Falling bank valuations have torpedoed one deal in Georgia, and analysts say others could be in jeopardy.
Security Bank Corp. in Macon announced in April that it had a deal to buy First Commerce Community Bankshares Inc. in Douglasville for $57 million in stock, plus a one-time dividend of $3 million.
But the $2.5 billion-asset Security has lost more than a fifth of its market value since then, and last week the companies announced that their deal had been terminated.
"Unfortunately, the significant decline in our stock price has changed the economics of the deal such that both companies felt it was in the best interest of their respective shareholders not to proceed at this time," Rett Walker, Security's president and chief executive officer, said in an e-mail.
Samuel Caldwell, an analyst with KBW Inc.'s Keefe, Bruyette & Woods Inc., said he could see the same scenario playing out in other stock-swap deals.
"I wouldn't be surprised if this happened again in other cases," Mr. Caldwell said. "I would assume that anywhere where the buyer is paying a significant portion of the purchase price in stock, and that stock has fallen significantly, the seller is going to look long and hard at its options and say, 'Hey, can I do better somewhere else?' "
Peyton Green, an analyst at First Horizon National Corp.'s FTN Midwest Securities Corp, agreed with that prediction. "There are going to be situations that either get renegotiated or just kind of fall apart," Mr. Green said.
According to SNL Financial of Charlottesville, Va., 119 bank and thrift acquisition deals that have been announced this year are still pending. Six of those deals are all-stock transactions, and 45 involve a combination of cash and stock.
Bank stock valuations have declined across the board in recent months amid market volatility, net interest margin pressure, and deteriorating credit quality. As of midday Friday, the American Banker index of 225 bank stocks had declined 13.8% for the year.
Security's deal for the $252 million-asset First Commerce included a contingency entitling either company to back out if Security's stock price slipped to $19.25 a share or lower for 20 consecutive trading days before the closing.
The shares dipped below that threshold July 10, to $19.12, and fell further after July 25, when Security said in its second-quarter earnings report that nonperforming assets had increased 187% from a year earlier, to $54.7 million.
On the day the deal was called off, the shares closed at $13.51, though they have rebounded somewhat since. They were trading at $15.88 Friday afternoon.
Mr. Green gave a simple explanation for the sudden stock slide.
Security Bank is "a construction and land development lender in the Southeast, primarily in Georgia," he said. "That has caused the stock to have a little bit more downward pressure over the past 30 to 60 days as people have become more fearful about real estate conditions nationwide and also in the Southeast."
Lorraine Miller, Security Bank's senior vice president of investor relations, said that her company declined to offer more cash or additional stock to offset the drop in its stock price, because doing so would prevent it from achieving certain financial goals, "specifically the earn back of diluted tangible book over a five-year period, and earnings accretion within a year."
William C. Lumpkin Jr., the president and CEO of First Commerce, did not return phone calls requesting comment for this article.
Ms. Miller dismissed the possibility that Security Bank and First Commerce would rekindle their deal.
"There's a good relationship between the two companies," Ms. Miller said. "Security is going to continue to be interested long term in growth through acquisitions, but I think under current market conditions, it's going to take a very compelling situation for us to be actively pursuing something.
"We are maintaining our discipline in terms of how we look at acquisition opportunities," she said.
