6 Small Banks That Could Be Acquisition Targets -- and 3 Potential Buyers

Mid-cap banks will be both buyers and sellers in the months to come because they face technology challenges at the same time that their larger rivals are hamstrung in their dealmaking capabilities, according to analysts, some of whom identify FCB Financial (FCB) as the most likely target thanks to its size and assets.

May has already been a busy month for small- and mid-cap bank dealmaking. Simmons First National (SFNC - Get Report) announced that it would acquire Citizens National Bancorp for $77 million on May 18, and Sunshine Bancorp announced it would acquire Florida Bank of Commerce for $40 million on May 10.

"The M&A activity in the banking sector is the continuation of a long-term trend that has been in place since the 1980s," analyst Gerard Cassidy of RBC Capital Markets said in a phone interview. "It has peaks and valleys. We're heading back into a peak period."

Three major factors are making it harder for banks to do deals, including low interest rates, increased regulatory costs and the high price tag of implementing a mobile platform, he explained.

"Traditionally big banks have not had the greatest customer service when it comes to consumer banking," Cassidy said. "That has been turned on its head since the advent of the mobile channel."

He added that mid-sized and smaller banks have trouble keeping up because developing the apps, software or products that allow a bank to operate on a smartphone or tablet takes both time and money. Since the advent of the smartphone, Cassidy said, these banks have had to consider M&A in the shorter term.

Meanwhile, government regulations make it hard for large-cap banks to do deals.

"Big banks have a lot of difficulty selling out because the government has this 'Too Big to Fail' theory," noted analyst Dick Bove of Rafferty Capital. "It's going to block large mergers."

So mid- and small-cap banks know that not only is it in their best interest to stick together but the current environment is also quite conducive to it.

"Valuations are up to reasonable levels," said Sandler O'Neill's Stephen Scouten. "M&A conversations are active."

Including FCB Financial, bank analysts identified several community banks that could be potential takeout targets. Check out which banks could be sellers and which could be buyers. 

FCB Financial
FCB Financial

Market Cap: $1.37 billion
Year-to-date Return: 3.5%

Both Stephen Scouten of Sandler O'Neill & Partners and Dave Rochester of Deutsche Bank singled out Weston, Fla.-based FCB Financial (FCB)  .

According to Scouten, FCB could attract $39 per share to $41 per share, or $1.4 billion to $1.5 billion based on shares outstanding. FCB is currently trading around $36, and Scouten feels the offer would have to be a $3 per share to $5 per share premium to that for FCB to consider a deal.

Officials from both FCB declined comment.

Yadkin Financial
Yadkin Financial

Market Cap: $1.35 billion
Year-to-date Return: 6.2%

Scouten believes that Elkin, N.C.-based Yadkin Financial (YDKN) , which operates in North Carolina, could go for around $1.4 billion, or $28 to $32 per share, based on shares outstanding.

Officials at Yadkin couldn't be reached.

Stonegate Bank
Stonegate Bank

Market Cap: $403 million
Year-to-date Return: -4.1%

Florida-based Stonegate Bank (SGBK) , selling at $31.26 midday Wednesday, could fetch $434 million, or $34 to $36 per share based on Scouten's model.

Stonegate executives declined comment.

Seacoast Banking
Seacoast Banking

Market Cap: $634 million
Year-to-date Return: 12.4%

Seacoast Banking Corp. of Florida (SBCF - Get Report) , based in Stuart, Fla., and with operations throughout Florida, could go for $678 million, with Scouten valuing it at between $18 and $20 per share, thanks to activism and board control issues.

Officials at Seacoast couldn't be reached.

State Bank Financial
State Bank Financial

Market Cap: $796 million
Year-to-date Return: 2.4%

Atlanta-based State Bank Financial (STBZ) , which operates throughout Georgia, could attract $811 million, based on a $22 per share price target, although Scouten noted that valuing this bank "is tough."

State Bank executives declined comment.

TCF Financial
TCF Financial

Market Cap: $2.4 billion
Year-to-date Return: -0.39%

TCF Financial (TCB) , based in Wayzata, Minn., could also be of interest to buyers due to its ability to grow loans by 20% as well as the impending retirement of its chairman next year, according to Deutsche Bank's Rochester.

Now here are three potential banks that could be buyers.

South State
South State

Market Cap: $1.73 billion
Year-to-date Return: 0.22%

As far as potential buyers, Scouten pointed to Colombia, S.C.-based South State Corp. (SSB - Get Report) , which operates in Georgia, South Carolina and North Carolina. South State is one of the banks in his coverage universe that has done several deals lately, and Scouten believes this trend will continue.

South State officials declined comment.

New York Community Bank
New York Community Bank

Market Cap: $7.53 billion
Year-to-date Return: -5.3%

Rochester thinks metropolitan New York-based New York Community Bank (NYCB - Get Report) could be an acquirer, citing a need to boost earnings power. NYCB already has an acquisition of Astoria Financial   (AF) pending and is waiting for the Federal Trade Commission to approve the deal.

NYCB officials declined comment.


Market Cap: $29.7 billion
Year-to-date Return: -4.65%

"FCB would be perfect for BB&T (BBT - Get Report) ," Scouten said, noting that the Winston-Salem, N.C., bank holding company, a spirited dealmaker with money still to spend, could go after something the size of FCB and not arouse antitrust issues. "BB&T will continue to be active longer term."

 Officials from both BB&T declined comment.

Other banks, too, are likely considering whether they want to be bought or go on the hunt, since the times really demand such contemplation.

Said Rafferty Capital's Bove: "If you're a small or midsize and the economy is flat lining, which it's doing right now, the only way to increase earnings is to lower your cost of operations."

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