Billions are out; millions are in.
BB&T Corp. Thursday announced the latest in a spate of smallish bank mergers, saying it would pay $157.9 million for Matewan Bancshares of Williamson, W.Va.
The Winston-Salem, N.C., regional banking company was the third this week to announce such a deal. Union Planters Corp. said Monday that it would pay $412 million for Republic Banking Corp. of Miami, and Old Kent Financial Corp. said Wednesday that it would pay $242 million for CFSB Bancorp in Lansing, Mich.
The deals signaled that consolidation is still strong, though it is taking a different form than last year, when megadeals dominated the headlines.
The objective of these deals has been to strengthen market share or, in BB&T's case, to expand into a nearby market.
Midsize banking companies are "bulking up to sustain earnings growth and to compete with some of the larger banks that have already consolidated," said bank analyst William Katz of Merrill Lynch & Co.
BB&T is expanding into Virginia, and building on its presence in West Virginia and eastern Kentucky. Matewan has five branches in southwestern Virginia, seven in West Virginia, and 10 in eastern Kentucky. "BB&T has long indicated that they wanted to get into Virginia because its markets are very much like North Carolina's, where they have done very well," said bank analyst Edward Najarian of Wheat First Union.
"The acquisition opportunities in Virginia are limited, so one way to get into that state is to buy West Virginia banks," Mr. Najarian said, adding that BB&T is not likely to slow its dealmaking anytime soon. Ideal targets would be One Valley Bancorp of Charleston, W.Va., or United Bankshares, Parkersburg, W.Va.
Though the Matewan deal is small, with little integration risk, BB&T's acquisitiveness could mean trouble for the company's stock, some said.
So far, it has six deals pending, including for MainStreet Financial Corp., First Citizens Corp., Mason Dixon Bancshares, the small brokerage Scott & Stringfellow Financial Inc., and insurance agency Huffines-Russell.
"At one point you have to ask yourself how much is too much," said Mr. Katz of Merrill Lynch. In the Matewan deal, "the synergies and the cost savings are realistic for the company," he said. "But I am not that sure about Matewan's revenue or underlying growth. It was a low-performing bank."
Still, Mr. Katz said he expects consolidation among mid-cap banks to increase.
"The deeper we go into the business cycle, the economic prospects do not look as good going forward right now as they were last year at this time," said the analyst. "Because of this we are likely going to see more mergers."
Ronald H. Janis, a partner in the Pitney, Hardin, Kipp & Szuch law firm in Florham Park, N.J., agreed. "The larger banks are in a digestive phase," he added, "so most of the acquisition activity is at a lower level, meaning smaller banks are getting gobbled up."
Though the deals are smaller, deal pricing is hardly leveling off. BB&T is paying 2.6 times book for Matewan's shares. Analysts said the company expects 20% cost savings in 2000.
The banks that are doing deals right now are doing so because their stock prices are strong, said investment banker Karen Edwards of Friedman Billings Ramsey & Co. "If they have a highly valued currency, they will pay a big price."
But banks could start reconsidering cash deals as the economic environment gets dicier, said Ms. Edwards. "The sellers are no longer so confident" that the stock they take today "will be the same tomorrow," she said.