Two small banks seek bigger stages with Nashville, D.C. deals

No one can accuse United Community Banks or Blue Ridge Bankshares of thinking small. Both banks announced M&A deals Wednesday that would move them into major metropolitan markets.

Greenville, South Carolina-based United Community has agreed to pay $517 million for the $3.1 billion-asset Reliant Bancorp in Brentwood, Tennessee, a close-in suburb of Nashville. Separately, the Charlottesville, Virginia-based Blue Ridge struck a $307 million merger-of-equals deal with the $1.9 billion-asset FVCBankcorp in Fairfax that provides it with an entry point into the wealthy Northern Virginia area of metropolitan Washington.

Nashville has $81 billion of deposits, and there are $314 billion of deposits in Washington. If there’s a concern that a smaller entrant could get lost among the large banks that already dominate each market, it’s a risk Blue Ridge and United Community appear willing — if not eager — to take.

United Community Banks projects it would be ranked No. 10 in deposits in Tennessee once it completes its deal to buy Reliant Bancorp, which is based in a Nashville, Tennessee, suburb.

Eilon Paz/Bloomberg

The $18.6 billion-asset United Community has branches in and around Knoxville, Tennessee, but it has no presence in Nashville, the state’s largest and fastest-growing market, with a population of more than 678,000. United Community projects it would be ranked No. 10 in deposits in Tennessee once the deal closes.

“When you think about strengthening our franchise and creating a real bank in Tennessee, we think this makes us much more competitive and more poised for growth,” Lynn Harton, United Community’s chairman and CEO, said on a conference call with analysts.

In May, United Community moved to fill a gap in its North Carolina footprint, agreeing to pay $131 million for Aquesta Financial Holdings in Cornelius, a suburb of Charlotte, where the company has been building up its mortgage and commercial lending teams. Aquesta is an active Small Business Administration lender and would give United Community seven branches in the Charlotte metropolitan area.

Also in May, United Community agreed to buy FinTrust Capital Partners, an investment advisor in Greenville, South Carolina; that deal would more than double its assets under management.

Nashville is the missing piece in United Community’s Southeastern expansion puzzle.

“If you look at our footprint in the growth markets in the Southeast, we are well represented in nearly all of them,” Harton said on the analyst call. “Now would I like to get denser in them? Absolutely. But yes, we feel really good about the footprint that we’ve got, and there’s no burning next place in my mind at this point.”

Employee retention is always a top priority with deals, and United Community has a simple but effective approach, Harton said.

“We haven’t had any trouble holding on to our top talent,” he said. “I’m an old commercial lender myself, and I learned a long time ago that that one way to keep good people is to let them operate in an environment where they can take care of their customers, they can get their deals done and where, if they do what we ask them to do, they can get paid well.”

The United-Reliant deal is expected to close in the first quarter of 2022, and United Community projected it would be accretive to its earnings per share by about 15 cents next year and 22 cents per share in 2023, excluding transaction costs. United Community has more than 160 branches in Florida, Georgia, North Carolina, South Carolina and Tennessee. It has been actively working to develop substantial presences in the largest markets of those states.

The Blue Ridge-FVC combination, which is expected to close in late 2021 or early 2022, would create Virginia’s fourth-largest community bank by assets ($5 billion) and by deposits ($3.7 billion). It would also have 43 branches and a $625 million market capitalization. The deal is the fourth since 2016 for Blue Ridge, which would be the surviving institution.

As recently as 2015, Blue Ridge had five branches and $269 million of assets.

“We are thrilled to be partnering with Blue Ridge Bankshares in this merger,” David Pijor, FVC’s chairman and CEO, said Wednesday in a news release. “Over the past couple of years, the growth initiatives and investments Blue Ridge has made have resulted in expanded profitability and a differentiated platform.”

Pijor would serve as executive chairman of the merged company. Blue Ridge President and CEO Brian Plum would be CEO. FVC shareholders are slated to receive about 1.15 Blue Ridge shares for each of their existing shares. They would own 47.5% of the pro forma company.

Blue Ridge is projecting 16% earnings per share accretion in 2022. Tangible book value dilution of 5.7% would be earned back in two years.

Blue Ridge is following a blueprint used by other fast growers, including OceanFirst Financial in Toms River, New Jersey, which set its foundation in smaller markets and then entered New York and Philadelphia in recent years and is currently expanding in Baltimore. In Philadelphia, OceanFirst has built a $1 billion loan portfolio in just two years, according to Chris Maher, chairman and CEO of the $11.6 billion-asset company.

“There are just a bunch of precursors you want to have before you step into a larger market,” Maher said. “We decided we wanted a big enough balance sheet so that we could routinely do loans in the $5 million to $30 million range.”

Small banks can score big by offering themselves as alternatives to the money-center institutions that invariably dominate the biggest markets, Maher said.

“We’re different,” Maher said. “You have access to decision-makers. … There’s a level of interaction and touch you’re just not going to get at the biggest banks.”

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