Regional bank consolidation has really ratcheted up in the final months of 2020, with three major deals announced since October. The trend is only expected to continue in 2021 as regional banks look to further add scale and invest in digital capabilities to better compete with the megabanks. Acquisitions can often result in a nice premium for the bank being acquired, so it's a good idea to look for acquisition candidates. Although it isn't always the case, one good indicator of a potential bank acquisition candidate is a low price-to-tangible-book (P/TBV) value. Banks with higher P/TBVs tend to go after banks with lower P/TBVs in order to maximize the value of their stock currency. Here are four banks with more than $20 billion in assets that recently had low P/TBVs.
1. Investors Bancorp
Investors Bancorp (ISBC) is a $26.6 billion asset bank based in New Jersey. It looks to be a pretty standard commercial bank with standard commercial and residential lending products. As of this writing, the bank traded at a slight discount to tangible book value.
Notably, the bank recently acquired about eight branches in New Jersey and Pennsylvania from the Boston-based Berkshire Hills Bancorp (BHLB -2.91%). Investors Bancorp President and COO said the bank partly made the deal to keep competitors out, suggesting the bank is worried about the competitive landscape going forward. However, net income for the bank in the first nine months of 2020 is essentially flat from the first nine quarters of 2019, which is pretty good considering everything that has happened.
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2. Associated Banc-Corp
The $35 billion asset Associated Banc-Corp (ASB -2.41%) is headquartered in Green Bay, Wisconsin and also operates in Minnesota and Illinois. The bank's three main business segments are corporate and commercial specialty; community, consumer, and business; and risk management and shared services.
Core profitability at the bank has been hammered this year, and the bank has already made several moves to improve efficiency. It completed the sale of its Associated Benefits and Risk Consulting unit in the second quarter of the year and announced the sale or consolidation of 22 branches in the third quarter. The bank currently trades right around tangible book value.
3. Comerica
Comerica (CMA -2.43%) is an $84 billion asset bank based in Dallas, Texas. The bank recently traded at about 108% tangible book value.
Comerica strikes me as a really good acquisition candidate for one of the larger or super-regional banks. Due to the Federal Reserve's sharp rate cuts earlier this year, the bank's margin has dropped 120 basis points, settling at 2.33% at the end of the third quarter. Pre-tax income in the third quarter of 2020 is down more than 30% from a year ago.
The bank will likely need to consider whether it can continue to compete and provide adequate returns for its shareholders going forward. Comerica would offer any acquiring bank a great inroad into the attractive Texas market.
4. BankUnited
The $35 billion asset BankUnited (BKU -2.27%) is based in Miami Lakes, Florida, and seems to have a similar problem as Comerica: Profitability has tanked this year. Net income for the first nine months of the year was about $112 million, down about 50% from the first nine months of 2019.
While credit costs are certainly responsible for most of the drop, Bank United has seen both of its net interest income and non-interest income decline in 2020, so boosting revenue in 2021 may be difficult. The bank recently traded at about 112% tangible book value. With Florida also having a fast-growing population, acquiring BankUnited could prove to be a nice entry point into the Sunshine State.
