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COVID-19 continues to weigh on pending bank M&A transactions

As experts expected, COVID-19 is continuing to impact pending deals.

As the ongoing pandemic shifts the focus of financial institutions to potential credit quality issues and government stimulus programs, previously announced M&A transactions have been delayed, renegotiated and terminated.

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The largest deal on record in which a credit union acquired or is acquiring a bank was terminated in light of the uncertainty surrounding the COVID-19 pandemic. Tampa, Fla.-based Suncoast CU's acquisition of Miami-based Apollo Bank was axed after a series of delays due to the virus, management from the companies told Miami Herald.

Other pending transactions are continuing despite delays due to COVID-19.

Puerto Rico-based First BanCorp.'s pending acquisition of Banco Santander Puerto Rico will likely be delayed due to COVID-19, according to First BanCorp.'s investor presentation. First BanCorp. is continuing to work with regulators reviewing the transaction, but the ongoing pandemic makes it unlikely that all regulatory approvals will be received in order to close the transaction by mid-2020 as previously expected, according to the company.

"When we announced [in] the beginning of October, we provided an estimated closing date, closing time of middle 2020, mid of 2020," President and CEO Aurelio Alemán-Bermudez said on the company's first-quarter earnings call. "So what we're saying to the market is we see that at this stage, [that timeline is] unlikely because, obviously, yes, people are working, but the pace of progress is different."

A requirement of the deal outlined in the company's Form 8-K is that it must be closed within 12 months of the announcement date of Oct. 21, 2019. When an analyst asked about this requirement on the earnings call, Alemán-Bermudez said there is a process to extend that deadline by 90 days.

While Memphis, Tenn.-based First Horizon National Corp.'s merger of equals with Lafayette, La.-based IBERIABANK Corp. is still on track to close by the end of the second quarter, the company postponed its acquisition of 30 Truist Bank branches.

On the company's first-quarter earnings call, First Horizon CEO D. Bryan Jordan said the companies agreed to postpone finalizing the transaction until the third quarter due to the ongoing pandemic.

"The postponement will alleviate customer disruption in this uncertain time and allow us to comply with social distancing guidelines," he said.

Some pending deals are still on track to close as previously estimated, but participants have renegotiated their deal terms after the Federal Reserve cut interest rates in response to the pandemic, hammering bank stocks in the process.

Rancho Santa Margarita, Calif.-based CalWest Bancorp and San Diego-based Bank of Southern California NA renegotiated their deal terms after Bank of Southern California's shareholders halted voting on the deal due to COVID-19's economic impact.

The companies agreed to amend the initial definitive agreement for the merger. The amendment reduced Bank of Southern California's all-cash offer to 35 cents per CalWest Bancorp share from the previous offer of 43 cents per share. The deal is expected to close on May 29.

Deal terms for two credit union acquisitions of banks were also revised in light of COVID-19. South Bend, Ind.-based Teachers CU revised the terms of its acquisition of New Buffalo, Mich.-based New Bancorp Inc. and unit New Buffalo Savings Bank.

New Bancorp shareholders will receive $26.00 per share for each outstanding New Bancorp common share under the revised terms. The adjustment was attributed to a significant increase in the termination cost of New Buffalo Bank's defined pension plan due to the decline in long-term interest rates and the economic and market uncertainties related to the pandemic.

Fort Wayne, Ind.-based Three Rivers FCU and Richmond, Ind.-based West End Indiana Bancshares Inc. revised the deal consideration related to the credit union's acquisition of the assets and assumptions of unit West End Bank SB.

"That's typical in a downturn like this," Tom Rudkin, a principal with DD&F Consulting, said in an interview. "Certainly, a buyer has the ability to do due diligence and come up with a number that makes more sense than what they maybe had before."

While some pending deals have been impacted by COVID-19, others transactions are closing as previously estimated. On April 13, there were 100 pending whole-bank deals in the U.S.

As of May 12, there were 95 pending whole-company M&A deals with a U.S. bank as either buyer or target and 36 branch or asset deals pending with a U.S. bank as buyer or seller.