Bank M&A: What January data hints about 2019

What kind of start did bank M&A get off to in January, and what does it foreshadow for the rest of the year? Well, it's hard to say.

On the one hand, there was a big headline: Chemical Financial in Detroit and TCF Financial in Wayzata, Minn., unveiled the biggest deal in eight months; it would create a $45 billion-asset bank.

Regulatory reform paved the way for the Chemical-TCF deal. It would have been less likely — or at least more complicated — had Congress not raised the asset threshold for systemically important financial institutions well above the previous $50 billion cutoff. The agreement, a so-called merger of equals, raised the question whether more big deals like it are on the way.

On the other hand, some of the data from January suggested a lackluster start.

The 17 whole-bank deals announced last month were roughly the same as a year earlier, based on figures from Keefe, Bruyette & Woods and S&P Global Market Intelligence. If not for Chemical-TCF, deal values would have been well off the pace of the last several years. Moreover, the average deal value to tangible common equity was 160.7%, below the 180% in the year-earlier period and 174% for all of 2018.

All that said, it was an interesting month. Serial acquirers were active; credit unions were among the buyers of banks; and a handful of banks from Wisconsin decided to be sold. The following is a look at the month's most noteworthy deals.

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Game changer
The Chemical-TCF deal could reshape banking in the Midwest.

The $3.5 million transaction, billed as a merger of equals, would create a $45 billion-asset regional power provided it is approved by regulators.

The combined company would keep Minnesota-based TCF's brand but be based in Chemical's headquarters city of Detroit. While the $23.5 billion-asset TCF’s shareholders would own 53.8% of the company, the $21.5 billion-asset Chemical is the legal acquirer. Each side would get an equal number of board seats.

The combination would each company the scale needed to stay competitive. The deal, which is expected to close late in the third quarter or early in the fourth quarter, would also diversify business lines and balance sheet beyond what either bank had on its own.

Craig Dahl, TCF's chairman, president and CEO, would remain president and CEO. Gary Torgow, Chemical's chairman, would become executive chairman.

The agreement, which caught a number of industry observers by surprise, would have been challenging if the threshold for systemically important financial institutions had not been raised to $250 billion from $50 billion last year by Congress.
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Credit unions reel in banks
Two Florida credit unions announced plans to buy banks.

VyStar Credit Union in Jacksonville agreed to buy Citizens State Bank in Perry, Fla., on Jan. 14. Central Florida Educators Federal Credit Union in Lake Mary announced a deal 10 days later for Fidelity Bank of Florida in Merritt Island. The credit unions did not disclose the prices they would pay for the banks.

Florida and Georgia regulators recently approved a request by the $8.2 billion-asset VyStar to expand its field of membership into four counties in southeast Georgia. The VyStar-Citizens deal is expected to close by mid-2019.

Central Florida Educators, which has 22 branches and more than 155,000 members, will add two branches and $174 million in assets when it buys Fidelity. The credit union said that the deal would enhance its presence in central Florida.

Kevin Miller, Central Florida Educators' president and CEO, said that the acquisition would strengthen the credit union’s deposit-gathering and business-lending activities.

The deals are the latest involving credit unions and banks in Florida. Last fall, Achieva Credit Union in Dunedin, Fla., bought Preferred Community Bank in Lee County.
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Serial acquirers stay busy
A pair of banks that have been active buyers in the past announced new deals on Jan. 16.

Glacier Bancorp in Kalispell, Mont., agreed to buy FNB Bancorp in Layton, Utah, while Heartland Financial USA in Dubuque, Iowa, announced a deal for Blue Valley Ban Corp. in Overland Park, Kan.

Glacier would pay $85 million in stock for the $326 million-asset parent of First National Bank of Layton. The deal, which is the 10th acquisition for Glacier in the last six years, would strengthen the buyer’s Utah presence. The $12 billion-asset Glacier said it would merge its four existing banks in Utah into First National to create a $500 million-asset bank.

For its part, the $11.3 billion-asset Heartland agreed to pay $93.9 million in stock for the parent of the $725 million-asset Bank of Blue Valley.

The Blue Valley deal, which is expected to close in the second quarter, would boost Heartland’s operations around Kansas City, Mo. Bank of Blue Valley has five branches, $527 million in loans and $608 million in deposits.

While Bank of Blue Valley will be legally merged into Heartland’s Morrill & Janes Bank and Trust, the combined institution will use the seller's brand. Robert Regnier, Bank of Blue Valley’s chairman, president and CEO, will become executive chairman and CEO of the merged bank.
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Sellers in Wisconsin
Four Wisconsin banks announced in January that they had agreed to be sold.

Only eight banks in the state agreed to sell in all of 2018.

The $178 million-asset Greenwoods Financial Group in Lake Mills agreed to buy the $92 million-asset Fox River Financial in Burlington. Greenwoods, which did not disclose the price it would pay, will have seven branches in Wisconsin when the deal closes.

Citizens Community Bancorp in Eau Claire announced a cash-and-stock deal for F. & M. Bancorp of Tomah. The $975 billion-asset Citizens would pay $21.6 million for the $195 million-asset F. & M.; the deal is expected to close in the second quarter. The seller's bank has $149 million in deposits and $138 million in loans.

The $1 billion-asset S.B.C.P. Bancorp in Cross Plains agreed to buy the $259 million-asset Union Bancorp of Evansville for an undisclosed amount of cash and stock.

Finally, the $1.8 billion-asset Bank First National in Manitowoc agreed to buy Partnership Community Bancshares in Cedarburg.

Bank First will pay $41 million in cash and stock for the $307 million-asset Partnership. The deal is expected to close in mid-July.
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A dispute ends
A year after reaching a compromise with an activist investor, HopFed Bancorp in Hopkinsville, Ky., agreed to be sold to First Financial in Terre Haute, Ind.

The $3 billion-asset First Financial would pay $128.3 million in cash and stock for the $905 million-asset HopFed. The deal is expected to close in the second quarter.

HopFed fought numerous battles with Stilwell Group, a dissident shareholder based in New York. The investor took issue with the salary of HopFed President and CEO John Peck (pictured) and complained about a bank acquisition that was eventually called off.

HopFed added a Stilwell representative to its board after the investment firm agreed to support HopFed’s board and stop buying the banking company's stock, among other things.

First Financial would gain 18 branches, $664 million in loans and $727 million in deposits from HopFed.

The agreement “provides us with an opportunity to leverage our capabilities and expand into new markets,” Norman Lowery, First Financial’s president and CEO, said in a press release. “We look forward to continuing Heritage's commitment to its customers and the communities it serves.”
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Big buyer, small seller
First Citizens BancShares in Raleigh, N.C., found another small bank to buy.

The $35 billion-asset company announced Jan. 10 it had agreed to acquire First South Bancorp in Spartanburg, S.C., for $37.5 million in cash in a deal expected to close in the second quarter. The $237 million-asset First South is less than 1% the size of First Citizens.

First Citizens tends to buy much smaller banks, including a number of failed institutions in far-flung markets across the country.

The acquisition is “an excellent opportunity to enhance our commitment to the people and businesses of South Carolina and to continue to expand in key markets,” Frank Holding Jr., First Citizens’ chairman and CEO, said in a press release announcing the deal.
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Planning for the future
Entegra Financial in Franklin, N.C., was looking at the big picture when it agreed to be sold.

The $1.7 billion-asset company is merging into SmartFinancial in Knoxville, Tenn., in an agareement that values the seller at just 119.4% of its tangible book value. But the $158 million all-stock deal would create a bank with $4 billion in assets and 47 branches across the Southeast.

SmartFinancial would add a number of Entegra executives to its management team. Roger Plemens, Entegra’s president and CEO, is to become SmartFinancial’s president of the Carolinas. David Bright, Entegra’s chief financial officer, and Ryan Scaggs, the company’s chief operating officer, would have those titles at SmartFinancial.

Five Entegra directors are expected to join SmartFinancial's board. The company would keep its headquarters in Knoxville with a “significant portion of the combined bank’s operations” based in Franklin.

The deal, which is expected to close by mid-2019, is projected to be more than 20% accretive to SmartFinancial's earnings per share in the first full year.