If you are a bank seller and think you have much say in the sale price, think again.
That was the message from four community bank buyers who spoke on a panel about deals at the Sandler O'Neill & Partners financial services conference in Aventura, Fla., on Thursday. The bankers flatly said they do not care what sellers think their institutions are worth.
"In this cycle, I can't imagine that the sellers' expectations are all that relevant," said Dennis J. Zember Jr., the chief financial officer of Ameris Bancorp in Moultrie, Ga. "I would be more willing to listen to their expectations if we didn't come in and see credit marks 3% to 5% lower than what they do."
Ultimately, nearly four years after the credit crisis struck, credit issues are the pivotal factor. They make or break deals and determine the valuations.
James Cherry, chief executive of Park Sterling Corp. of Charlotte, N.C., which completed its acquisition of Community Capital Corp at the beginning of November, said sellers are becoming more realistic but need to understand that buyers care about the "burn-down tangible book," or what a bank is worth after accounting for all the problem loans.
Richard B. Collins, the president and chief executive at United Financial Bancorp Inc. of West Springfield, Mass., said that credit quality is less of an issue in his hunt for acquisitions in the Northeast but that he, too, is still unwilling to spend a lot.
"We would rather deploy our capital organically than overpay," Collins said. "We are willing to be outbid."
Collins was the only Yankee on the panel, with the other three hailing from the Southeast where credit has been a touchier subject.
"We are in what we like to call ground zero for bad decision-making in banking," Zember said, referring to Georgia and Florida.
Zember said he has "sharpened the pencil on a lot of deals" this cycle, but has not struck a traditional acquisition during the economic downturn. Instead, Ameris has focused on deals with the Federal Deposit Insurance Corp. Ameris has bought eight failed banks in the last few years.
Even failed banks are dwindling in appeal, he said. The remaining troubled banks have lost many of their good customers and employees. Loss-sharing agreements with the FDIC and other financial protections are the remaining benefit of such deals, he said.
Robert R. Hill Jr., chief executive of SCBT Financial Corp. in Columbia, S.C., which has also purchased several failed banks, agreed that the remaining pool of failure candidates is less attractive.
"There are a lot more banks that need to fail, but a lot of them are smaller," Hill said. "We wanted real banks, and those came early."
The bankers debated how the Troubled Asset Relief Program will factor into acquisition activity. Tarp-related costs can complicate a deal, they said, but will also force more banks to sell once the dividend rate jumps from 5% to 9% after five years.
"A number of banks don't have the ability to raise other capital or would have to dilute themselves so massively. The only way to pay it back is through earnings and obviously the cost is going up," Hill said. "So as they look out, all my earnings are going to have to pay back my Tarp. … That's a catalyst."