A looming increase in the capital gains tax rate is motivating some banks to sell, and Pinnacle Bank in Lincoln, Neb., was happy to accommodate two of them.
Pinnacle, the flagship bank unit of the $6.7 billion-asset Pinnacle Bancorp, agreed last Thursday to buy the $183 million-asset First State Bank of Joplin in Missouri. A day later, the bank announced plans to buy the $139 million-asset Hastings State Bank in Nebraska.
First State and Hastings State both had family owners who were unhappy with the increased compliance burden and were antsy to sell before year-end when the capital gains tax rate will increase to 20% from 15%, barring legislative intervention.
“I think we are seeing a little increase in activity due to where income tax rates will go in 2013. There is a little hurry to close deals in December,” says Mark Hesser, Pinnacle Bank’s president. “We’ve looked at more acquisitions in the last six months than we had in the previous 24.”
Pinnacle Bank expects to complete both deals by year-end. Financial terms of the deals were not disclosed, but Hesser says that deal-making has also been greased by improved sellers’ expectations. Buyers have budged, too. “Sellers have gotten a little bit more realistic and the price we are willing to pay has adjusted, too,” he says.
The multi-bank holding company, owned by the Dinsdale family since 1938, has been a serial acquirer, picking up roughly 10 banks in the last decade. The bank’s most recently acquisition came in late 2010, when it bought the $166 million-asset American National Bank of Fremont in Nebraska.
Hesser says that Pinnacle isn’t embarking on an “aggressive” acquisition strategy, though is looking for other deals. Pinnacle is looking for banks that have sound asset quality, a loan-to-deposit ratio of at least 60% and good track records for earnings in the greater Midwest.
“We are actively trying to buy other institutions,” Hesser says. “We are looking at all opportunities and there are a lot of quality banks out there.”
While American National, First State Bank of Joplin and Hastings State Bank are similarly sized institutions, Hesser says the company is looking at banks of various sizes. Once it completes its latest acquisitions, Pinnacle will have more than $7 billion in assets.
Hesser says the company doesn’t have a projected asset size for the next few years, mostly because it has to decide how to approach the $10 billion-asset threshold. At that level, Pinnacle would be subject to a 22-cent cap on interchange fees created by the Dodd-Frank Act's Durbin Amendment. Banks at that size are also required to stress test. The Consumer Financial Protection Bureau has begun looking at those institutions, too.