Nothing is easy in bank M&A.
Take the case of the $57 million-asset First Tuskegee Bank in Alabama, which agreed a year ago to sell itself to Liberty Bank & Trust Co., a $591 million-asset company in New Orleans.
The deal would combine two small minority-owned institutions in the Southeast, giving them the additional heft desired by many bankers to cope with new regulations.
It seemed routine, but federal and state regulators still have not approved the application that they received in October. The privately held companies have not withdrawn their July 31, 2013, agreement, but they haven't made any public statements updating its status either.
The whole situation is curious, said Stephen Klein, an attorney with Graham & Dunn in Seattle who isn't involved in the matter. Bank deals between small community banks almost never take this long. It goes to show that even seemingly small, well-intentioned deals can run into problems.
The Liberty Bank-First Tuskegee deal "should have been cleared for closing last year," said Klein, whose recent M&A work includes advising Intermountain Community Bancorp in Idaho on its sale to Columbia Banking System in Tacoma, Wash.
Kenneth Pickering, a New Orleans attorney advising Liberty Bank on the acquisition who spoke with American Banker this week, said the deal is still on. However, he gave few details about its status.
"Hopefully we'll get this deal done some time in the relatively near future," Pickering said. "Any time you've got a merger, there are various issues, but it's just taken time to work through the merger itself. We really don't have a timeline [for closing]. It requires regulatory approval and to tell you the truth, we're waiting on regulatory approval."
Whit Whitham, a banking attorney at Williams Mullen in Richmond, Va., agreed with other outsiders that this kind of deal should have been done by now. He said that in his last bank merger, about four months lapsed between the signing of the agreement and closing.
Regulators are also remaining tight-lipped. A Federal Deposit Insurance Corp. spokesman declined to comment. The Alabama State Banking Department did not respond to calls seeking comment.
Sid Seymour, the chief examiner with the Louisiana Office of Financial Institutions, said the agency's records on the merger application are confidential and that the agency will make its decision public. He declined further comment.
The companies have not filed notices with regulators that the deal has been withdrawn, although it's a requirement if a deal is called off, Klein said.
And the companies themselves have said very little. The banks do not appear to have ever made a public announcement of the deal. Yet it was reported in the Montgomery Advertiser in Alabama and by New Orleans CityBusiness, which said First Tuskegee was founded in 1990 when a group of investors acquired the assets of the insolvent Tuskegee Federal Savings and Loan Association.
Alden McDonald, the president of Liberty Bank, and Neill Wright, the president of First Tuskegee, did not return calls seeking comment.
The companies believe the deal has obvious merits, according to merger application documents filed with the FDIC. It would let Liberty Bank expand into the metropolitan Montgomery, Ala., area. It would also help Liberty expand its originations of consumer, mortgage and commercial loans, and add more low-cost deposits to fund those loans.
Liberty Bank has been an active acquirer, expanding well outside of the Southeast. It has bought four banks since January 2008, including Covenant Bank in Chicago; Home Federal Savings Bank in Detroit; and Douglass National Bank in Kansas City. Both Covenant and Home Federal were failed banks that Liberty Bank acquired through loss-share agreements with the FDIC.
Still, First Tuskegee has had financial problems. It has posted a loss in seven consecutive quarters, most recently a $229,000 loss in the second quarter. Noncurrent loans made up 9.2% of total loans as of the end of the first quarter, although that was an improvement over 13.8% from a year earlier. It recorded negative returns on assets and equity in the second quarter.
Regulators have been keeping a close eye on First Tuskegee. The FDIC issued a cease-and-desist order against First Tuskegee in November 2008 as a result of a high proportion of past-due loans. The agency placed the bank under a consent order in February 2012 requiring it to improve capital ratios, charge off classified loans, limit its lending to certain borrowers, improve liquidity and take other steps.
However, the presence of two enforcement actions shouldn't hold up the closing of its deal with Liberty Bank, said Walt Moeling, a banking attorney at Bryan Cave who isn't involved in the deal.
"A sale is something a regulator likes to see where a bank has problems," Moeling said.
Enforcement orders can be a problem if the seller is large enough to have a significant financial impact on the buyer's financial condition, he said.
In those cases, "there will be a lot of negotiation with the regulator over everything from a requirement for new capital to additional management to a new consent order to be signed by the buyer as a condition to approval," Moeling said.
If the deal closes, Liberty Bank's asset size would grow by 9.6% to about $648 million.
Yet none of these factors explains why the deal is still stuck in limbo, Klein said.
"A year is ridiculous," Klein said. "That's very extreme, and there must be something going on."