5 Banks Worth Buying Out

Many banks in the U.S. are no longer limping along. In fact, there are several in a great position to be consolidators in the banking industry and puff up their vaults by snapping up smaller banks.

There has already been some of this going on. M&T Bank was able to pick up Wilmington Trust for a song after that bank was crippled under its rapidly expanding pool of bad loans. It remains to be seen how that will work out for M&T -- it either made the deal of the century by getting the Wilmington name and clientele for a cheap price or the price will end up justifying itself as Wilmington's loans continue souring.

Meanwhile, Comerica has managed to craft a deal that shareholders are definitely not fond of. Last week, Comerica expanded its Texas footprint by buying Sterling Bancshares. Unlike Wilmington, Sterling wasn't a bank on the ropes -- its loan losses haven't been particularly high and it has a strong capital base. But for that, Comerica paid a premium price of 2.3 times tangible book value, and since the deal was announced, investors have knocked Comerica's stock down roughly 9%.

So what should banks like PNC Financial (NYSE: PNC  ) and BB&T (NYSE: BBT  ) that could still be in a position to make acquisitions be looking for? Generally speaking, I think the M&T approach -- getting a great price for a bank that needs some TLC -- will probably trump the Comerica approach -- making a higher-quality purchase but paying a premium price for it. However, I think there's room in the middle to pay a reasonable price for a bank that's in pretty good (if not very good) shape.

Here are a few of potential buyout targets I came up with:

Bank

Nonperforming Loans / Total Assets

Allowance for Credit Losses / Nonperforming Loans

Average Total Equity / Average Assets

Price-to-Tangible Book Value

Viewpoint Financial (Nasdaq: VPFG  )

0.6%

83%

10.6%

1

Towne Bank (Nasdaq: TOWN  )

1.2%

82%

13.2%

1.2

International Bancshares (Nasdaq: IBOC  )

0.8%

89%

12.5%

1.4

Simmons First National (Nasdaq: SFNC  )

0.4%

197%

12.6%

1.5

Fulton Financial (Nasdaq: FULT  )

2%

83%

11.5%

1.6

Source: Capital IQ, a Standard & Poor's company.

Certainly the geographies served by these banks will come into play in who may be interested in looking at them. A bank looking to grow its presence on the Eastern Seaboard isn't going to be interested in a bank like Simmons First, which is focused on Arkansas. But I'd imagine that it will be banks like these that will end up getting gobbled up as consolidation in the banking industry picks up steam.

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Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


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