More Kansas banks involved in mergersBy Jerry Siebenmark
The Wichita Eagle
Mergers and acquisitions among Kansas-chartered banks are up in the first half of the year.
That’s according to data from the Office of the State Bank Commissioner, which shows that banks have filed applications for 10 deals through May. Counting locally based Equity Bank, which announced this month its plans to acquire First Community Bank in Lee’s Summit, Mo., the number of deals this year is 11: just one deal shy of the 12 mergers and acquisitions recorded in each of the past two years.
Industry officials said it’s too early to say it signals a trend of more mergers and acquisitions, but a number of factors are making the sale and purchase of a bank a more attractive option than in the past.
“I think the short answer is bankers are more optimistic about the future of their industry, and I think that some of the problems they faced that were due to the economic downturn are in the rear-view mirror now,” said Chuck Marshall, a banking consultant for the financial institutions group at Kennedy and Coe. “That kind of gets to the heart of it.”
Two of the deals under way in Kansas involve banks with an area presence: Equity, which is based in Andover but whose holding company, Equity Bancshares, is based in Wichita; and Kansas State Bank, a $791-million, Manhattan-based bank that operates an office at 1424 S. Maize Road.
According to the bank commissioner’s May applications activity summary, Kansas State has applied for a merger with Sonoran Bank, a $29-million bank based in Phoenix.
Chuck Stones, president of the Kansas Bankers Association, said he knows about most of the 10 active deals in Kansas and said there are varied reasons for them. Those reasons include bank owners nearing retirement and wanting to sell their banks, and others who are selling “frankly, because they have to.”
And there’s another segment of banks, Stones said, that have owners who are still a few years away from retirement and don’t have to sell but see no other alternative but to sell because of increasing regulation that is straining smaller banks’ staffs and financial wherewithal.
“They’re seeing all the stuff come down the pike, and it’s just like the straw on the camel’s back,” he said. “I do think the regulatory burden is real, and it’s causing bankers to look closer at what are their options.”
Brad Elliott, Equity’s CEO, said finding the right bank — and at a good price — is behind his bank’s acquisition of First Community, a deal that will push his bank’s assets to more than $1 billion and increase Equity’s branch network to 30 offices in Kansas and Missouri.
“The pricing on transactions are at historic lows, at least over the last decade or two,” he said. “We believe if we can find opportunities to acquire other institutions, now is the right time to do it because we don’t believe these valuations will stay at this level long term.”
Elliott said Equity has looked at between 40 and 50 deals in the past two years.
Marshall, of Kennedy and Coe, also said that pricing was one of the two main factors driving acquisitions. Up until recently, Marshall said, “buyers were skittish and sellers, in a lot of cases, weren’t being offered the price they wanted. That is not a reflection of the quality of banking being sold. It’s a reflection of the value of banks that was depressed by the economic downturn.”
He thinks sellers of banks may now be getting a little bit better price while tempering their expectations on the value of their institutions.
According to data from SNL Financial, the median price-to-tangible-book ratio for banks and thrifts acquired in the first quarter of 2011 was 113.55 percent, compared with 116.28 percent in the first quarter of 2012.
Heading into the second half of the year, bankers think deal activity will continue to be higher than in recent years.
“I don’t see it slowing down,” Stones said.
Elliott said there appears to be more chatter among bankers about doing deals. But he thinks there are probably more banks wanting to sell than banks wanting to buy. Part of that is regulatory requirements. He said regulators are wanting banks to have more capital on hand after completing deals nowadays. A few years ago, Elliott said, his bank could make an acquisition and upon its closing, regulators would want his bank to have tangible equity of 7 percent. Now, he said, they want the bank to have 9 percent.
Marshall wasn’t ready to declare a trend with increasing mergers and acquisitions.
“I definitely think there’s a renewed enthusiasm on the part of bankers. It’s guarded, but it’s coming back,” he said. “We’ve seen more and more activity with banks in the last six to 12 months than we’ve seen in the previous 36. It appears that pace is accelerating.”Reach Jerry Siebenmark at 316-268-6576 or email@example.com.
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