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Acquisitions would seem to be a logical course of action for regional banks struggling to cut costs and boost revenues in the low interest rate environment, but some bank chief executives are less open to the idea than others as comments by the heads of First Horizon and SunTrust demonstrate.
October 16 -
The South Carolina bank has been shedding assets in recent months after suffering millions of dollars in losses in recent years. The bank ousted its management team last year due to poor financial performance and conflicts with investors.
June 1
Community & Southern Holdings in Atlanta has joined a growing list of banks to provide an exit strategy for investors who took a chance on them after the financial crisis.
The company's recent agreement to sell itself to Bank of the Ozarks in Little Rock, Ark., comes nearly six years after a group led by Pat Frawley raised $255 million and
The group, backed by private equity firms such as Lightyear Capital and Westport Capital, bought 14 banks and swelled to $4.4 billion in assets. Now, however, the time seemed right for many of the early investors to cash out.
"We knew that someday we would need to provide liquidity to our stockholders," said Stephen Stone, Community & Southern's chief strategy officer and general counsel. "We also knew that if we built a quality organization, and remained committed to our core values and principles, someone would take notice."
While he declined to discuss specific details of how the deal came together, or whether C&S would have preferred to stay independent, Stone said negotiations with Bank of the Ozarks allowed folks at his company to grow comfortable with the decision to sell.
"We were very careful in our due diligence," Stone said. "Bank of the Ozarks lived up to its reputation. They have a great track record. This deal affords our employees and our customers a great opportunity to be part of one of the most successful banks in the country."
Community & Southern is the latest bank backed by private equity to agree to sell itself. Others include
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"Bank of the Ozarks runs a good, disciplined shop," Moeling said. "It's not going to overpay or start a bidding war in commercial real estate."
It's a big deal for several other reasons. At 200% of Community & Southern's tangible book value, it's pricier than the average transaction, and it is also the biggest acquisition to date for Bank of the Ozarks. It also creates a formidable Georgia franchise with 75 branches and virtually no overlap.
George Gleason, Bank of the Ozarks' chairman and chief executive, called the deal a "hand-in-glove fit" for his company.
The premium largely represents the footprint Bank of the Ozarks is getting, said Brian Martin, an analyst at FIG Partners. "It would be tough to replicate that footprint, particularly in Atlanta," Martin said. (FIG Partners also advised Bank of the Ozarks during the negotiation process.)
Once the deal is completed, Bank of the Ozarks would become the eighth-largest bank in Georgia and the seventh-largest in the Atlanta area with $2.9 billion in deposits. Frawley, an industry veteran who also spent more than a decade at the Office of the Comptroller of the Currency, will lead Bank of the Ozarks' Georgia operations after the transaction closes.
Community & Southern also provides a generous dose of much-needed liquidity that Bank of the Ozarks can use to funding new loans, Martin said. From a funding perspective, Bank of the Ozarks' loan-to-deposit ratio would improve to 92% from 97% after adding Community & Southern.
That timing couldn't be better.
Bank of the Ozarks expects to book $2.5 billion in loan originations next year, Greg McKinney, the company's chief financial officer, said during a recent conference call to discuss quarterly results. "Our pipeline … is as strong as we have ever had," he said.
Monday's deal will catapult Bank of the Ozarks over the $10 billion-asset threshold where banks are subjected to mandatory stress testing and caps on interchange fees, among other things.
Bank of the Ozarks has said that it expects to lose nearly $5.4 million in annual interchange-fee revenue, while incurring about $3.7 million in costs tied to compliance infrastructure – all closely tied to crossing $10 billion in assets. C&S will help reduce those growing pains, boosting annual earnings per share by 10 to 15 cents in the first 12 months after closing, excluding merger-related costs.
The deal is leaving some industry observers to wonder how long it might take for Gleason to pursue another deal. An M&A pause would make some sense, though Gleason hinted strongly during the company's earnings call that additional talks may well be ongoing.
Another announcement certainly would not surprise Martin.
"These guys want to get big," Martin said. "They've shown they're capable of doing multiple deals at one time. If they saw another one that made sense, I think they'd do it."
