Yesterday, we announced our first mergers of the year with the concurrent signing of two separate definitive agreements to acquire the holding companies for Harbor Community Bank (Harbor) headquartered in Ft. Pierce, FL, and Sunshine Bank (Sunshine or SBCP) out of Plant City, FL. Once completed, these mergers will make CenterState Bank a $10.1B organization (using 2Q numbers), or the largest community bank headquartered in America’s third largest state, Florida.
Earlier this week (HERE), we covered the how the Growth Efficiency Ratio (GER) can be used to analyze how efficiently a bank can grow. We highlighted an aspect of the efficiency ratio that while it is descriptive as to how a bank’s overhead compares to its revenue, a bank could stop or slow growth to improve its efficiency ratio.
One of our favorite conferences each year is the Bank Director’s Acquire or Be Acquired Conference (AOBA). While the material is a little redundant (there are only so many slides you can see on bank multiple trends), they keep the conference moving so you never get bored. Bank Director also does one of the best jobs in the industry of actually working practicing banks into the panels, so you hear firsthand how they do it and not just some vendor’s theory.
Yesterday, we announced our second merger of the year with the purchase of Gateway Financial. Gateway is a three bank holding company and totals $8880mm in assets and nine branches located in central Florida. Combined, that makes us $6.5B in assets with 85 branches spread throughout Florida and cements our position as the second largest community bank headquartered in Florida. In this post, we discuss what this transaction looks like and detail why we did this.
This week we announced the acquisition of Platinum Bank Holding Company, the parent of Platinum Bank. Platinum Bank is a $584mm total asset competitor located next door to us in Brandon, FL. The acquisition makes us a $5.6B asset sized institution and gives us the number one deposit share in our core market and the number two community bank market share in the State. While there are lots of reasons to acquire another bank, this one illustrates a couple of interesting points that both bank buyers and sellers should consider for their next transaction.
For U.S. banks, unlike common equity that derives its returns primarily through appreciation; preferred equity gives an investor a return largely in the form of a fixed dividend. Thus, when it comes to valuing a bank with preferred debt, the question comes up do you treat the capital as common or more like a debt instrument? Because the dividend is largely like a coupon on a holding company loan or other debt instrument, it seems natural to value preferred equity as debt.
A good banker can sometimes tell that a number set is wrong just by looking at it. Today, we are going to teach you a trick that all bankers should know in order to help stop fraud, help in credit analysis and will be invaluable in M&A. We have even attached a calculator at the end to help you put it into practice. It doesn’t matter if the banker is a loan officer, a teller or a CEO.
Berkshire Hathaway’s annual shareholder letter is out and unlike that blue/black/white/gold dress (we really have no idea what color that dress is) meme, this letter is clearly in the color of packed insights and business lessons for all. We read all 42 pages of this 50th anniversary letter and boiled down the most important insights plus added analysis for your consideration.
If your bank is looking for a road map to the future, follow Capital One. Like BBVA, TD Bank and a number of others, banks should be thinking about a technology acquisition before their next bank acquisition. At a minimum, bank boards should weigh other investment alternatives to whole bank purchases and see which investment alternative can provide the highest risk-adjusted return. Oftentimes, acquiring equity in a technology company where a product can be immediately leveraged can often result in a faster and more fulfilling accretion to earnings.
Any bank merger announcement comes with the discussion of people, a bank’s most valuable asset. When Bank A acquires Bank B, there is the risk that key staff from Bank B will defect. While both Bank A and Bank B want to retain those key staff, Bank C and D are in the wings waiting to pounce on opportunity. No matter if you are Bank A, B, C or D, there are powerful psychological and economic forces in play that should be understood and managed in order to achieve your goals.