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Who Will be the Next Community Bank Acquirer of Choice in Georgia?

On September 13, 2019, the FDIC released the latest results of its annual summary of deposits survey data. The deposit market share data always presents an interesting view of the banking market, particularly when viewed over time.

As of June 30, 2019, roughly $256 billion in deposits were held in Georgia, up from $250 billion in 2017 and $197 billion in 2014. While total deposits are up, the number of banks and branches have each continued to decline. Five years ago, there were 259 banks with branches in Georgia; today (assuming completion of announced mergers), there are 208 banks with branches in Georgia. While the number of branches have also declined, the rate of decline is not as significant: 2,526 branches in 2014 to 2,254 branches today.

Image by Gerd Altmann from Pixabay

Deposits per branch have been steadily on the rise for years. In 2005, Georgia averaged $57 million per branch. By 2014, that number has risen to $78 million per branch, and today the figure is $114 million per branch.

Adjusting for announced mergers, the “big three” in Georgia (Truist, Bank of America and Wells Fargo) now hold roughly 55% of the deposits in Georgia. This is up from 53% two years ago and 51% five years ago, but down slightly if one were to include BB&T in the historical totals.

As of June 30, 2019, fourteen institutions have at least 1% of the Georgia deposit market share, one more than five years ago. Six additional banks in Georgia now have at least $1 billion in Georgia deposits, from 18 in 2014 to 24 in 2019 (and that’s excluding BB&T in 2019 based on its pending merger with SunTrust).

But as suggested by the headline to this post, I think the really interesting data is in the relative sizes of the banks with at least 10% of their respective total deposit bases in Georgia (i.e. banks in which Georgia represents a significant portion of their deposit base, whether they call Georgia home or not). We have not only seen a material decline in the number of these institutions, but the asset size distribution has radically changed over just the last two years.

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Don’t Forget to Consider Deposits in an Acquisition

With many U.S. markets experiencing slow loan growth, some boards of directors looking to increase the size of their institutions have turned to acquisitions to capture greater scale and efficiencies. While asset growth is important, directors should also consider the deposits acquired as part of a merger. Many banks have found that a careful evaluation of the deposits of the selling bank can spot unexpected issues and also drive earnings for the combined institution. The issues and opportunities raised by the liability side of the balance sheet have implications for both buyers and sellers going forward, particularly as they seek to maximize the scope and franchise value of their institutions.

Gaining Deposit Share and Margin

 With many growth opportunities centered in more densely-populated areas, some financial institutions plan to use an acquisition to establish a “beachhead” in a growing market. Unfortunately, many have found that a beachhead may not be enough, particularly with ferocious competition for quality loans in many metro markets. Other banks have taken a different approach by either consolidating market share in their home or adjacent markets, or by acquiring banks in rural areas that have solid earnings performance. For these banks, acquiring lower-cost deposits in slower-growth markets may help generate earnings that can fund loan growth in more competitive markets. What’s more, some banks have been able to diversify their CRE-heavy loan portfolio by picking up agricultural and other types of lending products through these acquisitions.

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