Hopes of lower interest rates and the reality of stronger stocks powered bank
Through the first seven months of this year, 67 banks announced plans to sell, according to S&P Global Market Intelligence's updated tally this week. A dozen of those were announced in July. There were 100 deals announced all of last year.
While the vast majority of sellers are community banks, acquisitions this year are
"More and more M&A conversations are definitely happening," Robert Bolton, president of community bank investment firm Iron Bay Capital, said. "I'm hearing that from a lot of management teams."
The KBW Nasdaq Bank Index was up nearly 20% year to date through the end of July. Much of the gain was made last month after the Federal Reserve, noting lower inflation readings, indicated it could cut interest rates as soon as September. Lower rates could jump-start loan demand and lower deposit costs, giving banks' profit potential a big boost and making them more attractive to investors, Bolton said.
By extension, he said bank buyers' ability to use their shares as currency to pay for acquisitions improves when valuations are on the rise. Sellers are more likely to embrace deals backed by strengthening stocks.
"We could definitely see more deals, and the ability to pay is definitely an important element," Bolton said.
Measured by deal value, five of the 20 largest deals so far this year were announced in July, including Tupelo, Mississippi-based Renasant Corp.'s
The biggest deal so far in 2024 was Winter Haven, Florida-based
SouthState CEO John Corbett said during a call with analysts after the Independent deal was announced in May that he remains open to more M&A, particularly in high-growth markets such as Texas.
"We've been accumulating excess capital and building reserves above our peers so that we have the dry powder to invest when the time is right," Corbett said
The SouthState deal was followed closely by Kansas City-based UMB Financial's April plan to purchase Heartland Financial USA in Denver in an all-stock transaction valued at just under $2 billion.
For all the recent activity, new recession worries in early August
Bank stocks early in August gave up half of their 2024 gains after the Labor Department reported that U.S. employers added 114,000 jobs in July, off from the 215,000 average of the prior 12 months. The economic indicator sparked worry about a slowing job market and a looming economic downturn, and it spurred a broad stock slump that engulfed banks.
"The catalyst was" an "unexpectedly disappointing unemployment number," Raymond James trader Doug Drabik said. "Investors have turned their worry about inflation into worry about a recession."
Weaker stocks and economic uncertainty could push some buyers or sellers to the sidelines.
Still, Bolton argued that one month of jobs data does not establish a trend. He expects stocks to be volatile through the summer as investors await clarity on interest rates and the presidential election. But he thinks the July rally in bank stocks showed that investors felt shares were undervalued and brighter days lie ahead.
The drumbeat of banks buying rivals continues, with two small deals announced this week. Security Bancshares in Paris, Tennessee, said it agreed to buy in-state rival Bancshares of Ripley. Salina, Kansas-based Berco Inc. said it would buy Topeka, Kansas-based New Millennium Bankshares. Financial terms were not disclosed for either deal.
