Stock Yards Bancorp in Louisville, Kentucky, is buying crosstown rival Commonwealth Bancsharest in a bid for scale and breadth of services in the state’s largest metropolitan market.
The $153 million cash and stock deal, expected to close in the fourth quarter, is the second M&A play for Stock Yards in 2021. The company, owner of Stock Yards Bank & Trust, completed its $190 million buyout of Kentucky Bancshares in Greater Lexington in May. That deal was
With the first deal, Stock Yards gained $1.2 billion of assets and 19 branches across central and eastern Kentucky. The deal announced Tuesday for Commonwealth, the parent of Commonwealth Bank & Trust, would give it another $1.3 billion of assets, 16 branches around Louisville and north of the city, several mortgage offices and $2.6 billion of wealth management and trust assets.
Community banks across the country are
Additionally, since the financial crisis, banks of all sizes have faced more regulatory scrutiny and therefore cost pressures, said James Hillebrand, chairman and CEO of Stock Yards Bancorp, the parent of Stock Yards Bank & Trust.
“In today’s financial world, you need scale to keep up with necessary technology spend and regulatory costs to stay relevant,” Hillebrand said in an interview. Both deals this year were negotiated, as opposed to the seller approaching multiple buyers in an auction-style process, he said.
The trust assets gained with the Commonwealth deal punctuate Stock Yards’ efforts to diversify revenue streams, he said.
“Their wealth management business is significant, and with the addition of those assets under management, that’s really incredible scale for a community bank,” Hillebrand said.
Talent retention will also be a key focus, as proven lenders and wealth management advisors are vital to retain customer bases. Commonwealth Bank President and CEO John Key will join Stock Yards Bank as director of strategic initiatives.
Hillebrand noted that with the two deals, Stock Yards would be the largest bank based in Kentucky by deposits. Stock Yards expects to have 79 branches and about $7.4 billion of assets, $4.9 billion of loans, $6.4 billion of deposits and $7 billion of trust assets under management.
Stock Yards, whose footprint spans Kentucky as well as Cincinnati in neighboring Ohio and Greater Indianapolis, is open to more deals in the future and already has made its plans known to potential targets in all of its major markets, according to Hillebrand.
“The banks we are interested in know we are interested in them,” Hillebrand said.
He emphasized, however, that Stock Yards would be unlikely to announce another deal this year or in early 2022, as the bank intends to spend this time working on the integration and system conversion of Kentucky Bancshares and Commonwealth.
“Right now, we’ll be very focused on execution,” Hillebrand said. “You can really mess it all up by not executing conversions correctly.”
Stock Yards expects to generate 30% savings on Commonwealth’s noninterest-expense base, with 80% realized in 2022 and 100% the following year. Hillebrand said branch consolidation in Louisville, where the two banks have substantial overlap, would help drive the savings.
Hillebrand projected 12% accretion to 2023 earnings per share, following all cost savings, and he expects Stock Yards can earn back tangible book value dilution of 3.6% in less than two years.
Stock Yards last week reported second-quarter net income of $4.2 million. Hillebrand said organic loan growth and fee income from its wealth management and trust operations helped drive revenue and bolster the bottom line.
While the
“No credit issues — we aren’t seeing any signs of deterioration,” Hillebrand said. Loan “pricing is competitive. But importantly, we are not seeing banks stretch on structure. It’s encouraging that this continues to be sound.”
