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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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On the BB&T/SunTrust Merger…

On the BB&T/SunTrust Merger…

February 7, 2019

Authored by: Jonathan Hightower

Many of us who are native Southerners sat with mouths agape as we read the announcement of the $66 billion (!) all-stock merger of equals between super regional banks BB&T and SunTrust. Few of us who grew up in Georgia have not been personally impacted by these banks in some way or another. For me, my aunt worked at Trust Company Bank when I was a kid, and BB&T bought a local thrift (Carrollton Federal), making its way into our home market where it remains today. After college, law school barely beat out an offer to work in SunTrust’s commercial lending training program, and BB&T currently holds the mortgage on my home. With all of those ties, I feel somewhat nostalgic when reading that the bank will be rebranded as a part of the merger.

With that said, the real time business implications for all of us are even larger. The day before the merger, my friend Jeff Davis wrote a smart piece ($) detailing the virtues of merger of equals transactions in today’s world. BB&T recently discussed on its earnings call that it was accelerating cost savings initiatives in order to invest more in its digital offerings. With the announced merger, one can assume that the lab for digital innovation of the combined bank (to be based in Charlotte, a bit of a disappointment to the Atlanta community) will make a massive effort to transform the banking experience of the bank’s customers, a truly meaningful segment of the market. We have recently commented that the transformation of the Atlanta banking market is now a reality, and this combination promises to further evolve how many banking customers think of and interact with their banks.

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2018 Bank M&A Statistics

2018 Bank M&A Statistics

January 7, 2019

Authored by: Robert Klingler

2018 was only the fourth most active year over the last five years in terms of the number of insured institutions that agreed to sell. However, perspective is also important, as 2018 was also the fourth most active year over the last ten years, and the most active if measured as a percentage of institutions available to sell. 2018’s 262 bank and thrift deals ended up slightly lower than 2017’s 267 transactions. Based on the 6,670 insured banks and thrifts outstanding as the beginning of the year, 4.6% exited through a business combination.

Until and unless we see significantly more de novo activities, it seems unlikely that we will return to 300 transactions in any given year, as we last saw in 2014.  However, on an annualized basis, the second quarter of 201 saw 336 transactions!  Similarly, looking at a four quarter rolling total, we had more than 280 deals announced both between Q3 ’17 and Q2 ’18 and between Q4 ’17 and Q3 ’18. Each institution’s decision to sell remains subject to a number of unique considerations, but, all else equal, we would expect the percentage of institutions selling in any given year would likely decline rather than increase going forward.

We are strong proponents of the proposition that “banks are sold, not bought.”  The fact that there remain a number of institutions looking to grow by completing acquisitions is thus unlikely to fundamentally change the number of transactions in any particular year.  Conversely, the age and stage of banks in the industry (and that of their management teams) remains a critical component of many sale determinations.  As we continue to see a shrinking universe of financial institutions, it stands to reason that we will also continue to see a decline in the number of institutions that decide a sale is the right strategic decision in any particular year.

2018 reflected, consistent with recent trends – although perhaps not yet reflecting the year-end stock declines – a continued increase in the average price-to-book multiple paid in bank transactions.  While the average price-to-book multiple in 2014, 2015 and 2016 were each approximately 1.3 times book, average pricing in 2017 and 2018 has risen to 1.6x book, with 2018 slightly higher than 2017.  This level of pricing likely continues to serve as a negative deterrent to de novo formation, as it’s much easier to build a broadly attractive investment model if it includes a sale for 3x book in 5 years (or less). 

2018 marks the seventh straight year with over 240 transactions announced during the year, and the fifth straight year in which more than 4% of the institutions at the beginning of the year sold. Based on these trends, and without attempting to identify how the financial sector’s market decline will impact M&A activity, this would point to between 217 and 250 deals to be announced in 2018.

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A Holiday Buffet of Banking News

A Holiday Buffet of Banking News

December 28, 2018

Authored by: Robert Klingler

On December 27th, Jonathan and I returned to the studio to record the latest podcast for The Bank Account. We haven’t discussed New Year’s Resolutions, but we’ll try to return to a little more normalcy in 2019!

For those that have missing our voices, (a) please seek help… that’s not normal and (b) we were also recently guests on the ABA Banking Journal Podcast. In a lively conversation with Evan Sparks and Shaun Kern, Jonathan and I discussed our 2019 M&A Outlook for the ABA Banking Journal. For those of you who have missed that podcast (or article), I encourage you to listen/read before listening to this podcast, as we follow-up on some of these themes.

Our first substantive conversation on this podcast is a look at some of the transactions announced in the Metro Atlanta market in 2018. With State Bank’s merger with Cadence, Fidelity Bank with Ameris Bank, and National Commerce with CenterState, the Atlanta banking market, and particularly the M&A market, will look radically different in 2019 and beyond.

Following the M&A discussion, our attention turned to the newly proposed Community Bank Leverage Ratio. While it is solely a proposed rule and, if adopted in its current structure, will be an entirely optional framework for banks under $10 billion in assets, it also provides the potential for significant regulatory relief for those institutions that can take advantage of the capital (particularly risk-based) relief.

Please click to subscribe to the feed on iTunes, Android, Email or MyCast. It is also now available in the iTunes and Google Play searchable podcast directories.

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Getting to Yes: A Conversation About Deal Certainty

the-bank-accountJonathan and I discuss deal protections and considerations – from the initial emotions of deciding to sell through deal signing in this latest episode of The Bank Account.

This episode has, in my opinion, some great information for banks looking to undertake M&A activity, from either the buyer or seller’s perspective.  But, I’m most impressed with our smooth transition from friendly banter about our upcoming Ragnar race to our substantive discussion.  (Of course the face that I’m impressed only emphasises that I shouldn’t quit my day job.)

As noted on the podcast and previously, we are sponsoring two teams, one of lawyers and one of bankers, for the Atlanta Ragnar Trail Run on April 13th and 14th.  Sixteen of us will be taking turns running five mile legs at the Georgia International Horse Park over a 24-hour (or so) period.  Today we settled on team names: Team BSA and AML.  Team BSA (or Bankers Speed Ahead) will generally consist of our friendly bankers, while Team AML (or Awkwardly Moving Lawyers) will consist of our compatriots from the firm.  We’re pretty comfortable that the names will accurately reflect the results.

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2018 Banking Trends with Raymond James

In our third podcast recorded onsite at Bank Director’s Acquire or Be Acquired (AOBA) Conference, we were honored to be joined by Bill Wagner and Matt Paramore with Raymond James.  Bill and Matt shared their outlook for 2018, including the potential of North Carolina serving as a potential preview for community banking across the country and the potential renewed entry of de novo participants.

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Another topic discussed with Bill and Matt is the impact of private equity monetizing some of their investments in financial institutions over the last several years, with the ability to monetize those investments with either M&A or by secondary security sales.  The ability for private equity to exit as reasonable pricing opens significant potential for management teams that believe that continued organic growth and returns can deliver long-term results for all shareholders.  We hope you enjoy this episode of The Bank Account.

This is the third of several podcast episodes we recorded in Phoenix.  Sound quality isn’t quite as good as you may have come to expect as we’re back on an older microphone and, as you can see from the pictures, our recording “studio” was rather large.  But we think the quality of the conversation with Bill and Matt more than makes up for any audio issues.  We hope you enjoy the conversation with Bill and Matt as much as we did. 

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A Recap of the AOBA M&A Simulation with FIG Partners

On the second day of Bank Director’s Acquire or Be Acquired (AOBA) Conference, we were honored to co-host with FIG Partners for the second year, the M&A Simulation.  The M&A Simulation is an exclusive, bankers-only, session at AOBA that attempts to walk through the initial stages of a bank merger.  Like last year, we divided the attending bankers into three groups, representing the boards of directors of three distinct participants: Bank A, a $700 million bank looking to sell, and Banks B & C, two larger potential acquirers.

the-bank-account

Immediately after the simulation, we sat down with Matt Veneri and Dan Flaherty with FIG Partners for a quick recap of the AOBA18 M&A Simulation on The Bank Account.

This is the second of several podcast episodes we recorded in Phoenix.  Sound quality isn’t quite as good as you may have come to expect as we’re back on an older microphone, but we jumped at the opportunity to be able to share our conversations with so many interesting colleagues at Acquire or Be Acquired.  We hope you enjoy the conversation with Matt and Dan as much as we did. We’re already planning a few new tricks for the M&A Simulation at the 2019 Acquire or Be Acquired Conference, and hope you’ll look to join us then.

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A Conversation with Rory McKinney of D.A. Davidson; Day 1 at AOBA

the-bank-accountFor the next several The Bank Account episodes, we’re on the road at Bank Director’s Acquire or Be Acquired (AOBA) Conference.  In our first installment from AOBA, we highlight our respective take-aways from the first day of AOBA and then sit down with Rory McKinney, Managing Director and Head of Investment Banking for D.A. Davison & Co. to discuss Rory’s outlook for bank M&A activity in 2018.

This is the first of several podcast episodes we recorded in Phoenix.  Sound quality isn’t quite as good as you may have come to expect as we’re back on an older microphone, but we jumped at the opportunity to be able to share our conversations with so many interesting colleagues at Acquire or Be Acquired.  We hope you enjoy the conversation with Rory McKinney as much as we did.

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2017 Bank M&A Statistics

2017 Bank M&A Statistics

January 3, 2018

Authored by: Robert Klingler

It looks like we’ll end 2017 with a total of 263 bank and thrift transactions, representing a slight increase in the number of deals over 2016 (250), but well below 2014 and 2015 levels (307 and 294, respectively).  However, in light of the decline in total number of banks (and the dearth of de novo activity), 2017 basically equaled 2014 and 2015 transaction activity, with approximately 4.5% of institutions at the beginning of the year exiting through a business combination.  (2016’s 250 transactions represented approximately 4.0% of the outstanding banks at the beginning of 2016.)

Until and unless we see more de novo activities, it seems unlikely that we will return to 300 transactions in any given year.  However, on an annualized basis, the fourth quarter of 2017 saw 296 transactions!  Were 2018 to keep up that pace, over 5% of the remaining banks in the country would need to sell.  Each institution’s decision to sell remains subject to a number of unique considerations, but, if anything, it would seem the percentage of institutions selling in any given year would likely decline rather than increase going forward.

We are strong proponents of the proposition that “banks are sold, not bought.”  The fact that there remain a number of institutions looking to grow by completing acquisitions is thus unlikely to fundamentally change the number of transactions in any particular year.  Conversely, the age and stage of banks in the industry (and that of their management teams) remains a critical component of many sale determinations.  As we continue to see a shrinking universe of financial institutions, it stands to reason that we will also continue to see a decline in the number of institutions that decide a sale is the right strategic decision in any particular year.

2017 reflected, consistent with recent trends, a continued increase in the average price-to-book multiple paid in bank transactions.  While the average price-to-book multiple in 2014, 2015 and 2016 were each approximately 1.3 times book, average pricing in 2017 rose to almost 1.6x book.  This level of pricing likely continues to serve as a negative deterrent to de novo formation, as it’s much easier to build a broadly attractive investment model if it includes a sale for 3x book in 5 years (or less).  Looking at a more granular, quarterly, level, it would appear that the 2017 increase is likely tied to the “Trump bump” in bank stock prices.  The average price-to-book multiple rose to 1.4x in the fourth quarter of 2016 (which included pre-and post- Trump bump prices), and then jumped up 1.5x to 1.6x for each quarter in 2017.

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Tax Reform for Sub S Banks and a 2017 Year-end M&A Review

the-bank-accountOn the latest episode of The Bank Account, Jonathan and I analyzed the Rose Bowl, pitting Jonathan’s Georgia Bulldogs against Jonathan’s In-Laws’ Oklahoma Sooners.  With critical generational analysis, Jonathan won me over to support Kirby Smart and the Georgia Bulldogs; I simply have to support Generation X over a Millennial. We then turned our focus to on-topic banking issues: the impact of tax reform on Subchapter S banks and a look in review at the 2017 banking m&a market.

For Subchapter S institutions, tax reform offers/requires a re-evaluation of the tax consequences of a Subchapter S tax election.  While institutions regularly assess the overall tax difference involved in a Subchapter S tax election at the time of making the election, that analysis is often then put in the closet, and only rarely re-addressed upon future strategic decisions.  However, with the decline in the corporate tax rate to 21%, it now behooves Subchapter S institutions, particularly those that retain a significant amount of their earnings to support future growth, to update that analysis. Jonathan and I discuss some of the factors affecting that analysis, as well as the timing implications to make effective for 2018.

Looking at the final M&A statistics for 2017, it looks like we’ll end the year with a slight uptick in the number of deals (259, up from 250 in 2016), but remain significantly below 2014 and 2015 levels.   In addition, the average size of the selling banks in 2017 has declined significantly (almost 25% smaller, based on averages).  Jonathan and I discuss these trends, and make a few predictions on M&A going forward.

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