We are inaugurating our Bank and Financial Sector Roundup as the United States-based financial companies begin to report June-quarter earnings for the June quarter. A recent U.S. government survey on economic conditions in the 12 Federal Reserve Districts suggests that loan growth may have strengthened a bit in some parts of the nation, but loan demand overall probably remained weak. Meanwhile, a few small bank acquisitions are in the works.
The June edition of the Federal Reserve Board’s Beige Book, an anecdotal review of economic conditions in the 12 Federal Reserve Districts, indicated that more Districts reported increases in lending than declines in the mid-April-to-early-June period covered by the survey, especially in auto and residential mortgage lending. The publication noted that mortgage lending in the Cleveland District shifted from refinancings of existing loans to lending for home purchases, a trend that we assume also prevailed in other parts of the nation as mortgage interest rates rose toward the end of the June term.
But the widely anticipated slowdown in refinancing activity may have hurt mortgage revenues overall. And JPMorgan Chase (JPM – Free JPMorgan Stock Report), one of the first to report June-quarter earnings, indicated that consumers and businesses remained cautious about borrowing. The company’s home equity and mortgage loan balances declined in the period. Investors will know more as other banks report earnings for the interim.
The very limited amount of acquisition activity under way currently seems to be concentrated in the Midwest. Kansas City-based Commerce Bancshares (CBSH) plans to acquire Oklahoma lender Summit Bancshares for $40.6 million of Commerce stock. The addition of Summit, with about $260 million of assets, will increase Commerce’s loans in Oklahoma by more than 50%. The deal should close in the September quarter.
In addition, in early June, First Horizon National (FHN) acquired nearly all of the assets and deposits of Mountain National Bank of Sevierville, Tennessee, from the Federal Deposit Insurance Corporation. Mountain National has over $400 million of assets and 12 offices in the eastern part of Tennessee, filling in First Horizon’s already strong presence in its home state.
Meanwhile, Ohio-based FirstMerit (FMER) has been busy integrating its April purchase of Citizens Republic. Unlike the two deals discussed above, Citizens was a significant addition to FirstMerit’s operations, increasing its assets by about 65%, and giving FirstMerit a presence in Wisconsin and Michigan. In June, it unveiled new signage at the former Citizens branches. FirstMerit plans to sharply reduce Citizens’ expenses and expects the deal to be accretive in 2014.
At this time, M&T Bank’s (MTB) acquisition of Hudson City Bancorp (HCBK) remains on hold until regulators complete their review of Hudson’s compliance with antimoney laundering compliance programs. The merger is now expected to close in late 2013.
On the divestiture front, JPMorgan Chase announced its private equity unit, One Equity Partners, will start the process of becoming independent of JPMorgan, which entails raising funds from external investors. One Equity manages about $4.5 billion of investments. The operation’s contribution to JPMorgan’s consolidated results has been uneven.
Finally, student lender SLM Corporation (SLM), also known as Sallie Mae, plans to split into two publicly traded entities, an education loan management business with the bulk of SLM’s federally guaranteed education loans, as well as a consumer banking business with about $9.9 billion of assets. Details of the separation, which would be accomplished via a tax-free distribution of common stock to Sallie Mae shareholders, have not yet been finalized.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.