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When BB & T (NYSE: BBT) and SunTrust Banks (NYSE: STI) merge later this year, they will do everything in their power to retain their best customers and employees. But not everyone will stay around.
Banking customers are habitual creatures who use the same bank several years in a row until they have good reason to move. When branches are closed and loan teams shrink, customers can find the reasons for these changes enough to look elsewhere. A particular bank, United Community Banks (NASDAQ: UCBI), is well positioned to capitalize and attract new customers and talent.
Source of the image: Getty Images.
Meet United Community Banks
The apparently innocuous name of this bank is rather appropriate. United Community Banks is in itself no stranger to mergers and acquisitions, expanding its business by acquiring smaller community institutions in the southern United States. Just last week, she announced the acquisition of another small bank, First Madison, based in Athens, Georgia.
The geographic footprint of United Community Banks significantly overlaps BB & T and SunTrust. The table below shows the scope of the United Community banks in certain areas served by the two super regional regions. In all markets, the supraregional banks are 3 to 20 times larger than the unified community banks, which means that even a small amount of attrition would result in a displacement of the needles for the smaller regional bank.
|
Metropolitan Statistical Area |
UCBI deposits (in part) |
BB & T + SunTrust Deposits (in shares) |
|---|---|---|
|
Greenville, SC |
$ 818 million (4.8%) |
$ 2,919 million (17.2%) |
|
Myrtle Beach, South Carolina |
$ 303 million (3.5%) |
$ 2.042 million (23.6%) |
|
Spartanburg, SC |
$ 179 million (3.3%) |
$ 1,712 million (31.7%) |
|
Raleigh, North Carolina |
$ 481 million (1.7%) |
$ 5,561 million (20.1%) |
|
Atlanta, GA |
$ 2,690 million (1.6%) |
$ 55.8 billion (32.3%) |
Data source: FDIC.
Even though they may be small businesses compared to BB & T and SunTrust, whose combined assets total $ 442 billion, far exceeding the $ 12.6 billion in United Community assets Banks, the company can maintain itself in lending to small businesses.
A recent presentation notes that it has a $ 35 million self-imposed "relationship limit" that is large enough to serve commercial clients and commercial banks that may fall short of the BB & T merger. SunTrust later in 2019.
Data source: FDIC, June 2018. Map by author with the help of Google Maps.
Stealing loans and deposits
A true commercial bank, approximately 73% of United Community Bank's loan portfolio consisted of commercial loans, mainly commercial real estate and commercial and industrial loans. She recently acquired an equipment finance business, which gives her the ability to purchase small equipment leases for small businesses. The rest is largely divided between residential mortgages and equity loans.
Although United Community Banks offers an impressive combination of deposits for a small institution (about 32% of deposits are non-interest bearing, making it a business purpose), it relies on certificates of deposit and CDs. about 20% of his income. deposit basis. FHLB's more expensive borrowings and advances represent approximately 4% of its average total liabilities. The chart below shows the composition of United Community Banks' liabilities, including non-deposit liabilities.
Data source: press release on the fourth quarter results.
Choosing cash-rich depositors from BB & T and SunTrust could be a boon, helping the bank reduce its overall financing costs, even if the bank does not take a penny of loan volume from one or the other institution, although deposits are often a byproduct of relationship credit.
Small changes are big gains for small banks
Even a successful merger or acquisition will cause some erosion of the customer base. BB & T and SunTrust have already identified about $ 1.4 billion in deposits that they are willing to give up by selling the branches that hold them. In addition, it would be expected that at least a percentage of clients who left either institution would leave either institution in the months prior to and after the consolidation.
With $ 301 billion in loans and $ 324 billion in deposits between them, stealing a fraction, even a tiny fraction, of loans or deposits from banks in the supraregional regions could make the year a smaller bank seeking to increase its balance sheet. .
United Community Banks is too small to accommodate larger customers when BB & T and SunTrust merge, but it still leaves many small customers to conquer. At its investor day last year, BB & T reported having about 57,500 households operating a small business with annual sales of between $ 1 million and $ 5 million. Customers could easily find a place in the balance sheet of a small regional bank like United Community Banks.
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