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Bank investors may be softening their antipathy for long earn-back periods. When Union First Market Bankshares promised five years of dilution but a big boost to earnings from its deal for StellarOne, its stock declined only a little.
June 10 -
Xenith Bankshares (XBKS) in Richmond, Va., has agreed to buy Colonial Virginia Bank in Gloucester, Va.
March 21 -
Xenith Bancshares Inc. of Richmond, Va., is adding market share in its hometown with a deal to acquire the lone Virginia branch of Paragon Commercial Bank in Raleigh, N.C.
June 2 -
It's plan B for the organizers of Xenith Corp. in Richmond, Va. and that B now stands for buy.
June 15 -
Integra Bank in Evansville, Ind., was closed by the Office of the Comptroller of the Currency, after fighting to survive for nearly two years.
July 29
Colonial Virginia Bank in Gloucester, chose to hitch a ride to a higher growth market by agreeing to sell itself to Xenith Bankshares (XBXS).
Xenith, from Richmond, Va.,
Colonial's efforts to enter a bigger market were thwarted by regulators' expectations. Given Colonial's earning stream and lingering credit woes, the qualifications it needed to expand were too great, says Robert Bailey, the bank's chief executive. That barrier, along with the overall operating and regulatory environment, convinced directors to consider a sale.
"It was the best path for us given the circumstances we find ourselves in," Bailey says. "We had a hard time painting a picture where remaining independent was the right decision."
Colonial received an unsolicited offer from another bank that Bailey declined to identify. It then hired Sandler O'Neill to help the board weigh its options.
Xenith, which began in 2008 as an investment vehicle looking to build a dominant commercial lender in Virginia, entered the fray. Colonial determined the two parties' interests were in line, Bailey says.
Hampton Road was on Xenith's list of markets it wanted to enter. The company already had operations in nearby Suffolk.
"Colonial is adjacent to a key market for us and [Bailey] is very capable to lead the effort into greater Hampton Roads," says Thomas Osgood, Xenith's chief financial officer.
Bailey is expected to join Xenith's management team and will lead the push into the greater Hampton Roads area. Whether the company opens a loan production office, a branch, or does another acquisition to truly enter the market is to be determine, Osgood says.
Besides serving as a beachhead, the acquisition gives the $680 million-asset Xenith another way to leverage its capital. The deal will increase its assets to just less than $800 million.
"We built the infrastructure to be a larger bank," Osgood says. Becoming a bank with more than $1 billion in assets "is readily in our sights with this deal."
Banks spend considerable time talking about the size and scale needed to reach targeted returns, often saying they need to double in size. Osgood says he believes having more than $1 billion in assets will help, though having $2 billion to $4 billion seems like the right size to become a "formidable" competitor.
"The bad news about the banking industry is the fixed costs, but the good news is the fixed costs, too," Osgood says. "If you can get past that leverage point, you can really have adequate returns."
M&A activity has been
"Xenith certainly had success with creative acquisitions," says Derek Ferber, a senior analyst at FJ Capital, a Washington hedge fund focused on banks with a very small position in the company. "The acquisition of StellarOne was a game changer ... and it brought more attention to the market. I see Xenith as continuing to be a consolidator."
Colonial Virginia is Xenith's fourth acquisition, following the purchase of its target bank,
Xenith is looking for more opportunities, Osgood says. While content with deals the size of Colonial Virginia, management thinks a game-changing deal could be out there.
"We could do numerous deals like this and still be in good shape," Osgood says. "But it would be exciting to go from $800 million to $2 billion overnight. We are examining a whole spectrum of strategies."
