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10% of Kentucky banks, thrifts become M&A targets in 2019


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10% of Kentucky banks, thrifts become M&A targets in 2019

Fifteen deals have been announced in Kentucky this year, including 12 just in the second half of 2019. By comparison, 15 deals were announced in the state in all of 2016 through 2018.

Kentucky has been the third-most active state for bank M&A activity since the end of June, behind only Texas with 16 M&A announcements and Illinois with 13. However, while Texas and Illinois both have more than 400 operating companies headquartered in the state, Kentucky has only 142, according to S&P Global Market Intelligence data.

Most of this year's deals were small. Only one deal had a bank target with more than $500 million in assets. On Jan. 7, Terre Haute, Ind.-based First Financial Corp. announced that it would acquire Hopkinsville-based HopFed Bancorp Inc. for $133.3 million.

There was also one deal where a credit union acquired a Kentucky bank, part of a growing trend across the country. On July 19, Bartlett, Tenn.-based First South Financial CU and Winchester-based WinFirst Bank announced their merger, which is expected to close in January 2020.

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Despite the strong surge in M&A activity, banking in the Bluegrass State was a mixed bag in the third quarter.

The median return on average equity for Kentucky community banks and thrifts under $10 billion in assets was 9.42% in the third quarter, below the Midwest median of 10.12% and the national median of 9.86%. However, Kentucky's 3.86% median net interest margin was 6 basis points higher than the regional median and 1 basis point higher than the U.S. median.

Loans at the state's community banks grew by a median of 5.4% year over year, surpassing the 3.7% growth in the Midwest and 4.4% median growth for the U.S. as a whole. Deposits, on the other hand, grew by a median 3.6%, below the Midwest median of 4.0% and the national median of 4.4%.

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Louisville-based Republic Bank & Trust Co., Kentucky's largest community bank, surpassed the state median in all six of the major banking metrics examined for the third quarter and posted more than double the median loan and deposit growth. Republic operates 28 branches in Kentucky and also has a branch presence in Ohio, Tennessee, Florida and Indiana. Last month, Louisville-based Limestone Bank Inc., the state's 12th-largest community bank, completed its acquisition of four Republic branches in Kentucky.

Pikeville-based Community Trust Bank Inc., Kentucky's No. 2 community bank, had a less solid third quarter, coming up short of the state median in net interest margin, nonperforming assets ratio and loan growth. Community Trust Bank has 80 branches, 71 in Kentucky, six in West Virginia and three in Tennessee.

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Kentucky, like much of the U.S., is seeing more branch closures than openings as banking goes digital. During the third quarter, banks and thrifts closed 17 branches in the state and opened only four. Over the last 12 months to Sept. 30, 30 branches were opened in Kentucky and 67 closed.

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Click here for an Excel document containing third-quarter financial information for Kentucky's community banks and thrifts.