Big acquirers find it harder to justify smaller deals

It is becoming increasingly difficult for leaders of large community banks to rationalize small bank acquisitions.

Executives at Ameris Bancorp in Moultrie, Ga.; United Community Banks in Blairsville, Ga.; and United Financial Bancorp in Hartford, Conn., made that clear during a pair of panel discussions at a conference in Washington hosted by Crowe, Stifel Financial and Luse Gorman.

Ameris and United Community have each surpassed $11 billion in assets; United Financial sits at about $7.2 billion. Banks that reach those sizes are struggling to find a financial justification for buying much smaller banks, given the labor-intensive nature of vetting deals and the need to quickly provide shareholder returns.

"You can’t buy $300 million banks anymore,” Ameris CEO Dennis Zember Jr., who succeeded Edwin Hortman Jr. on July 5, said during a Thursday panel discussion. “You have to start looking at bigger and bigger transactions and opportunities. Quite honestly, they're not as many of those. M&A for us is still going to be an item, but it’s going to be fewer and far between.”

That is a big acknowledgment from Ameris, which has closed more than 30 acquisitions in its history while developing a reputation as a company that would "buy anything that isn’t nailed down,” Zember said, half in jest.

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The same could be said of United Community, which has bought five banks in the past three years. Now, management is debating the minimum asset threshold for future deals, Jefferson Harralson, the $12.4 billion-asset company’s chief financial officer, said during a panel discussion on Friday.

United Community is "struggling a little bit" to justify buying banks with less than $500 million in assets, Harralson said.

“There are markets we’re not in that we do want to be in," Harralson added. "It does seem like [some small deals] would be additive to our footprint, but we’re struggling with where that limit is and what’s worth it. We know we need to raise this bar. I don’t think we have 100% consensus of where that bar is.”

“You want [a deal] to be meaningful, to be accretive to earnings … and worth the resources you’re putting in because it’s a distraction to your core business of running a bank,” added Eric Newell, chief financial officer at United Financial.

United Financial agreed in May to buy six branches from Webster Financial; that transaction should bring in $120 million in deposits.

“It’s amazing to me how much resources our company is putting into" the deal, Newell said. Still, he said, the purchase makes sense given the intense competition for low-cost funding in New England.

For serial acquirers, “the law of large numbers comes into play at some point,” said Brian Klock, an analyst with Keefe, Bruyette & Woods. And Ameris is hardly the only bank to face that reality, he said.

The Ameris leadership team appears ready to deal with the fact that organic growth will play a much bigger role in future expansion. That realization is ironic coming from a company that just spent nearly $570 million in the second quarter alone closing deals for Hamilton State Bancorp and Atlantic Coast Financial. Those acquisitions added $2.7 billion in assets to Ameris’ balance sheet.

“Fortunately, we’ve got exposure in enough [Southeastern markets] that I think we can sustain a growth rate healthy enough to keep earnings per share moving,” Zember said.

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