Georgia Bank Makes Case for Slow, Deliberate Integration

State Bank Financial (STBZ) in Atlanta will take its sweet time making its presence known when it enters Augusta, Ga.

The $2.6 billion-asset company agreed Tuesday to buy Georgia-Carolina Bancshares (GECR) for $82 million in stock and cash in a deal that should close early next year.

The seller's First Bank of Georgia is a gem, says Joe Evans, State Bank's chairman and chief executive, adding that he doesn't want to tarnish its luster by moving too quickly to cut expenses.

"I have seen — and have been a part of — too many deals where, in the name of accelerating the cost savings, you screw up what you bought," he says. "My greatest consideration on the front end is building the trust, the mutual understanding [and] the lines of communication."

The key is to avoid "a negative event" when it is time to "finally pull the trigger on the ultimate systems conversion," he adds.

State Bank's cautious approach reflects the hardscrabble lending environment, Evans says. Essentially, he isn't going to pay for a good platform and then jeopardize its ability to add to top-line growth by being quick about stripping expenses. "In a different economic growth environment, you could be cavalier about runoff," he admits.

"In a robustly growing economy you can earn that back quickly," Evans adds. "In the slower-growth world we're in today, you need to take care of what you acquire."

Integrations are always tricky. Some banks believe fast integrations are the best way to let one culture flourish; others assert that hasty integrations designed to strip out costs can send the best employees and clients into the arms of competitors. Industry observers say that is especially true when a buyer is the new bank in town.

"The last thing you want is to acquire a large local player and then have problems with retention," says Peyton Green, an analyst at Sterne Agee. A deliberate integration "is an appropriate mind-set because there would be plenty of people interested in poaching their bankers."

The need for deftness is heightened in a place like Augusta, Georgia's second-oldest city, says Christopher Marinac, an analyst at FIG Partners in Atlanta. The city has a diversified economy and is the home of The Masters golf tournament.

The $523 million-asset First Bank will keep its local identity for now, Evans says, adding that there is no exact time line for the bank's integration.

Still, Evans says it is likely that State Bank brand will eventually prevail. State Bank is projecting that it can cut 30% of First Bank's annual costs, though management cautioned analysts to expect modest accretion to earnings per share next year and "mid-teens" accretion in 2016.

The deal is the second one announced by State Bank this quarter. In late April, it agreed to buy the $198 million-asset Atlanta Bancorp. Evans says the Atlanta deal will have a quicker integration because it is in-market.

Besides geography and size, the targeted banks also differ in terms of performance. Atlanta Bancorp. is still dealing with lingering credit issues; its bank had an efficiency ratio above 90% at March 31 and a return on assets of 0.51%.

First Bank's return on assets averaged 0.96% over the past five years, Evans says, while the average of all Georgia banks was 0.20%. 

First Bank is a bit of a shift to healthy bank M&A for State Bank. Evans used the then-$35 million-asset bank in 2009 to buy six banks that belonged to Security Bank Corp. from the Federal Deposit Insurance Corp. in July 2009. Evans, who raised $300 million from institutional investors to complete, has bought a dozen failed banks.

Given the accounting treatment for failed banks, State Bank is remarkably well capitalized, but it is under pressure to deploy capital as it transitions to a more traditional community bank.

Several analysts applauded the latest deal as a good way to deploy capital. Jefferson Harralson, an analyst at Keefe, Bruyette & Woods, wrote in a note to clients that State Bank needed to find $644 million in loans to offset the accretable yield tied to the acquired failed-bank assets. The two deals get it 75% of the way there, he wrote, adding that Evans needs to find another $400 million in loans to achieve a 1% return on assets.