Selling Points

Capital Bank's Southern Accent

Amid consolidation in the U.S. Southeast, the lender would bolster a buyer's footprint in the Carolinas, Florida and Tennessee.
At Closing, April 23th
145.21 USD

Will Capital Bank Financial Corp. be the latest regional bank to be swallowed up as a result of the Trump bump? Investors sure hope so.

The Coral Gables, Florida-based lender is exploring a sale after receiving an unsolicited approach, according to a Bloomberg News report Wednesday that sent its shares up as much as 10 percent. In Capital Bank, a buyer could gain potential cost savings from adding a Southeastern U.S. lender with healthy loan growth and a brightening earnings outlook.  

Flying High

Factoring in news that it's exploring a sale, Capital Bank Financial's gains since the U.S. election have now outpaced that of the KBW Bank Index

Source: Bloomberg

It shouldn't be too surprising that Capital Bank has been approached: As we've been seeing lately, the post-election surge in financial stocks has led some banks to go on the acquisition hunt using their shares as currency, so this fits with that trend.

At its new levels, Capital Bank is trading at roughly 2.2 times its tangible book value. Add a slim premium and a deal for the lender becomes immediately dilutive for rivals PNC Financial Services Group Inc. and Synovus Financial Corp., both of which trade at less than 2 times book value. But a handful of would-be suitors remain. 

Take for instance Home BancShares Inc. and Bank of the Ozarks Inc., which boast healthy price-to-tangible-book multiples of 4.3 and 3.2, respectively. The duo had assets of $9.8 billion and $18.9 billion as of Dec. 31, meaning an acquisition of Capital Bank and its $9.9 billion in assets wouldn't cause either to be labelled a systemically important financial institutions and be subject to the increased compliance demands that would entail. (That only happens when banks amass $50 billion in assets.)  

Who, Us?

Potential buyers of Capital Bank should be trading at a premium valuation as their own shareholders will likely only support a deal if it's accretive

Source: Bloomberg

The same goes for First Horizon National Corp., which has assets of $28.6 billion and trades at 2.2 times its tangible book value. The Tennessee-based bank's chairman and CEO Bryan Jordan said in January that the lender would continue to look for opportunities to "deploy capital smartly" and for "lower or no-premium mergers." Capital Bank may well fit the bill. 

Any deal will add to ongoing consolidation involving U.S. banks operating in the nation's Southeastern states. Acquirers could justify paying up for Capital Bank, especially if they measure a deal against the recently agreed purchase of Bank of North Carolina's parent BNC Bancorp by Pinnacle Financial Inc. or FNB Corp.'s buy of Yadkin Financial Corp. These transactions valued the targets at 2.9 and 2.7 times tangible book value, respectively. Capital Bank would also afford any buyer a more sizable alternative to Florida-based TotalBank, a unit of Banco Popular Espanol SA that is also exploring a sale, according to Bloomberg News. 

Southern Cookin'

Any potential acquirers of Capital Bank should be seeking to expand their footprint in states where the lender is producing new loans at a decent clip

Source: Company presentation

*In the most recent quarter, originations were almost evenly split between commercial, commercial real estate and consumer loans

A sale of Capital Bank would be a boon for private equity firms Crestview Partners and Oak Hill Capital Management LLC, which backed the lender and its co-founder Gene Taylor (a former vice chairman of Bank of America Corp.). Both firms still own stakes in the company, whose stock was listed in September 2012 and has more than doubled since then. 

Still, management may argue that Capital Bank is better off flying solo, and it has a good case to make. The lender is on track to lift its return on assets to 1.1 percent by the end of 2017 and boost its return on tangible common equity to double-digits from 8.7 percent as of Dec. 31. What's more, if corporate tax rates are cut to 25 percent, that could add 16 percent to the bank's estimated 2017 earnings per share. If the tax cuts are more dramatic, earnings would benefit that much more.

Reason for Optimism

Capital Bank, like its rivals, has seen its shares rally thanks to expectations that its net income will benefit from a rising interest rate environment

Source: Company presentation

*Base case assumes static rates and balance sheet

So buyers beware: To seal a deal, any offer should compensate shareholders for the additional earnings that Capital Bank is poised to generate on its own. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Gillian Tan in New York at

    To contact the editor responsible for this story:
    Beth Williams at

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