Monday, April 23, 2018

Sort of off topic, but not really: Bank consolidation and mergers

(If you work in the river industry and have no interest in trends in banking, read this anyway. You might see some things your industry has in common with banking.).

TodayOn April 19, WesBanco Inc., a large regional bank based in Wheeling, W.Va., announced it had reached an agreement to acquire Farmers Bank Capital Corp. of Frankfort, Ky., in a stock and cash deal valued at about $378.2 million.

Once completed in the third quarter of this year, the acquisition will give WesBanco an additional 34 banking locations in 21 communities in Kentucky and in Cincinnati. WesBanco will have a larger footprint in Northern Kentucky, Louisville, Lexington and Elizabethtown.

A few weeks ago, WesBanco completed its acquisition of First Sentry Bank of Huntington, W.Va. That closed a gap in WesBanco's coverage area that stretched from Wheeling down to Charleston in West Virginia and across Ohio through the Columbus market to Dayton and Cincinnati.

WesBanco has about $10.24 billion in assets, making it the largest bank based in West Virginia. The largest banking company based in West Virginia is United Bankshares, which operates Virginia-based United Bank. The Farmers acquisition will increase WesBanco's assets to about $11.9 billion.

As with other industries, the banking industry in this part of the U.S.A. is consolidating. Mid-sized banks are finding it hard to compete against the regionals and superregionals. The thing about WesBanco is that it has expanded through acquisitions in the Ohio Valley, where most other West Virginia-based banks that have been aggressive in merger-and-acquisition (M&A) activity have bought up banks in northern Virginia. You know, where the money is.

However, WesBanco has set its sights on commercial lending activity in a region that includes the Ohio Valley. The company crossed the $10 billion threshold in assets several months ago. It had held back as long as it could to keep from triggering certain paperwork provisions of Dodd-Frank. The red tape involved in the Dodd-Frank threshold can cost a bank hundreds of thousands of dollars per year. But now that the line has been crossed, WesBanco has made two acquisitions.

Coal is hurting, and the metal and chemical industries are in decline, too, in West Virginia. Natural gas is booming, and there is lots of construction going on in building processing plants and pipelines to ship gas out of state. But banking appears to be different,

The current wave of consolidations has gone on for 25 years or more as banks from Ohio and North Carolina took control of West Virginia's largest banking companies. For whatever reason, West Virginia bankers have seen growth opportunities by becoming the hunters instead of the hunted.

Back around 1996 when a lot of former bank presidents realized they had been demoted to branch managers as their new out-of-state owners took more control of local operations. Here in West Virginia, we had several new banking companies — known in the industry as de novo banks — form around that time. But most if not all are gone now, having been absorbed by the larger in-state banks.

Who knows where this wave of consolidations will end? Don't ask me. I got out of the prediction part of this business when I realized  how bad I was at it. But time is circular, and what happened before probably will happen again. The questions are when and how.