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US Community Bank Preview

Troubled banks with deposit bases draw buyer interest

Market overview

Struggling with low interest rates, many community banks are likely targets as buyers are on the hunt for strong deposit bases.

The Fed cut its key interest rates three times in 2019, eating away at banks’ top lines. With less income, smaller banks are hard-pressed to meet rising customer needs in digital services and cybersecurity.

When a sale is on the table, small banks with low loan-to-deposit ratios (LDRs) are attractive targets as these acquisitions can help bidders reduce cost of funds. Small rural banks usually have “sticky” deposits because depositors don’t often move their money.

Investar Holding [NASDAQ:ISTR] and United Bancorp [NASDAQ:UBCP] recently told Mergermarket they are on the lookout for deposit bases to support lending activities. Cheap deposits can help them reduce or eliminate overnight borrowing. In general, banks with LDRs of less than 80% are competitive.

Below is a list of troubled commercial banks and savings institutions with less than USD 300m in assets, equity-to-asset ratios of less than 8%, non-performing asset(NPA)-to-asset ratios of more than 1.25%, and positive return on assets (ROA) ratios, ranked in ascending order of their LDRs.

Name
  
City
  
State
  
Assets
  (thousand)
  
Equity to assets (%)
  
NPAs to Assets (%)
  
ROA(%)
  
Loans to deposits (%)
  
The Walton State Bank
  
WaltonKS9,220 
  7.73
  

  2.17
  

  0.24
  

  34.66
  
Community Bank and Trust -Alabama
  
Union SpringsAL 48,528 
  7.80
  

  2.40
  

  0.55
  

  37.96
  
Union State Bank
  
Pell CityAL211,879 
  7.59
  

  1.43
  

  0.58
  

  42.85
  
Glasford State Bank
  
GlasfordIL
  46,358
  

  8.00
  

  1.30
  

  0.67
  

  50.26
  
Iowa Prairie Bank
  
BrunsvilleIA 
  61,738
  

  7.87
  

  1.53
  

  0.13
  

  50.39
  
The Pataskala Banking Company
  
PataskalaOH
  34,965
  

  7.51
  

  1.33
  

  0.41
  

  58.71
  
The Peoples Bank
  
EatontonGA
  134,293
  

  6.30
  

  2.60
  

  0.51
  

  66.50
  
Legacy Bank
  
AltoonaIA
  117,631
  

  7.35
  

  1.48
  

  0.86
  

  69.46
  
F & M Bank and Trust Company
  
ManchesterGA
  68,883
  

  4.99
  

  3.24
  

  0.05
  

  70.99
  

  Citizens State Bank of
  Hayfield
  
HayfieldMN 
  103,305
  

  7.56
  

  4.00
  

  0.30
  

  75.61
  

  The Glen Burnie Mutual
  Savings Bank
  
Glen BurnieMD
  100,061
  

  7.74
  

  1.26
  

  0.30
  

  83.99
  

  Brighton Bank
  
BrightonTN 
  41,730
  

  6.51
  

  3.70
  

  0.10
  

  88.08
  

  Citizens Savings Bank and
  Trust Company
  
NashvilleTN  
  97,321
  

  6.76
  

  2.33
  

  0.17
  

  88.45
  

  SSB Community Bank
  
StrasburgOH
  105,499
  

  7.72
  

  1.43
  

  1.33
  

  89.48
  

  Flint Community Bank
  
AlbanyGA
  261,024
  

  7.91
  

  1.68
  

  1.36
  

  94.44
  

  Citizens Guaranty Bank
  
RichmondKY
  197,606
  

  6.95
  

  1.34
  

  0.52
  

  99.81
  

  The Peoples Savings Bank
  
UrbanaOH
  124,218
  

  7.73
  

  1.80
  

  0.45
  

  110.88
  

Source: FDIC data, as of December 31, 2019.


Recent deals

Announced DateTargetBidderDeal Value USD(m)
04/11/2019IBERIABANK CorporationFirst Horizon National Corporation3,937
27/01/2020CenterState BankSouth State Corporation3,213
09/12/2019Texas Capital BancsharesIndependent Bank Group3,075
13/08/2019Mutual of Omaha BankCIT Group1,000
18/11/2019Carolina Financial CorporationUnited Bankshares993
03/02/2020Opus BankPacific Premier Bancorp975
15/07/2019United Financial BancorpPeople's United Financial754
21/01/2020Franklin Financial NetworkFB Financial Corporation585



Comapnies to follow

Investar Bank (1/31/2020)
Investar Holding [NASDAQ:ISTR], a Baton Rouge, Louisiana-based holding company for Investar Bank, plans to use M&A to add USD 300m - USD 500m in assets annually, said President and CEO John D’Angelo. Acquiring deposits to support lending activities is a priority for Investar, and the bank is willing to pay a premium to get them, D’Angelo said. It plans to pay 1.4x-1.7x tangible book value for acquisitions, though Investar itself is trading at around 1.4x book, he acknowledged. Ideal targets should have loan-to-deposit ratios of less than 65%. It prefers all-stock transactions and would pay higher prices when using stock compared to cash, D’Angelo said. It wants an earn back period of less than three years and a TBV dilution percentage of less than 7%, he added.


United Bancorp (1/30/2020)
United Bancorp [NASDAQ:UBCP], parent for Unified Bank, would like to acquire at least one bank a year in targeted growth areas including Columbus, Akron, and Canton in Ohio; Pittsburgh, Pennsylvania; and Morgantown, West Virginia, said Scott Everson, CEO, chairman and president. Ideal targets would have less than USD 150m in assets, loan-to-deposit ratios of less than 25%, and be located within a two-hour drive from its headquarters in Martins Ferry, Ohio, the executive said. Acquiring more deposits will allow UBCP to reduce or eliminate its overnight borrowing, he added. It typically pays 1.15x-1.3x tangible book value for acquisitions, he added. UBCP has around USD 700m in assets and expects to reach USD 1bn in assets within the next two years, he said.


Bank of Southern California (10/28/2019)
Bank of Southern California [OTC Pink:BCAL], which specializes in small- and mid-size business lending, plans to list on Nasdaq over the next year to increase stock liquidity, said Nathan Rogge, president and CEO. It is interested in acquiring Southern California-based business lending banks or branches that have less than USD 500m in assets, focus on commercial and industrial lending rather than real estate lending, and have a high amount of noninterest-bearing demand deposit accounts. Logical buyers of BCAL are larger banks that want to expand in Southern California, he said. In one recent deal, Walla Walla, Washington-based Banner Corporation [NASDAQ: BANR] acquired Santa Rosa, California-based AltaPacific Bancorp [OTCBB: ABNK] for around USD 87.4m.


First Waterloo Bancshares (10/17/2019)
First Waterloo Bancshares, the parent of First National Bank of Waterloo, will continue to look at bank targets with around USD 100m or less in assets located within a 100-mile radius of the St. Louis metropolitan area, said Gary Hemmer, president and CEO. Asked about a potential sale of First Waterloo, Hemmer said he won’t “say never,” but it is not actively seeking one. Banks with more than USD 1bn in assets located in central Illinois and St. Louis metropolitan area are logical buyers, he said, adding that it hasn’t received any formal inquiries. Larger players in the region include First Busey Corporation [NASDAQ:BUSE], First Mid-Illinois Bancshares [NASDAQ: FMBH] and Midland States Bancorp [NASDAQ: MSBI], the CEO said.


Sandy Spring Bancorp (10/4/2019)
Sandy Spring Bancorp [NASDAQ:SASR], the Olney, Maryland-based parent company of Sandy Spring Bank, is interested in acquiring banks located in the Greater Washington area with USD 500m to USD 3bn in assets, said Dan Schrider, president and CEO. It is also interested in acquiring insurance agents with at least USD 1m in revenue and asset management firms with at least USD 500m in assets under management (AUM), Schrider said.


OceanFirst Financial Corp. (8/9/2019)
OceanFirst Financial Corp. [NASDAQ:OCFC], the parent company of Toms River, New Jersey-based OceanFirst Bank, could consider bank targets in the New York and Philadelphia metropolitan areas with USD 1bn to USD 7bn in assets, beginning in late 2020, said Christopher Maher, CEO and chairman. The company wants bank targets with high returns on assets, among other factors, Maher said. For example, OceanFirst has a 1.3% ROA as of date, and it wants targets that can enhance it, he noted.


Frandsen Financial Corporation (7/15/2019)
Frandsen Financial Corporation (FFC), the parent of Lonsdale, Minnesota-based Frandsen Bank & Trust, is interested in community banks with more than USD 80m in assets based in Minnesota, Wisconsin, North Dakota, South Dakota and Northern Iowa, said CEO Chuck Mausbach. FFC prefers targets with a 2% pretax ROA, he said, adding that it has examined a bank with a 1.5% pretax ROA but wouldn’t look at a target with less than 1.25%. Targets should have high credit quality, he added. It doesn’t use stock for transactions as it is family owned and closely held, he said.


Waterford Bancorp (6/19/2019)
Waterford Bancorp, a holding company for Toledo, Ohio-based Waterford Bank, plans to continue buying small-sized Midwest community banks and courting business customers that are underserved by larger banks in the region, said Mike Miller, chairman and CEO. It is in preliminary conversations with a target in Columbus and another one in Cincinnati, both of which have USD 200m to USD 500m in assets. Within the past year, it received a casual letter from an interested buyer, Miller said. Waterford is not currently looking for a sale and would not seek one unless it can’t grow the bank for some reason, he said.


First American Bank (6/17/2019)
First American Bank, an Elk Grove Village, Illinois-chartered bank, is in “constant contact” with financial institutions in Florida for potential acquisitions, said Brian Hagan, Florida Market President. It wants to continue growing beyond its home state, where budget problems with new taxes and fees are becoming unattractive for business owners, Hagan said. In Florida, on the contrary, the financial market is vibrant and diverse, especially in the trade finance and wealth management sectors, he noted. While it has been approached by potential buyers, the bank isn’t interested in a sale, Hagan said.


Merchants Financial Group (4/26/2019)
Merchants Financial Group [OTCMKTS:MFGI], the parent of Winona, Minnesota-based Merchants Bank, is in informal talks with about a half-dozen potential bank targets as it considers M&A to maintain a mid-single digit asset growth rate, said Gregory Evans, CEO and president. Ideal targets are commercial banks with USD 150m to USD 300m in total assets and north of 15% of deposits in checking accounts, he said. It prefers banks located within 150 miles of its headquarters, he added.


First Carolina Financial Services (3/28/2019)
First Carolina Financial Services, the Rocky Mount, North Carolina-based commercial bank, aims to expand its assets from around USD 500m to between USD 2bn and USD 5bn with only a handful of branches, CEO Ronald Day said. The bank is not interested in selling to a larger institution, particularly one based outside of North Carolina, but a merger with another in-state bank similar in size to First Carolina could be attractive, Day said. It has had informal discussions with potential buyers and with banks that fit its potential merger-of-equals criteria, but pricing has not been part of those talks, he said.


 

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