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American Banker Feature-11/20/19

Three takeaways from regulators’ approval of the BB&T-SunTrust merger

By Jim Dobbs
Published November 20 2019, 4∶38pm EST

The moment BB&T and SunTrust announced their merger plans early in the year, the questions started: Will regulators approve the megadeal? What kind of hoops might the banks have to
jump through to get the OK? What impact would the final decision have on bank M&A? Now we know the answer to two of those questions. The banks have secured the approval of the Federal Reserve and Federal Deposit Insurance Corp. BB&T and SunTrust plan within the next month to complete the $28 billion combination that will create Truist Financial, a $450 billion-asset bank based in Charlotte, N.C. It is the biggest bank merger in at least 15 years.

While some conditions were imposed, including a consent order tied to deceptive practices at SunTrust, regulators were far from overbearing during the approval process. And there was minimal resistance from outsiders; 90% of the comment letters about the merger were supportive of it.

The speculation about what happens next will heat up. The relatively smooth approval process could embolden other deal-minded banks, though their window of opportunity may close
quickly depending on the outcome of the presidential and congressional elections next year.

Here are three key takeaways stemming from BB&T and SunTrust’s experience in getting the
green light:

The process could encourage other mergers

The speed of the regulators’ approval, and a lack of onerous conditions or restrictions, likely will be viewed favorably by other big banks that are mulling a merger or acquisition. Less than 10 months elapsed between the deal’s announcement and its approval, and the branch divestitures — 30 locations and $2.4 billion in deposits — were relatively modest,
industry observers said.

“If I’m running a similarly sized bank as one of these two, I take this as a very positive sign,” said Jacob Thompson, a managing director of investment banking at SAMCO Capital Markets
in Dallas. “I think that’s true whether you’re a buyer, seller or looking at a merger of equals.” Regulators, on occasion, use deal approvals to interpret and explain how they are enforcing
existing laws. For instance, the Fed used its approval of BB&T’s 2015 purchase of Susquehanna Bancshares to introduce how it would assess a deal’s impact on financial stability under the
Dodd-Frank Act.

Tuesday’s orders really didn’t introduce anything new thinking or approaches. In fact, the Fed and FDIC made it clear that they had no statutory reason to reject the merger. FDIC Chairman Jolena McWilliams said in an interview this fall that, while the FDIC has “some flexibility and discretion” to interpret statutory requirements, the agency must approve a merger if existing legal requirements are met.

“You’ll see others take that as clearly encouraging that they could pull this kind of thing off …so long as they have their ducks in a row,” Thompson said.

The 2020 election could become a deadline for dealmakers

Dealmakers may be motivated to proceed quickly given the upcoming election year.

The existing regulatory leadership has largely proven business-friendly under President Trump. But that environment could change drastically if Republicans lose the White House or the Senate. Democrats, including presidential hopeful and Sen. Elizabeth Warren, D-Mass., regularly air concerns about the risks of deregulation.

A Democratic Congress could pursue legislation to toughen the legal process for reviewing big-bank M&A.

“Why run the risk of what happens next November?” said Jon Winick, CEO of the bank adviser Clark Street Capital in Chicago. “The longer you wait the more likely a regulator might slowwalk a deal to see what the new boss is thinking.”

In large measure, the BB&T-SunTrust merger has been billed as a way to scale up, bolster the combined bank’s ability to invest in technology and compete with megabanks such as Bank of
America and JPMorgan Chase. Using that logic, any regional bank could pursue a similar combination.

Clark Street Capital American Banker Feature

Pittsburgh banks brace for BofA, JPMorgan | American Banker 1/4
Pittsburgh banks brace for BofA, JPMorgan
By Ken McCarthy
Published July 10 2019, 1∶47pm EDT

Pittsburgh is becoming a crowded market as two big banks, and a number of smaller institutions, target a city that has long been dominated by PNC Financial Services Group.

Bank of America entered the Steel City in September, and JPMorgan Chase announced plans in March to open three branches there by the end of this year.

The megabanks will intensify competition in a market that already has nearly 50 banks sparring over $137 billion in deposits, according to June 2018 data from the Federal Deposit
Insurance Corp.

“We already have enough competition,” said Vince Delie, chairman and CEO of F.N.B. Corp. in Pittsburgh. The $34 billion-asset F.N.B. was the city’s fourth-biggest holder of deposits in mid-

Still, Delie said he views the arrival of bigger banks like Bank of America as a positive for Pittsburgh because they will provide more capital to a city that could use more investment.

“I don’t think their physical presence is a barrier to us being successful,” Delie said, adding that other banks have entered the market before backing away.

Fifth Third Bancorp in Cincinnati tried to establish a retail presence in Pittsburgh but eventually gave up. The regional bank, which had 17 branches and $728 million in deposits in
mid-2015, sold those operations to F.N.B. in April 2016.

Bank of America, for its part, intends to stick around.

The Charlotte, N.C., company has seven branches in the city. It plans to open three more offices this year.

The market has so far exceeded Bank of America’s expectations, and client reception has been strong, said Brian Ludwick, the company’s Pittsburgh market president. Merrill Lynch, which
Bank of America bought during the financial crisis, has catered to business banking and wealth management clients in Pittsburgh for 80 years.

“I can’t think of anything that’s disappointed me,” Ludwick said. Digital banking, a product that Bank of America introduced to the market before building its first branch, has been a “clear
differentiator,” he added.

It makes sense that PNC — chartered just outside of Pittsburgh in 1864 — would feel some pressure from other big banks, industry experts said.

Bank of America has one of the best online banking platforms in the country, said Jon Winick, CEO of Clark Street Capital. While Bank of America may not be overly aggressive in lending,
particularly with commercial credits, he said the company will likely go after low-cost funding around the city.

Winick predicted that Bank of America will expand modestly, take some market share and force PNC to pay a little more for deposits.

The regional bank has held its own in its hometown. Its deposits around Pittsburgh, excluding those in its corporate office, rose by 12% between mid-2013 and mid-2018, according to FDIC
data. Those gains came even though the company shed nearly 30 branches in the market over that period.

Bank of America has managed to book nearly $800 million in commercial loans in the market, Ludwick said. While he said specific data wasn’t readily available, Ludwick said Bank of
America is ahead of schedule when it comes to bringing in deposits. Ludwick said he views JPMorgan Chase’s effort as validation for what Bank of America is doing.

Bank of America already competes with JPMorgan Chase in other markets, so it won’t have to adapt its strategy in Pittsburgh. Rather, the company is investing in all business lines in the
market, recently adding commercial bankers from Wells Fargo and hiring 24 employees for its Merrill Lynch operations.

Pittsburgh is a solid example of a Rust Belt city reinventing itself, Winick said. The city has seen a rebirth, led in part by a growing focus on technology. Pittsburgh was also a
finalist as the site of Amazon’s second headquarters that ultimately went to Northern Virginia. Delie, who grew up in Pittsburgh’s Northside neighborhood when the unemployment rate was
as high as 17%, said he understands the city’s revitalization better than most.

“Everybody that I knew, their parents were unemployed because of the demise of the steel industry,” Delie said.

Jon Winick Featured in American Banker

American Banker 1/4

WesBanco joins parade of W.Va. banks into D.C. area
By Ken McCarthy

Published July 24 2019, 3∶48pm EDT

WesBanco in Wheeling, W.Va., is following a playbook used by other expansion-minded banks in its home state.

The $12.5 billion-asset company is set to enter Baltimore and Washington — two of the mid-Atlantic’s fastest-growing markets — after agreeing to buy the $3.1 billion-asset Old Line Bancshares in Bowie, Md., for $500 million.

Growth is a challenge for banks like WesBanco that have historically operated in rural markets. While the company has a strong presence in Huntington, West Virginia’s second biggest market, the city’s population fell by nearly 20% between 1990 and 2017, according to the Census Bureau.

WesBanco is “in a lot of sluggish or slow-growth areas in Kentucky and West Virginia,” said Bert Ely at the consulting firm Ely & Co. in Alexandria, Va. “By buying Old Line, they’re moving into a more urbanized and potentially more dynamic market.”

Other West Virginia banks have made similar moves.

MVB Financial in Fairmont and United Bankshares in Charleston have focused heavily on Washington in recent years. MVB has targeted having $1 billion in assets in northern Virginia in the next two to three years, while 10 of United’s last 11 acquisitions have been around the nation’s capital.

Washington “is a market everyone wants to be in, and it’s a natural expansion for WesBanco,”said Jon Winick, CEO of Clark Street Capital.

The move shouldn’t be too surprising. Todd Clossin, WesBanco’s president and CEO, had made it clear he would look at markets located within six hours of Wheeling. Washington is only a five-hour drive away.

A limited number of banks operate in both Washington and Baltimore, and Winick added that the planned merger of BB&T and SunTrust could provide opportunities in both cities.

While WesBanco has yet to set a growth target for Washington, Clossin said during a conference call to discuss the deal that his team will focus heavily on northern Virginia.

“We’re not coming here to do this and be done,” he said.

Clossin said he will continue to evaluate buying banks about a fifth of WesBanco’s size after it acquires Old Line. That could mean targets with up to $3 billion in assets.

“You want to be sure you’re partnering with a team and a bank that’s going to be big enough to defend and grow,” Clossin said.

James Cornelsen, Old Line’s president and CEO, said during the call that the deal puts Old Line in a better position to provide value to its customers.

“We’re proud to say that our customers have grown with us,” Cornelsen said, noting that Old Line had grown from a single branch to having 37 locations in the past three decades.

Clossin said both banks have strong credit quality and disciplined risk cultures. He also said that while Old Line is focused on commercial lending its residential mortgage book is a
highlight of its portfolio.

The Old Line deal, which is expected to close by early 2020, will significantly enhance WesBanco’s growth potential by providing access into “dynamic” markets, Will Curtiss, an analyst at Hovde Group, wrote in a note to clients.

“The deal is not without some execution/integration risk given its relative size and extension into newer, more competitive markets, but [WesBanco] has a fair amount of recent experience
executing similar type deals, which should help alleviate some portion of those concerns,” Curtiss added.

WesBanco completed two deals last year, buying the $1.7 billion-asset Farmers Capital Bank in Frankfort, Ky., and the $662 million-asset First Sentry Bancshares in Huntington.

Other industry observers were supportive of the Old Line deal.

“Our initial thought is that this transaction makes sense for both sides,” Casey Orr Whitman, an analyst at Sandler O’Neill, wrote in a note to clients.

Clark Street Capital Featured in Credit Union Journal

Will credit unions’ reputation be the next victim of
medallion fallout?

By Melissa Angell
Published June 03 2019, 5∶00am EDT

Mirela Alexe, CEO of the Bronx, N.Y.-based Van Cortlandt Cooperative Federal Credit Union, blamed the rise of ride-sharing apps for the lending crisis. The $64 million-asset Van Cortlandt has been involved in taxi medallion lending.

Alexe said that she didn’t believe the allegations in the New York Times coverage since her credit union’s loans were thoroughly examined by the NCUA.

“It’s very hard for me to believe that such a thing really happened because every approved loan was reviewed at least once a year by our federal examiners therefore, I doubt that could have actually happened,” she said.
“It was not something that credit unions could control,” she added.

Still, the industry could face additional criticism and a reputational hit. Last week the American Bankers Association used the New York Times coverage as a cudgel against a proposal from the NCUA to expand access to non-member deposits.

The “reporting on NCUA’s supervisory failures in New York’s taxi medallion business only further calls into question why this regulator would now propose to allow credit unions to accept more non-member and municipal deposits,” Ken Clayton, head of the ABA’s office of legislative affairs, said in a statement last week.

The New York Times coverage portrays credit unions and other lenders as knowingly making loans to borrowers, including immigrants, who might struggle to repay them. That contrasts how the industry often likes to promote itself – being friendly to members, especially the underserved and other marginalized groups, who may not have access to mainstream banking services otherwise.

“There’s a really strong case to be made that a lot of these borrowers didn’t know what they were getting into,” Winick said. “If you look at these loans at origination – forget Uber, forget Lyft – they had very little margin for error to begin with. They were probably always bad loans.”

Jon Winick Feature in S&P Global

With Pittsburgh expansion, BofA will face hometown powerhouse

With its plan to open what it calls full-service financial centers in Pittsburgh, Bank of America Corp. will become the first of the U.S. megabanks with retail operations in the Steel City.

While BofA’s sheer size — nearly $2.3 trillion in assets — and brand recognition give it a fighting chance anywhere, analysts said, the Charlotte, N.C.-based banking giant could face an uphill climb in western Pennsylvania’s largest market.

Pittsburgh is the largest American city by deposits where none of the four biggest American banking companies — JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. are the others — currently have branches. While specific reasons may vary by each of those companies, one universally cited roadblock in Pittsburgh is the dominance of local powerhouse PNC Financial Services Group Inc.

The regional lender, the sixth-largest commercial bank in the U.S., held more than 40% of deposits in Pittsburgh in 2017, according to S&P Global Market Intelligence data. Its market share in the city is more than three times that of any of its competitors.

PNC has for years held prominent sway over Pittsburgh, with long-established community and smaller regional banks often filling in the gaps that the market’s largest bank does not control, Morningstar analyst Eric Compton said. That makes it difficult for other large banks to move in and quickly build up the substantial double-digit market share that national lenders often covet to justify a long-term retail presence in a major market.

“When you are PNC and you are the biggest player in your home market for what seems like forever, you have so many customer relationships built up over a long time, and it’s tough for anyone to try to break in and lure away those customers in meaningful numbers,” Compton, who covers PNC, said in an interview.

BofA said in January that it planned to open three locations in Pittsburgh, offering a full range of retail services. It will begin opening the new locations late this year. The new branches would also serve as offices to meet with existing and new BofA Merrill Lynch business banking and wealth management clients in the market. Though the bank is in the early development stages of its Pittsburgh growth strategy, BofA did say it plans to add more locations and ATMs over the next few years, and that it is confident in its ability to expand across several business lines in the market.

“We are very confident about deploying our vast resources here,” said Brian Ludwick, BofA’s Pittsburgh market president, in an interview.

PNC declined to comment on BofA’s retail arrival in Pittsburgh. But Louis Cestello, the PNC regional president responsible for Pittsburgh, noted to S&P Global Market Intelligence that the bank established its hometown leadership position by “building relationships with our customers and communities over many years.”

Observers of PNC said the bank is likely to respond aggressively to any competitive pressures imposed by BofA.

BofA “will have to go in and operate really, really well on the ground and try to gradually build up business,” Compton said. “But PNC is not going to just sit back and watch that happen. So success for [BofA] is not a foregone conclusion. Others have tried but come up short.”

Fifth Third Bancorp, for example, tried to establish but eventually gave up on maintaining a retail network in Pittsburgh. The Cincinnati-based bank, among the largest U.S. regional lenders, spent roughly a decade in Pittsburgh but bailed on the market in 2016. It sold its branches there to F.N.B. Corp., a smaller regional bank based in the city.

Other than a few M&A and branch deals, “I don’t get the sense that there really has been organic disruption of any significance in Pittsburgh that ultimately has affected PNC much,” Jon Winick, CEO of bank advisory at Clark Street Capital, which has worked with banks in Pittsburgh, said in an interview.

But, Winick added, BofA does not have to immediately butt heads with PNC. With a vigorous advertising and marketing campaign that it can surely afford, he said, BofA could “chip away at the smaller competitors to get a start.” A few years from now, if it has gained a toehold in the market, BofA could then look to take on PNC directly, perhaps by recruiting away some of its most productive lenders.

“That is probably down the road,” Winick said. “But that is one way to make some big moves.”

In the meantime, BofA will need to gather and build retail customer acquisition momentum. A recent sampling of Pittsburgh residents suggests that is certainly possible but hardly a sure thing.

Blair Brockmeyer, an account executive for Comcast Spotlight in the Pittsburgh area, said he currently is happy with his accounts at PNC. But notably higher deposit rates could motivate him to consider a switch. “Let’s see what BofA has to offer,” he said in an interview.

Jeffrey Smith, a Pittsburgh supply-chain manager, said he welcomes the added competition that BofA is bound to inject. But he is not likely to switch his accounts away from local lender NexTier Bank NA. “They have been big-time supporters of various events in the area and I think they should be rewarded for their involvement,” he said in an interview.

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