Invictus Bank Insights – September 2019

MERGERS OF EQUALS Rare Deals Could Help Community Banks Solve Problems

By Lisa Getter and Adam Mustafa, Invictus Group

Last December, Virginia Partners Bank, which has $410.1 million in assets, announced a strategic merger of equals (MOE) with Delmar Bancorp, a $737.9 million holding company that owns The Bank of Delmarva. When the deal closes, each community bank will operate as independent subsidiaries of Delmar, keeping their names, management teams and boards.

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M&A RED FLAG Beware of Dependence on Auctions

By Kamal Mustafa, Invictus Group Chairman (and former investment banker)

M&A transactions initiated through an auction process have become de rigueur in the community banking marketplace. In the right situation, they have several advantages that include speed, limited due diligence and (generally considered most important) the opportunity to create a feeding frenzy that leads to a higher-than-expected price.

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UNCONVENTIONAL M&A What Makes MOEs Unique—and How to Avoid Their Pitfalls

By Kamal Mustafa, Invictus Group Chairman (and former investment banker)

MOEs are not like typical acquisitions and cannot be approached in the same manner. They:

  • Comprise a very small fraction of transactions.

  • Have a high failure rate due to social/valuation/process issues.

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Keeping up with CECL, Despite Delay

Although the Financial Accounting Standards Board is giving small banks more time to comply with CECL, there may be advantages to implementing the standard sooner. Adopting early may help banks support their loan loss reserves without seeing a material increase by using more data and analytics instead of overly relying on qualitative factors. The board voted to delay CECL implementation for most community banks (private companies and small public business entities) until 2023.

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