When Joe Evans decides to sell, other banks and investors should take notice.
Evans is chairman of Atlanta-based State Bank Financial Corp., which is selling to Cadence Bancorp. for roughly $1.4 billion, or nearly 2.5x tangible book value. The deal comes about nine years after an Evans-led group injected nearly $300 million in capital into the target and creates a favorable return for investors of roughly 16%, annualized.
This transaction marks the fourth time that Evans has sold a bank in the CEO or chairman role. The last example — Flag Financial's sale to a Royal Bank of Canada subsidiary — was one of the most aptly timed exits before the credit crisis. While the investment community believes Cadence's push into metro Atlanta makes sense and the price is favorable for State Bank shareholders, the latter's decision to sell could serve as an important credit cycle marker.
The current cycle stands as the third longest on record, prompting many people to ask if cracks in the armor have begun to emerge. Bankers and investors debated that topic last week at the Gulf South Bank Conference, which State Bank attended, but few said they have seen red flags. We suggested that an early indicator of an eventual turn in the cycle might come when State Bank decides to partner with another institution. Evans had not only positioned the bank to remain independent but has shown an ability to time cycles in the past.
Evans implemented a well-telegraphed succession plan last year, relinquishing the role of CEO to his long-time lieutenant, Tom Wiley Jr. Shortly thereafter, State Bank announced plans to acquire AloStar Bank of Commerce, leading some analysts to believe that the company, with the new deal in hand and Wiley in the role of CEO, would grow on its own for a few more years.
Evans and Wiley have worked together for some time, including at Flag Financial, where Evans timed the last cycle as well as any banker. He served at the institution's helm until selling late in 2006 for more than 4x tangible book value. Prior to that, Evans was president and CEO of Bank Corporation of Georgia, which sold to Century South Banks in 1997 for 2.6x tangible common equity. He later was president and CEO of Century South Banks before selling to BB&T Corp. in 2001 for 3x tangible common equity.
Evans and his team have created another strong return for shareholders, selling to Cadence for a multiple of 2.5x tangible book. That compares to an average price-to-tangible book multipe of 2.1x in the six bank sales that occurred in metro Atlanta since November 2017, and 2.0x tangible book in the four other deals involving Southeast-based targets with assets between $1 billion and $10 billion announced during the same time frame. The transaction comes at just a 6% market premium, but the investment community had long expected State Bank to sell. State Bank might have also seen fewer desirable acquisition opportunities in its market given the recent series of deals in metro Atlanta.
Evans said at the 2015 Gulf South Bank Conference that at some point, if any acquirer cannot find a target that makes sense, they might need to consider selling. If a larger bank is looking for a larger presence in Georgia, "I think we are a very attractive franchise," Evans said at the May 2015 event.
Atlanta has recently attracted some buyers that with strong reputations in their own right. Birmingham, Ala.-based National Commerce Corp., whose management team including Chairman John Holcomb, led Alabama National before selling it to RBC early in 2008 for nearly 3x tangible book, agreed to buy metro Atlanta-based Landmark Bancshares Inc. in late April 2018.
Florida's CenterState Bank Corp. recently announced plans to buy Charter Financial Corp., which has close to 60% of its loans in metro Atlanta. CenterState CEO John Corbett said at the recent Gulf South event that his bank evaluates the current stage of the real estate cycle at least twice a year and sees considerable supply in the multifamily market. He further noted that some commercial real borrowers are seeking financing at 110% of loan-to-cost, a trend that has caused him to step back from the asset class.
Still, Corbett said there is arguably less competition today due to far fewer de novo banks than pre-crisis, when scores of new banks opened their doors in metro Atlanta.
"There is more discipline this go around. There are fewer competitors," Corbett said at the event.
The ability to compete more effectively appears to be one of the reasons State Bank decided to join Cadence. Evans and Wiley will join the board of the combined company, which plans to build a larger commercial lending presence in metro Atlanta, utilizing a larger balance sheet.
That prospect combined with the substantial
