Opportunity Of A Lifetime

It was December 2006 and Joe Evans had just completed the sale of Atlanta-based Flag Financial Corp. to the U.S. arm of Royal Bank of Canada for $456 million-a deal that Royal Bank must now deeply regret considering what would soon happen to the Georgia real estate market. Evans had been Flag’s chairman and chief executive officer, but neither he nor the rest of Flag’s core management team would stay on, and they were looking for something to do. So Evans formed the Bankers Capital Group, which he says was “really a vehicle to hold us together and wait for an opportunity to build another bank.”

For the next few years, Evans and his team kept busy doing some consulting work and advising local banks on their growing loan problems as the state’s real estate market-particularly in grossly overbuilt Atlanta-started to crater. But these were bankers, not consultants, and they had something else in mind. “To have a balanced management team intact and on the sidelines as the world was coming unglued turned out to be just a very valuable asset,” Evans says. “Bankers Capital gave us that opportunity to have a management team in waiting.”

Opportunity finally knocked in July 2009 when Evans and his team were able to acquire Security Bank Corp., a failed bank in Macon, Georgia, from the Federal Deposit Insurance Corp., in a complicated transaction that included separate loss-share agreements with each of Security’s six banking subsidiaries, and required Evans to raise capital from outside investors. To characterize the deal as a success would be a gross understatement because Atlanta-based State Bank Financial Corp., as Evans’ new bank is known, has performed so spectacularly well that it is the top ranked bank on Bank Director magazine’s 2011 Bank Performance Scorecard.

Evans could well have named his venture “Phoenix Bancorp” because he’s building a new bank from the ashes of the Georgia banking market, where there have been 63 bank failures since August 2008, according to the FDIC. Evans has successfully bid on several more failed bank deals since acquiring Security, and has learned to capitalize on the economic bonanza inherent in FDIC- assisted deals as well as any banker in the country.

Banking organizations that are the product of an aggressive roll-up strategy can have a transient quality to them-often reflected in the level of investment they are willing to make in people, products and infrastructure-if the purpose of the exercise is to cobble together something that later can be sold to someone else. Companies that are built to be sold are rarely as good as companies that are built to last. But Evans seems intent on building a bank that can do its part to put the Georgia economy back on its feet-a bank that can go the distance.

“Great banks are not made in haste,” he says. “Great banks are built on sound foundations with sound, conservative principles. There’s nothing flashy about a great bank.”

While Evans and his cohorts-CFO J. Daniel Speight, Jr., Chief Credit Officer Kim Childers and Chief Banking Officer Stephen W. Doughty-were handling consulting assignments for a few years after the Flag Financial sale, they were also on the lookout for a troubled bank to acquire. While there were no shortage of prospects in Georgia, one bank in particular-Security, a six-bank holding company with about $2.5 billion in assets-was especially attractive to the group. “When we sensed that Security was headed toward failure, which was probably around the end of the first quarter of 2009, we felt that would be the best platform for us to rebuild a banking franchise in the way we envisioned it,” says Evans.

Headquartered in Macon-a medium-sized community in central Georgia about 80 miles south of Atlanta-Security had several attributes that appealed to Evans and his team. “We knew that market from having lived in it,” he explains. A native of Smarr, Georgia, a small unincorporated community just north of Macon, the 61-year-old Evans graduated first in his class from the Georgia Institute of Technology with a degree in industrial management, ended up pursuing a career in banking and has spent his entire work life at institutions somewhere between Macon and Atlanta. Prior to Flag, where he was CEO from 2002 to 2006, Evans was the CEO at Bank Corp. of Georgia and, later, Century South Banks Inc., when the Macon-based companies merged in December 1997.

“We feel very strongly that you better bring some history with you if you want to make a difference in building a banking franchise,” Evans says.

Evans and his team also liked the fact that Security’s market spanned three MSAs running from metro Atlanta to Warner Robins, a small town just south of Macon, which accounts for approximately 64 percent of all deposits in the state of Georgia. Better yet, Security had the largest market share of any bank in Middle Georgia. “I have never had a bank before in my career that was a number one market share bank in an MSA,” Evans says. “It was a good critical mass starting platform.”

Identifying State Bank was one thing; actually acquiring it was another. First, because Evans didn’t currently have a bank-an important detail for someone intending to do a deal with the FDIC-he needed to find an acquisition vehicle. That necessity was solved when Evans worked out an arrangement with some friends who in 2004 had started State Bank Financial in Dooley County, Georgia, a few miles north of Macon. With just $30 million in assets, State Bank wasn’t exactly on a steep growth curve and the founders agreed to partner with Evans on a bid for Security, with Evans taking over as CEO.

Because the FDIC would require that Security’s banking operations be recapitalized immediately upon any sale, Evans also had to raise the necessary money before submitting his bid to the FDIC. In early 2009, Evans, working with Arlington, Virginia-based FBR Capital Markets, embarked on a road show in which he met with as many as 80 institutional investors to line up financial support for an FDIC-assisted deal in the Georgia market. Rusty Wright, an associate in FBR’s Financial Institutions Group, says the initial reaction of potential investors was very positive. “Joe’s experience in building up Flag really spoke to investors,” says Wright. “They all said, ‘When you have a target, come back to us.’” And when that target turned out to be Security, Evans ended up raising $300 million to support his bid. The largest investor owns just 7.5 percent of the company, and no outside investor received a board seat.

The deal was a winner for Evans’ management team and their investment backers, as well as for the FDIC. “Joe brought in new capital to the banking system, and he also provided management talent,” says Wright.

State Bank closed on the Security deal in July 2009, and in December of that year, acquired two more failed banks from the FDIC-$856-million-asset Buckhead Community Bank in Atlanta and First Security National Bank, a $128-million-asset institution in Norcross, Georgia, an upscale community in Atlanta’s large suburban perimeter. Originally, Evans hadn’t attached much franchise value to Security’s small footprint in Atlanta, but the Buckhead and First Security deals gave State Bank’s Atlanta operation some much needed heft.

State Bank also acquired three small failed banks from the FDIC in 2010, for a total of six. Because Security had six operating subsidiaries, each of which required a separate loss share agreement with the FDIC, State Bank is now managing 10 agreements with the agency. One of Evans’ first tasks upon acquiring Security was to establish a special assets group that would administer the assets in State Bank’s various loss share agreements, which have their own complex accounting requirements. State Bank’s loan workout group now employs 40 people and has nearly $1 billion in problem assets under management.

“I’ve made the analogy many times that it’s very much like being in the government guaranteed lending business,” says Evans. “A bank that does one or two of them will say the administrative requirements are overwhelming, but if it’s a line of business and you build your operation to the specifications of the government agency with whom you’re partnering, it becomes second nature.”

Evans clearly wants to build a fundamentally sound bank with a conservative risk profile and a sustainable funding advantage in its core markets. And yet he is pursuing two very different strategies in State Bank’s Macon-to-Atlanta, 22-branch footprint. In middle Georgia, where it has the leading deposit market share, State Bank serves a broad base of retail and commercial customers. “We want to remain a dominant player there,” says Evans. “There are a lot of good things that come to a bank that has a leading market share. We are very pleased to have that in the middle Georgia marketplace and we’re going to do everything in our power to see that we not only preserve that, but extend it.”

In Atlanta, where it ranks 11th with less than 1 percent of that MSA’s retail deposits, and has six large banking centers, State Bank is focusing on a much narrower market segment. “Our mission in Atlanta is to be an exceptional bank to owner-managed businesses, to professional firms, to real estate investors,” says Evans. “We don’t perceive that there is a great opportunity for us in Atlanta to build a broad base retail business.”

One of Evans’ biggest challenges is building a new bank from the remains of other banks that failed, and that includes fashioning six different employee groups into one unified team. “Building a cohesive, unified culture is a much greater task than managing the assets from the loss share (agreements),” he says. Still, Evans says that employees who have experienced the trauma of having their bank shut down by their primary regulator and auctioned off by the FDIC are often more open to change than employees who come in through a conventional acquisition.

“The people who come with a failed bank are much more open to change and being retrained (because) they appreciate the acquirer,” he says.

Evans says he has no interest in expanding beyond State Bank’s existing footprint, although he would like to pick up additional failed banks inside that footprint. State Bank’s special assets group is scalable, and its operations people have become so practiced at integrating acquisitions that taking over failed banks has become a major line of business. According to FBR’s Wright, as of mid-June there were 74 banks in Georgia with Texas ratios of 100 or higher, so Evans should have the opportunity to do several more FDIC-assisted deals. (The Texas ratio is a measurement of a bank’s asset quality problems and is derived by dividing the value of its non-performing assets by the sum of its tangible common equity and loan loss reserves.)

Most of all, Evans is grateful for what can only be called the opportunity of a lifetime to build a great bank in a market than surely needs one. “To be our size in a focused geographic footprint with plenty of capital, no asset quality problems and earnings-it’s really easy for a person to feel proud to be a part of State Bank,” he says. “It’s the most exciting situation that I’ve found myself in in my working lifetime.” |BD|


Jack Milligan


Jack Milligan is editor-at-large of Bank Director magazine, a position to which he brings over 40 years of experience in financial journalism organizations. Mr. Milligan directs Bank Director’s editorial coverage and leads its director training efforts. He has a master’s degree in Journalism from The Ohio State University.

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