On September 13, 2019, the FDIC released the latest results of its annual summary of deposits survey data. The deposit market share data always presents an interesting view of the banking market, particularly when viewed over time.
As of June 30, 2019, roughly $256 billion in deposits were held in Georgia, up from $250 billion in 2017 and $197 billion in 2014. While total deposits are up, the number of banks and branches have each continued to decline. Five years ago, there were 259 banks with branches in Georgia; today (assuming completion of announced mergers), there are 208 banks with branches in Georgia. While the number of branches have also declined, the rate of decline is not as significant: 2,526 branches in 2014 to 2,254 branches today.
Deposits per branch have been steadily on the rise for years. In 2005, Georgia averaged $57 million per branch. By 2014, that number has risen to $78 million per branch, and today the figure is $114 million per branch.
Adjusting for announced mergers, the “big three” in Georgia (Truist, Bank of America and Wells Fargo) now hold roughly 55% of the deposits in Georgia. This is up from 53% two years ago and 51% five years ago, but down slightly if one were to include BB&T in the historical totals.
As of June 30, 2019, fourteen institutions have at least 1% of the Georgia deposit market share, one more than five years ago. Six additional banks in Georgia now have at least $1 billion in Georgia deposits, from 18 in 2014 to 24 in 2019 (and that’s excluding BB&T in 2019 based on its pending merger with SunTrust).
But as suggested by the headline to this post, I think the really interesting data is in the relative sizes of the banks with at least 10% of their respective total deposit bases in Georgia (i.e. banks in which Georgia represents a significant portion of their deposit base, whether they call Georgia home or not). We have not only seen a material decline in the number of these institutions, but the asset size distribution has radically changed over just the last two years.
Because of the nature of bank M&A, including the transaction costs and opportunity costs to doing a deal, and the ability to spread out costs over large portfolios, most M&A acquirers are going to look for targets between half and one-tenth the size of the acquirer (barring strategic mergers where the target may be almost as large as the acquirer). This effectively means that the number of potential acquirers for a bank looking to sell (or targets, for a bank looking to buy) is inherently smaller than the total universe of banks. This also means that for community bank M&A activity to function at its smoothest, one would like to have a normal distribution of bank sizes at play.
As reflected in the chart above, over the last two years, the historical serial acquirers of Georgia’s community banks have potentially grown themselves out of seeing Georgia’s community banks as inherently attractive M&A targets (at least from a size perspective). As of June 30, 2019, the State of Georgia no longer has any banks (with at least 10% of their deposits in Georgia) with total deposits of between $3 and $10 billion.
The banks in the $10 to $20 billion deposit size (Bank OZK, Cadence, Ameris, CenterState, South State, United Community, and Renasant (and their predecessors, including C&S, Fidelity, National Bank of Commerce, and State Bank & Trust)) have been the presumed acquirers for many Georgia community banks over the last five years (or more). As they have grown, it has potentially created an open playing field for the next serial acquirer(s) to come to the plate.
The banks in the $1 to $3 billion deposit size range are the most obvious potential next serial acquirer, and there are several interesting names in that group, including Colony Bankcorp (management with proven track record of acquisitions), Heritage Southeast Bancorporation (recently completed strategic combination) and MetroCity Bankshares (recently filed for its initial public offering). It’s also completely possible that the next acquirer will be an out-of-state bank with either no existing presence in Georgia, or that fell below my arbitrary 10% cut-off (such as FirstBank in Tennessee with 8.5% of its deposits in Georgia or The First in Mississippi with 2% of its deposits in Georgia).
Applying the rules of supply and demand are always difficult in the non-commodity, limited-trade, market for community bank merger and acquisition activity, but the reduced number of obvious, experienced buyers may further depress merger activity in Georgia. While we are aware of potential sellers thinking they could capitalize on their own scarcity value, the lack of an active pool of buyers (particularly with a proven track record and liquid stock) has limited the transactions that have materialized.