Though banks' itch to merge has tapered off since the end of 1995, the willingness of some recent buyers to pay steep prices seems as strong as it was last year.
The 30 bank and thrift acquisition deals unveiled in April carried an overall price tag of $1.1 billion and an average price-to-book value ratio of 178.9%, according to SNL Securities of Charlottesville, Va.
In pricing terms, that is just shy of the peak takeover premium of 180.9% recorded during the first quarter of this year and slightly above average multiples paid in the fourth quarter.
On a price-to-earnings basis, April's deals were priced higher than at any time in the past 16 months.
On average, commercial bank acquisitions went for 22.7 times trailing four-quarter earnings. That compares with an average of 14.9 times earnings in the first quarter and 16.7 times earnings in the fourth quarter.
Some banking industry observers say the high-priced dealmaking could go on for much of 1996.
"You hear your buyers talking about the need for rational prices," said Robert E. Ulrey, a corporate finance vice president at Stephens Inc., Little Rock. "But it seems it may take some bad news about the industry to change sellers' expectations."
Still, others already sense a change in the air.
Last year's round of industry consolidation left many acquisition-minded institutions with price indigestion caused by the bloated expectations of the limited number of attractive targets remaining.
Ben B. Crabtree, a financial services analyst with Dain Bosworth Inc., Minneapolis, said that those remaining banks are healthy enough to avoid forced sales. At the same time, there are fewer banks in the $2 billion to $10 billion asset range, adding to the pricing pressures.
Mr. Crabtree cautions, however, that the window of opportunity for smaller banks may be closing.
Banks are getting better at marketing, he points out. And the drive for increased efficiency may well make it cheaper for the big banks to steal a competitor's best customers than to buy the institution.
"The really small banks are beginning to worry about the long-term future of their franchise, because the big banks are becoming more efficient and aggressive in their marketing," he said. "It's awfully hard for a smaller bank to compete in this scenario without having to sacrifice returns."
Indeed, the deals announced in April suggest the trend may have started. Of April's 30 deals, only two were priced above $200 million. Terms were not released on seven other deals.
NationsBank Corp.'s deal for TAC Bancshares in Florida, parent of Chase Federal Bank, was tops for the month, at $280 million. The deal was priced at a relatively modest 173.6% of TAC's book value and 15 times earnings.
Next in line was the New Orleans-based Hibernia Corp. deal to buy in- state rival C M Bank Holding Co. for $201.7 million, or 180.76% of book value. In a smaller deal, Hibernia paid $46 million to acquire St. Bernard Bank and Trust Co., a price equal to 192.4% of St. Bernard's book value.
All of the remaining deals carried price tags of less than $54 million, the price BankAtlantic Corp. of Florida is to pay for Bank of North America Bancorp.
At the same time, the smaller deals also commanded the higher multiples during April. All eight of the April transactions priced above 200% of book value were for below $36.6 million.
Indeed, the $14 million deal in which Whitney Holding Co. of New Orleans, is buying Liberty Holding Co. of Florida ranked as the highest- priced of the month, coming in at 257.9% of Liberty's book value. Whitney's other April deal requires the bank to pony up $10.2 million, or 217.8% of book value, for Florida target American Bank and Trust.
Roosevelt Financial Group Inc. of Chesterfield, Mo., was the only other two-time acquirer in April. In its first deal, the company agreed to pay $14.2 million, or 250.8% of book value, to buy Community Charter Corp. In the second, it's to get Mutual Bancompany for the cheaper price of $7.7 million, equal to 123.5% of book value.
Mr. Ulrey and Mr. Crabtree agree a number of banks like Hibernia, Whitney, and Roosevelt are looking for acquisitions. But the real frenzy will probably wait for sellers' expectations to ease.
"I think we will see a real pick-up in small bank acquisitions," said Mr. Crabtee. "It won't happen until these banks adjust their pricing demands."
