United Community Bancshares in Blairsville, Ga., which recently agreed to buy two banks after a lengthy hiatus, is telling investors to expect another break before it lines up another deal.
The acquisitions Palmetto Bancshares in Greenville, S.C., and MoneyTree Corp. in Lenoir City, Tenn. will boost United Community's assets to nearly $9.5 billion. During a conference call Wednesday to discuss the Palmetto deal, Jimmy Tallent, United Community's chairman and chief executive, made it clear that he was in no hurry to add much more heft.
"What you'll see is a self-imposed time-out, because these are two very important transactions," he said. "We want to be 100% focused on the execution of these."
United Community might be mindful of crossing an asset threshold that would bring with it stress testing, caps on interchange fees and other aspects of regulatory scrutiny. Banks that approach $10 billion in assets need to weigh the added compliance against any efficiencies and scale that can be gained from increased size.
Management's M&A moratorium will also give them an opportunity to focus on integration and performance after going nearly five years without a bank deal, industry observers said.
"I feel that they will stay below $10 billion for a while, to enhance profitability," said Christopher Marinac, an analyst at FIG Partners in Atlanta.
"This is where it will be interesting" for United Community, said Kevin Fitzsimmons, an analyst at Hovde Group. "I think if you are going to cross it, then management teams may proactively manage how and when meaning they may not just want to trickle over."
Fitzsimmons said it made sense that Palmetto was selling a good chunk of the company is owned by the New York private-equity firm CapGen Capital Group. Rather, he was surprised by the timing and the identity of the buyer.
"The only things that surprised me were that it was United Community and that it was this soon," Fitzsimmons said.
The deal marks the latest chapter in the comeback story of United Community, which has steadily rebounded since the financial crisis, when it lost more than $900 million largely from on bad real estate loans. Since then, the company has reduced nonperforming assets and ramped up loan production particularly in small-business lending across several Southeastern markets.
"The company went through hell during the financial crisis," Marinac said. "It's been on the comeback for a couple of years now."
Expanding in the industrial Greenville market should help United Community boost commercial lending, industry observers said. A number of major corporations, including BMW and Michelin, have operations there.
The area also has a high level of international investment, Tallent said. "We're very excited about the prospects of continuing to build these businesses," he said.
Commercial lending accounted for more than half of United Community's loan production, at $2.7 billion. Commercial-and-industrial loans grew 44% from a year earlier, to $716 million.
The acquisition wasn't cheap. The deal values Palmetto at 177% of its tangible book value. United Community said it could take five years to earn back the dilution to its own tangible book value.
Buying Palmetto still makes sense for United Community despite a length earnback period, because of the long-term potential to boost earnings, Marinac said. "It's expensive, but sometimes you have to pay a little more to fly first class," he said.