x - 20x 20x - 25x 25x - 30x 30x or GreaterSource: Mercer Capital and SNL Financial, LC Price/Earnings
  16. 16.    
  17. 17. Cycle Noncurrent Loans as a % of Total Loans and Leases Announce Credit Loss Date Seller Mark YE075.0% May-10 South Financial 13.0% 24.0%4.5% Wilmington Oct-10 13.0% 17.0% Trust4.0% Marshall & Dec-10 12.1% 21.1%3.5% Ilsley3.0% Dec-10 Whitney 6.0% 13.2%2.5% RBC Bank Jun-11 11.2% NA (USA)2.0% Sterling Jan-11 12.0% 15.7% Bancshares1.5% Aug-12 Hudson City 1.5% NA1.0% Citizens0.5% Sep-12 6.8% 19.1% Republic0.0% Sep-12 West Coast 5.0% 19.1% Bancorp Virginia Jan-13 4.0% 11.5% Commerce Assets $1-10B Assets $100M-$1B Feb-13 First M&F 5.4% 14.8%
  18. 18. FDIC Metrics $100M - $1B Assets 2006 2012 Change 2006 P/TBV Math (ROA and P/E Variables)Securities $275,000 $325,000 18.2% 137% 0.75% 0.90% 1.05% 1.20%Loans 650,000 600,000 -7.7% 10.0x 74% 89% 104% 119%Earning Assets 925,000 925,000 0.0% 12.5x 93% 112% 130% 149%Total Assets 994,624 994,624 0.0% 15.0x 112% 134% 156% 178%Equity 100,306 97,454 -2.8% 17.5x 130% 156% 182% 208% 20.0x 149% 178% 208% 238%Net Interest Income $37,278 $34,873 -6.5%Fee Income 12,234 11,538 -5.7%Total Revenues 49,511 46,410 -6.3%Operating Expenses 31,499 32,255 2.4%Operating Income 18,012 14,155 -21.4% 2012 P/TBV Math (ROA and P/E Variables)Loan Loss Provision 1,705 3,157 85.1% 137% 0.50% 0.65% 0.80% 0.95%Pre-Tax Income 16,307 10,998 -32.6% 10.0x 50% 64% 79% 94%Taxes @ 30% 4,892 3,300 -32.6% 12.5x 62% 81% 99% 118%Net Income $11,415 $7,699 -32.6% 15.0x 74% 97% 119% 141% 17.5x 87% 113% 139% 165%NIM 4.03% 3.77% -0.26% 20.0x 99% 129% 159% 188%Fees / Assets 1.23% 1.16% -0.07%Efficiency Ratio 63.6% 69.5% 5.88%Net Charge-Offs 0.16% 0.57% 0.41%Provision / NCOs 164.0% 92.3% nmOp Income / Assets 1.81% 1.42% -0.39%ROA 1.15% 0.77% -0.37%ROE 11.38% 7.90% -3.48%
  19. 19. 22.0x20.0x18.0x16.0x14.0x12.0x10.0x 8.0x 6.0x 4.0x 2.0x 0.0x $100 Million - $1 Billion $1 Billion - $10 Billion > $10 Billion
  20. 20. 325%300%275%250%225%200%175%150%125%100%75%50%25% 0% $100 Million - $1 Billion $1 Billion - $10 Billion > $10 Billion
  21. 21. 20- Year Public Market P/E Relative to 20-Year AverageMedian Price/Earnings YE09 YE10 YE11 YE12 13-Feb Average YE09 YE10 YE11 YE12 13-Feb$100 Million - $1 Billion 14.7x 13.6x 11.8x 11.6x 12.8x 13.6x 108% 100% 87% 85% 94%$1 Billion - $10 Billion 15.0x 15.1x 12.9x 12.7x 13.4x 14.2x 106% 106% 91% 89% 94%> $10 Billion 19.1x 17.5x 13.4x 12.9x 13.6x 15.2x 126% 115% 88% 85% 89%Median Acquisition P/E nm nm nm 33.5x 32.0x 20- Year Public Market P/TBV Relative to 20-Year AverageMedian Price/TBV YE09 YE10 YE11 YE12 13-Feb Average YE09 YE10 YE11 YE12 13-Feb$100 Million - $1 Billion 75% 77% 68% 81% 82% 116% 65% 66% 59% 70% 70%$1 Billion - $10 Billion 109% 122% 104% 121% 122% 164% 67% 74% 63% 74% 74%> $10 Billion 153% 155% 132% 139% 142% 218% 70% 71% 61% 64% 65%Median Acquisition P/TBV 114% 116% 104% 117% 101%  
  22. 22. Buyer Multiples Seller Multiples Years toAnnounce P/E Fwd Deal Val P/E Fwd Expense Earn Back Credit Buyers Date Buyer / Seller P/TBV P/E LTM Est ($M) P/TBV P/E LTM Est Saves TBVPS Dil Mark IRR Shares Comments In-market deal that provides for 2/6/13 Renasant / First M&F 157% 18.1x 15.4x $146 122% 23.3x 16.1x 25% 2.5 5% 20% flat improved market share in key markets and expense saves United Bankshares / > cost of Strategic deal that further shifts center 1/29/13 155% 23.5x 15.5x $495 183% 21.0x 16.8x 25% 3-4 4% -3% Virginia Commerce capital of gravity to N. Va. from W. Va. EPS accretion 12% in first full year; PacWest Bancorp / First 11/6/12 172% 16.4x 11.8x $235 170% 21.1x NA 50% 3.5 4% 18% 20% FCAL to become 8th largest CA-based California public bank Investors disliked TBVPS earn-back, Columbia Banking / -10% 1st 9/25/12 120% 16.0x 14.0x $509 145% 13.8x 21.4x 25% 7.0 5% >15% but 20/33% EPS accretion for West Coast Bancorp 6 wks FY13/14E. Portland/I-5 play Significant footprint expansion; 6-8% FirstMerit / Citizens -22% 1st FY14E EPS accretion. Street concern 9/12/12 164% 15.2x 14.2x $1,291 130% 2.6x 4.3x 22% 2.5 7% 18% Republic 8 wks re: relative size and who FMER had to out-bid Street liked the deal due to capital M&T Bank Corp. / +15% 1st accretion, in-fill in high density 8/27/12 219% 13.7x 11.0x $3,813 84% NM 12.7x 24% Accretive 2% 18% Hudson City 8 wks markets, low-risk balance sheet and ~8% EPS accretion for FY14E
  23. 23. 150% Pro Forma Bank 140% + Net expense saves 130% + P/E ExpansionPrice / Tangible Book Value (%) = Large P/TB 120% Expansion 110% Senior Bank 100% 90% Junior Bank 80% 70% 60% 9.0x 9.5x 10.0x 10.5x 11.0x 11.5x 12.0x 12.5x 13.0x 13.5x 14.0x Price / Earnings (x) Multiple
  24. 24. 

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