Consolidation of the US banking industry continues. Since 1996, the number of banks nationally is down 48% to 5,980 from 11,454, according to the Federal Deposit Insurance Corporation. The first wave of consolidation was driven by growth. The recession drove a second wave over the last decade.
Matt Gambs is a senior vice president at Wintrust Financial. He is very familiar with the community banking realm. Over his 23-year career he worked his way up from a teller to president and CEO of two different community banks in the Chicago metro area. Each bank, Bloomingdale Bank & Trust and Diamond Bank, was sold during each of the respective waves.
Pre-Recession Success Founded in 1991, BB&T was a community bank that grew to a value of $450 million, largely by garnering investments from local families. By 2004, shareholders were retiring and seeking liquidity. As president and CEO, Gambs needed to find an advisor who had a proven ability to sell banks and do so for cash.
I gave the board three options for advisors,” says Gambs. “The one we chose wasn’t the biggest and their presentation wasn’t the flashiest, but they were just successful at making deals that benefited shareholders. Our shareholders weren’t going to take stock. It needed to be a complete cash deal.”
According to Gambs, it takes discipline not to commit to the first advisor, and to find additional voices other than those of the investment bankers, such as attorneys, as a source of guidance.
The $104.9 million all-cash deal closed in 2006 at 2.65 times BB&T's book value and 22 times the prior year's earnings.
FOR A DEEPER INSIDE LOOK INTO MATT'S BANKING M&A EXPERIENCE, LISTEN TO THE FULL PODCAST
Post-Recession Challenges Buoyed by the success at BB&T, Gambs found himself at Schaumburg-based Diamond Bank in 2008. Although troubled when he joined, Gambs had a plan. “I thought I could fix it, grow it, we could put more capital in, then buy another bank.”
Gambs felt he had the bank on the upswing, but then the recession hit. Diamond, whose origins date back to 1886, quickly found itself with more troubled loans than capital. With most of the troubled loans in the form of mortgages or apartment loans, it quickly became clear there was a strong need for an equity infusion.
“My owner wanted to exit and limit his liability. The regulators wanted us to be able to find a pathway out of this without having to fail.”
In July of 2013, Wintrust acquired Diamond Bank for an aggregate purchase price of approximately $2.9 million. Failure was averted, and Gambs has an interesting perspective on his role. “I always looked at the Diamond part of my life as a successful failure.”
While community banking used to be a positive area for investors, consolidation and post-recession regulations have changed that. “To get people anywhere near the return that they want for their investment is challenging now,” says Gambs. “The margins in banking are very thin when compared to other industries. There is very little room for error.”
For more on what might be stifling bank M&A in Chicagoland, check out this story posted on Crain’s Chicago Business last week.
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