Law Street Media

Banking Bedlam

$100 bill disintegrating.

During a perilous time for banks across the globe, First Mid Bancshares, Inc. announced its acquisition of Blackhawk Bancorp in a 100% stock transaction valued at $90.3 million.  The deal was a long time in the making, according to the banks’ joint press release. “Blackhawk has a long history of providing excellent service with a community-minded focus that aligns very well with First Mids philosophy,” explains First Mid’s CEO and Chairman Joe Dively, “We have been talking to Todd and his team for a number of years about a possible combination of our organizations. And, while there is volatility in the equity markets for banks today, the discussions which led to today’s announcement started a long time ago.” 

This deal is continues a long trend of bank consolidation, which will likely accelerate in the wake of the Silicon Valley Bank’s collapse. After a decade of historically low interest rates, the Federal Reserve’s aggressive rate hikes made cash more expensive for banks. The historic average of loan to deposit ratio is 81%, but that plummeted to an all time low of 57% in Q2 2021 – Q1 2022 and remained historically low as banks scrambled for increasingly-expensive deposits.

As depositors demanded higher returns, banks like Silicon Valley and Signature were forced to sell their long term Treasury Bonds – previously locked in at those historically low rates – at a loss to free up liquidity. This along with additional factors lead depositors to fear for the Silicon Valley and Signature’s solvency and withdraw funds at the time, bringing down the two U.S. banks in a classic bank run.

This had a contagion effect that also took down Credit Suisse, which had been plagued in recent years be scandal and large losses. As investors and depositors scrutinized the Swiss bank’s financials in a more cautious light, Credit Suisse’s largest investor Saudi National Bank refused to provide more funding. As the bank’s depositors and investors fled, the Swiss government forced a union with UBS to prevent a collapse. 

In the wake of this banking bust, deposits at small banks plummeted by more than twice the previous record drop, weathering the largest decline as a percent of overall deposits since March 2007.

Blackhawk and First Mid are quick to distinguish their financials. They tout loan to deposit ratio of the pro forma company was 85%, as of the end of 2022. Further, the banks tout that only 21% of the pro forma company’s balances constituted uninsured deposits (excluding preferred deposits). This is stark contrast to larger banks’ figures.

https://www.axios.com/2023/03/15/silicon-valley-bank-outlier-uninsured-deposits

According to Matterhorn’s M&A database, which harnesses both AI and attorneys to digest the granular deal points of publicly announced transactions. First Mid was advised by law firm Reinhart Boerner Van Deuren, while Blackhawk was advised by Piper Sandler & Co. 

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