Bank merger activity moderated in February, at least in terms of deal count. Seasonality was a factor as a nearly identical pattern was seen in the past 3 years likely due to the knock-on effect of the holidays slowing deal discussions. In terms of total deal value, February’s was substantial at more than $14 billion, driven particularly by the First Horizon/TD transaction.
M&A discussions remain elevated driven by headwinds that are beginning to stack up. Excess deposits remain abundant, loan growth is sluggish, rate-driven competition is elevated, and margins are under pressure, though recent Fed actions may – or may not – offer some near-term relief. While 2020 and 2021 evidenced record or near-record earnings for many community banks, the “going is getting tougher” in 2022, particularly as the twin one-time earnings catalysts of PPP fees and elevated mortgage activity are largely in the rearview mirror. Indeed, PPP loans all but processed.
As in January, pricing multiples evidenced a bifurcated trajectory in February: the median price-to-tangible book (“P/B”) multiple increased while the median price to earnings (last twelve months, “P/E”) declined. On a year-to-date basis, the median P/B of 1.53x is exactly the same as the full-year 2021 median while the median P/E of 17.7x is an increase over the 2021 median of 15.3x. We attribute this increase in P/E more to lower “E” – i.e., lesser earnings – than to higher valuations.
Finally, on February 14th, Western States Bank and its parent company were acquired by First National Bank of Omaha; on February 15th, The Farmers Bank of Mt. Pulaski agreed to be acquired by Longview Capital Corporation; and on February 28th, Security Federal Bank was acquired by Alabama Credit Union (party advised by Olsen Palmer indicated in bold). Olsen Palmer remains one of the top 3 bank M&A advisory firms nationwide according to S&P Global, based on the total number of whole-bank transactions advised upon over the last three years.
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