Banking M&A Headed for Big Bounce, Say Analysts

There’s going to be a dramatic increase in merger and acquisition activity in the American banking sector, according to a recent report from investment manager FJ Capital.

Research shows that community and regional bank M&A has already recovered more rapidly than anticipated, says FJ Capital. The investment manager expects recovery will improve further as the broader economy heals from the impact of the pandemic.

A continued period of bank M&A activity could result in a drop in the the total number of banks in the United States. The drop could be as much as 50% over the next 10-15 years, the report says. The total value and number of banking M&A deals in 2020 is at its lowest point since 2009, FJ Capital’s research showed. This nadir comes on the heels of last year’s combined M&A deal value of roughly $60 billion—the highest since 2007.

The investment firm notes that it expected a fall in deals because it’s typical in recessionary periods; however, the company also predicted a subsequent rebound as the economy starts to once again gain ground. It also found that extremely low interest rates were beginning to reduce the profit margins of smaller banks in particular.

“Our expectations are that activity will begin to pick up in the first half of 2021 and accelerate through the year and continue to be robust over the next 3-5 years,” FJ Capital said. They believe that the banking industry has reached a turning point in the credit cycle and is hitting a “positive inflection point” in community and regional banks.

Recent Community Banking Deals

There have been several community bank M&A deals in the past few months. They include the following:

Southwest Bancshares

In July, Capital of Texas Bancshares and Texas Hill Country Bancshares merged into Southwest Bancshares, the holding company for The Bank of San Antonio. The combined entity will trade as Southwest Bancshares. The new bank will have total assets of nearly $1.5 billion based on data as of May 31, 2020. While the three banks will merge, they each will retain their brands and leadership teams.

Bruce Bugg Jr. is chairman, president and CEO of the three holding companies. He said the decision reflected the existing affiliations between the banks and their common shareholders.

“It just made strategic sense for them to combine into one Central Texas banking franchise which covers San Antonio and Austin, the second- and third-fastest growing large American cities, respectively, and the Texas Hill Country which also has a strong and growing economic base.”

Banking M and A

City First Bank and Broadway Financial

These two banks announced a merger plan in late August. The companies say they will create the largest Black-led minority depository banking institution in the United States. The combined entity will have more than $1 billion in assets and roughly $850 million in total deposits.

In a joint statement, the two groups said the merger would “increase their collective commercial lending capacity for investments in multifamily affordable housing, small businesses, and non-profit development in financially underserved urban areas, while creating a national platform for impact investors.”

The new bank will keep its Community Development Financial Institution (CDFI) status. This status requires it to allocate at least 60% of its lending to low- to moderate-income communities.

Hanover Community Bank and Savoy Bank in Banking Deal

Also in August, Hanover Bancorp, the parent company of Hanover Community Bank, and Savoy Bank announced a merger agreement. The two banks said that Savoy Bank would merge into Hanover Community Bank in a stock and cash transaction valued at approximately $63 million. The Savoy directors own approximately 49% of Savoy’s outstanding shares.

The merger combines two complementary banking platforms to create a sub-$5 billion asset sized community banks. They will serve the New York City metro area.

The combined banking company will have nearly $1.6 billion in assets, $1.1 billion in total deposits. The combined bank will have eight branches, including sic in the New York City. They expect that an additional branch in New Jersey will be opened prior to closing. Hanover will continue to operate Savoy’s single midtown Manhattan branch office, and it will become the headquarters for Hanover’s business development efforts in New York City.

Another Banking Merger, Blue Ridge Bank and Virginia Commonwealth Bank

Richmond-based Virginia Commonwealth Bank and its parent company Bay Banks of Virginia announced a deal in August. They will merge with Blue Ridge Bank of Charlottesville. The merger will create a $2.4 billion banking entity with 35 branches in Virginia and North Carolina.

The Blue Ridge Bank name will be the surviving brand. it will bring its operations to the Richmond area for the first time. Blue Ridge Bankshares will be the surviving holding company and be headquartered in Charlottesville. The bank subsidiary will be based in Richmond.

The banks reported an all-stock deal and a merger of two similar-size banks, although Blue Ridge is technically the acquirer. Blue Ridge brings with it $1.6 billion in total assets. Bay Banks has $1.2 billion.

FirstBank Puerto Rico and Santander

In September, FirstBank Puerto Rico completed the acquisition of Santander’s Puerto Rico business. The deal adds about $5.5 billion in assets, $2.7 billion in total loans, and $4.2 billion in deposits.

The acquisition is worth $1.2 billion, including $394.8 million for the equity of the bank and $882.8 million for excess capital, which First Bank said represented “the estimated closing payment pursuant to the terms of the purchase agreement.”

Santander’s Puerto Rico business will add 73 branches and 445 ATMs to FirstBank’s network across Puerto Rico.

F&M Bank and Carroll Community Bank

Finally, Farmers and Merchants Bancshares—the parent company of Farmers and Merchants Bank (“F&M Bank” ), and Carroll Bancorp—the parent company of Carroll Community Bank entered into an Agreement and Plan of Merger on March 6, 2020. At the completion of the transaction, Carroll will be merged into F&M Bank. F&M Bank will be the surviving bank holding company, and Carroll Bank will be merged with and into F&M Bank. F&M Bank will be the surviving Maryland commercial bank.