Bank M&A in 2019: Pace up, premiums down

November 11, 2019 9:00 PM

There were more bank M&A announcements through the first 10 months of this year compared with the same period in 2018, but excluding the largest merger agreement of the year — BB&T-SunTrust — deal values and multiples are shrinking.

Banks announced 231 deals through Nov. 1, a 4% increase from a year earlier, according to data compiled by Compass Point, Keefe, Bruyette & Woods and S&P Global Market Intelligence. A flurry of activity in September and October contributed to the increase.

Aggregate deal value is another story. Excluding BB&T’s $28.1 billion agreement to buy SunTrust, a combined $21.2 billion in deals have been announced this year — 19% lower than at the same point last year. Less than 10% of the deals announced this year have involved sellers with more than $1 billion in assets.

Premiums have fallen, too. They averaged 155% of a seller’s tangible book value through Nov. 1, compared with a 174% average in the same period of 2018.

Here is a look at some recent transactions, many of which fit the profile of relatively small, less expensive agreements.

Signage is seen during an event to rebrand Sovereign Bank NA to Santander at the company's first bank branch in New York, U.S., on Thursday, Oct. 17, 2013. Sovereign Bank, four years after it was bought by Banco Santander SA, will begin changing its name at 32 branches throughout Connecticut and another 673 throughout the Northeast as the rebranding campaign is launched. Photographer: Ron Antonelli/Bloomberg

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Santander selling Puerto Rican branches

First BanCorp in San Juan agreed in late October to pay $1.1 billion for Banco Santander’s retail and commercial banking operations in Puerto Rico. The deal is expected to be completed in mid-2020.

Banco Santander Puerto Rico has 27 branches on the island, along with $3.1 billion of loans and $5 billion of deposits. First BanCorp would have $17.6 billion of assets, $12 billion in loans and $14.2 billion in deposits once the deal closes.

The agreement is a notable achievement for First BanCorp, coming less than three years after it exited the Troubled Asset Relief Program. It would boost the company's deposit market share in Puerto Rico from 8.8% to 15.6%, based on June 30 data from the Federal Deposit Insurance Corp.

US state flag of Ohio with great detail waving in the wind.

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Ohio banks combining

First Defiance Financial in Defiance, Ohio, and United Community Financial in Youngstown, Ohio, announced a $473 million merger pact on Sept. 9.

The $3.3 billion-asset First Defiance would be rebranded after combining with the $2.9 billion-asset United; the new name was not disclosed. While the parent company would remain in Defiance, its banking unit would be based in Youngstown.

Gary Small, United’s president and CEO, would succeed Donald Hileman as president when the deal closes and as CEO in early 2021. Hileman would become executive chairman when the transition is finished.

“These organizations are a perfect strategic fit, balancing the strengths of each,” Hileman said. “With enhanced scale, we will have the opportunity to continue to grow and compete more effectively in all the markets we serve for the foreseeable future.”

Congress is set to take up its third government funding continuing resolution so far this fiscal year. New infrastructure funds need a full FY22 budget in order to begin to flow to states.

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Encircling the nation’s capital

Sandy Spring Bancorp in Olney, Md., agreed on Sept. 24 to buy Revere Bank in Rockville, Md. The acquisition would strengthen Sandy Spring's operations in a key Washington suburb.

The $8.4 billion-asset Sandy Spring would pay $460.7 million in stock for the $2.6 billion-asset Revere. The deal, expected to close in the first quarter, priced Revere at 173.4% of its tangible book value.

Revere has 11 branches, $2.3 billion in loans and $2.1 billion in deposits.

Sandy Spring expects the deal to be 9.1% accretive to earnings in the first full year of operations. It could take less than three years for Sandy Spring to earn back a projected 3.8% dilution to its tangible book value.

Sandy Spring plans to cut about 45% of Revere's annual noninterest expenses; it expects to incur $32 million in merger-related expenses.

“Our company has great momentum and the announcement … reinforces our position of strength in this market,” said Daniel Schrider, Sandy Spring’s president and CEO.

Expanding to the Midwest

Northwest Bancshares in Warren, Pa., would enter Indiana under its Oct. 29 agreement to buy MutualFirst Financial in Muncie, Ind.

The $10.6 billion-asset Northwest would pay $346 million in stock for the $2.1 billion-asset MutualFirst. The deal, which is expected to close in the second quarter, priced MutualFirst at 172% of its tangible book value.

MutualFirst has 39 branches, $1.6 billion in deposits and $1.5 billion in loans.

Northwest expects the acquisition to be immediately accretive to its earnings per share, excluding merger costs. It could take less than three years for Northwest to earn back an expected 3.5% dilution to its tangible book value, which includes the impact of the Current Expected Credit Loss method.

Glacier's rising profile in Arizona

Glacier Bancorp in Kalispell, Mont., is adding to its operations in Arizona by buying State Bank Corp. in Lake Havasu City.

The $135 million deal, announced on Oct. 1, could close as early as next month. The $12.7 billion-asset Glacier plans to merge the $679 million-asset State Bank into its Foothills Bank.

State Bank has 10 branches in seven Arizona markets, including Phoenix and Prescott. The acquisition would triple the number of Glacier branches in Arizona.

Glacier would also gain several lending teams and a low-cost deposit base, President and CEO Randy Chesler said. State Bank “has an experienced team of dedicated employees, deep market knowledge and strong customer relationships,” he said.

Bulking up in Nashville

Reliant Bancorp in Brentwood, Tenn., announced two deals in its home state this fall.

The $1.9 billion-asset company agreed on Sept. 16 to pay $37 million for Tennessee Community Bank Holdings, the Ashland City parent of the $251 million-asset Community Bank & Trust. The deal is expected to close in the first quarter.

A month later, Reliant announced it was buying the $257 million-asset First Advantage Bancorp in Clarksville for $123 million. The deal, expected to close in the second quarter, priced First Advantage at 152.2% of its tangible book value.

Each deal would boost Reliant’s operations in markets just outside Nashville. The company will have 30 branches, $2 billion in deposits and nearly $1.7 billion in loans when the deals close.

Focusing on multifamily in Long Island deal

Empire Bancorp in Islandia, N.Y., is the second bank on Long Island to find a buyer this year.

The $1 billion-asset company agreed to be sold to Flushing Financial in Uniondale, N.Y., on Oct. 25. The $7 billion-asset Flushing will pay $111.6 million for Empire in a deal expected to close in the second quarter.

The announcement came three months after Gold Coast Bancorp in Islandia agreed to be sold to Investors Bancorp in Short Hills, N.J.

Flushing Financial would enter Long Island’s Suffolk County with the acquisition. Empire has four branches, $681 million in loans and $925 million in deposits. Multifamily makes up 45% of Empire’s loan portfolio.

The deal is expected to be 10% accretive to Flushing’s 2020 earnings and 19% accretive in 2021. It should take about three years for Flushing to earn back a projected 7% dilution to its tangible book value. Flushing expects to incur $18 million in merger-related charges; it plans to cut half of Empire’s annual noninterest expense.

Chinese-American bank expanding into Chicago

RBB Bancorp, a Chinese-American bank in Los Angeles, says it found the perfect merger partner in Chicago.

The $2.8 billion-asset RBB agreed on Sept. 6 to buy PGB Holdings, another bank that focuses on the Chinese-American community, for $32.5 million in cash. The deal is expected to close in the first quarter.

RBB focuses on Chinese-American communities in Southern California, Las Vegas and New York. PGB, the $223 million-asset parent of Pacific Global Bank, has three branches in Chicago's Chinatown and Bridgeport neighborhoods.

"Pacific Global is an excellent cultural fit with RBB, as we have complementary business models, strong residential mortgage loan production platforms, and a focus on the Chinese-American market," said Alan Thian, RBB's chairman and chief executive.

RBB expects the transaction to be accretive to its 2020 earnings per share, based on plans to cut about 30% of PGB's annual noninterest expense. It could take about three years for RBB to earn back any dilution to its tangible book value.

SmartFinancial bouncing back

SmartFinancial in Knoxville, Tenn., which had a deal fall through earlier this year, switched to Plan B.

The $2.4 billion-asset bank agreed on Oct. 30 to buy Progressive Financial Group in Jamestown, Tenn. The $2.4 billion-asset SmartFinancial would pay $41.4 million for the $296 million-asset Progressive. The deal, which is expected to close in the first half of 2020, priced Progressive at 124% of its tangible book value.

The acquisition would move SmartFinancial into middle Tennessee, where Progressive has six branches, $258 million in deposits and $190 million in loans.

The deal is expected to be accretive to SmartFinancial's 2020 earnings. It could take SmartFinancial less than three years to earn back any dilution to its tangible book value. SmartFinancial expects to incur $4.5 million in merger-related expenses; it plans to cut 30% of Progressive's annual noninterest expenses.

Credit union-bank combos keep multiplying

The number of deals involving credit unions buying banks continues to rise.

Elevations Credit Union in Boulder, Colo., agreed in early September to buy the assets of the $121 million-asset Cache Bank & Trust in Greeley, Colo. The deal is expected to close in the first quarter.

If approved, it would be the first credit union purchase of a community bank in Colorado, said Michael Bell, a lawyer at Howard & Howard, which advised Elevations. Acquiring Cache would extend the $2.1 billion-asset Elevations’ reach in two counties in northern Colorado.

A few weeks later, the $620 million-asset First Commerce Credit Union in in Tallahassee, Fla., agreed to buy Citizens Bank in Nashville, Ga. That deal is set to close by mid-2020. Citizens Bank has $248 million in assets and four branches in southern Georgia.

Elevations and First Commerce did not disclose the prices they will pay for the banks. Overall, 14 credit union-bank deals have been announced this year; there were nine in 2018.