Issues : Bank M&A

Consolidation Hot Spots

Bank consolidation creates opportunities for an acquirer, as well as competing banks in their markets that take advantage of customer and employee attrition. That’s why the markets experiencing rapid consolidation, profiled below, can be so attractive.

In Florida, 27 deals have closed since Jan. 1, 2018, representing 24% of the market. The deposit-rich region has attracted outside acquirers like Wayne, New Jersey-based Valley National Bancorp, which entered the market via its 2014 acquisition of $1.7 billion asset 1st United Bancorp. It built on that deal by acquiring $1.4 billion asset CNLBancshares in 2015 and $4.2 billion asset USAmeriBancorp in January 2018.

“It was a strategic decision by the board to begin to move the franchise to a higher growth market in Florida,” says Ira Robbins, the president and CEO of $33 billion asset Valley National.

To identify hot spots for M&A activity, Bank Director tallied the number of deals completed in 2018 and 2019 in each state, as well as the number of acquired banks as a percentage of total banks.

Valley National hasn’t been the only outside acquirer interested in gaining ground in Florida. In fact, most of the large Florida-based banks have been gobbled up, including $12.4 billion asset FCB Financial Holdings, which was acquired in January 2019 by Columbus, Georgia-based Synovus Financial Corp., with $47.3 billion in assets.

“Over the last couple of years, a lot of the larger public banks [in Florida] have sold,” says Stephen Scouten, a managing director at Sandler O’Neill + Partners. Other outside acquirers include Little Rock, Arkansas-based Bank OZK, with $23 billion in assets, and $31.4 billion asset IBERIABANK Corp., in Lafayette, Louisiana, leaving a market that’s largely dominated by out-of-state players.

BankUnited, based in Miami Lakes with $33.1 billion in assets, is the largest Florida-based retail bank left standing, according to the Federal Deposit Insurance Corp.’s market share data. On its heels are $17 billion asset CenterState Bank Corp., based in Winter Haven, and Stuart-based Seacoast Banking Corp. of Florida, with $6.8 billion in assets. Both are active acquirers, but CenterState has shifted to looking outside the state for deals following its January 2018 acquisition of HCBF Holding Co. and Sunshine Bancorp.

This leaves Seacoast as the largest acquirer that is based in and focused on Florida. With few large potential targets left in the state, its focus on smaller, low-risk targets means Seacoast could be poised to make hay in the Florida marketplace.

Acquiring smaller banks helps Seacoast preserve its culture and rapidly achieve cost saves, says Seacoast Chairman and CEO Dennis Hudson III. “Our M&A strategy is part of an overall growth strategy that leans heavily into organic growth and when you combine that with our avowed focus on the state of Florida, one of the best states in which to operate because of the growth and the diversity of the economy that has built up over the last 10 years and just the size of the economy, it’s just a great combination.”

In contrast to Florida’s high-growth demographics, Illinois’ population has been shrinking, says Linda Koch, president and CEO of the Illinois Bankers Association. Thirty-four acquisitions have closed in the state since January 2018, putting it just behind Texas (35) for the highest number of transactions. She says the drivers of M&A activity in the state are consistent with what community banks face throughout the U.S.: economies of scale to address rising costs, as well as the impact of the rate environment on funding costs and net interest margins. Succession planning is another driver, given the number of small, private banks in the state.

Also fueling that activity is the sheer number of charters per capita in Illinois, says Nathan Race, vice president and senior research analyst at Piper Jaffray. “I would expect that deal flow to continue over the next few years at least, just given that there’s still a number of subscale banks across the state, particularly in and around Chicago.”

Deal activity ebbs and flows, so the picture could change in 2020. Valley National’s pending acquisition of $4.1 billion asset Oritani Financial Corp., based in Washington Township, New Jersey, brings it back to its home base in the northeastern U.S.

“We continue to believe that the Southeast is a tremendous market for us, from an opportunity perspective,” says Robbins. But future growth will likely be organic, rather than acquisitive. “[The] market provides different opportunities at a point in time, based on where multiples trade. Right now, I would say [that] although the Southeast is a growth market and has a lot of opportunity, the multiples of banks that are potentially viable for us are pretty high … Based on where we see multiples, an organic strategy makes a little more sense.”

Hottest Markets for Bank M&A

RankStateTotal Deals
2018-2019*
% of
Market
Largest Target
(In assets, millions)
Score
#1Florida2724.3%FCB Financial Holdings
$12,192
2.83
#2Illinois348.0%MB Financial
$20,168
8.67
#3Texas358.2%Green Bancorp
$3,426
9.67
#4South Carolina817.0%CAB Financial Corp.
$731
10.67
#5Georgia159.1%State Bank Financial Corp.
$4,892
11.33
#6Kansas108.7%Peoples Inc.
$866
11.83
#6Arkansas99.8%Bear State Financial
$1,703
11.83
#6Massachusetts187.9%BSB Bancorp
$2,972
11.83
#9Minnesota258.8%Klein Financial
$1,972
12.17
#10Iowa176.1%ATBancorp
$1,369
13.33

* Completed through Sept. 25, 2019
Source: S&P Global Market Intelligence, Federal Deposit Insurance Corp.