FJ Capital Management: Community Bank M&A Boom in Early Innings - Sector to Consolidate by at Least 50%
MCLEAN, Virginia, Oct. 6, 2017 /PRNewswire/ -- Merger and acquisition activity in the U.S. micro- and small-capitalization community bank sector will continue at a steady pace, and could rival and possibly exceed the previous record of the mid-1990s consolidation that followed the savings and loan crisis, according to McLean, VA-based investment manager, FJ Capital Management.
In a white paper released today on micro and small-cap banks, FJ Capital, an SEC-registered investment advisory firm founded in 2007 that manages approximately $900 million in net assets, maintains the structural bank consolidation trend is in early innings and the total number of banks, the most by far among the world's developed economies, likely will decrease by at least 50% over the next 10 to 15 years.
The paper, "Booming M&A Cycle Creates Investment Opportunity," highlights several factors driving bank M&A, including profitability challenges, cost savings, management and board fatigue, commercial real estate lending concentration, liquidity needs and regulatory reform. The paper emphasizes how it can be very profitable for investors to own banks that are potential sellers, as well as the "smart buyers", which can realize significant operating leverage by cutting the target's back office expenses and closing overlapping branches.
Common characteristics of public and quasi-public bank sellers in the past five years also are examined. These include aging management teams and board members, significant inside ownership, overcapitalization, struggles with achieving appropriate profitability and low-cost deposit bases that make banks desirable to buyers.
The paper explores the possible positive impact on community banks from the New Administration's pro-growth initiatives – deregulation, normalization of the Fed's balance sheet, a gradual increase in interest rates and corporate tax reform. FJ Capital elaborates: "We believe higher bank stock valuations, potential regulatory relief and deposit pressures as rates rise will support accelerating consolidation over the next decade."
The outlook for bank consolidation further discusses continued rationalization of bank branches via fewer and smaller branches, fewer new bank formations and the creation of new emerging regional banks. Also, deposit-rich franchises likely will become more valuable in a rising interest rate environment.
FJ Capital Management is an investment management firm that analyzes and invests in community and regional banks through alternative strategies. The firm utilizes its extensive research background and a fundamental approach to assess and identify opportunities in the evolving banking industry. For additional information on the white paper or to further explore opportunities in the bank sector, please use the below contact information or visit www.fjcapital.com.
To access the white paper, click on the following link:
https://docs.wixstatic.com/ugd/9e6794_b93d038fd3b8495c8e1a937a177293c1.pdf
CONTACT: Andrew Jose, Co-Founder and Managing Partner, FJ Capital Management, [email protected], www.fjcapital.com. +1-703-875-8378.
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