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Your Community Bank acquiring First Federal Savings Bank in proposed $18 million deal

by Terry Boyd

ycb_footprints_072513_v4There hasn’t been a lot of action in the banking sector since the dark days of the Great Recession started lifting back in 2012.

Today, that changed. Publicly traded Your Community Bank is buying First Federal Savings Bank in Elizabethtown in a deal valued at about $18 million. If the deal passes regulatory muster, it has the potential to create a new regional financial powerhouse.

The acquisition of First Federal will increase New Albany-based Your Community Bank’s footprint in the region, said Paul Chrisco, Your Community Bank CFO. “The combined institution’s footprint ties up the whole Louisville metro” along the Interstate-65 corridor from Scottsburg, Ind., south to Munfordville, Ky.

Your Community Bank has operations in Scott, Clark and Floyd counties in Southern Indiana, and in Jefferson, Nelson and Fayette counties in Kentucky.

First Federal has operations from Southern Jefferson County south into its headquarters of Elizabethown and other parts of Hardin County.

Once the deal closes, First Federal Savings Bank of Elizabethtown will be merged into Your Community Bank, with First Federal Savings Bank of Elizabethtown offices becoming Your Community Bank branches.

Your Community Bank’s holding company, Community Bank Shares of Indiana, will have about $1.6 billion in assets and 41 branch offices throughout southeastern Indiana and Kentucky after the transaction closes.

Community Bank Shares and First Financial Service Corp., holding company for First Federal Savings Bank of Elizabethtown, just announced the latest deal today.

In essence, Community Bank Shares will acquire about $20 million in First Federal preferred stock at a hefty 60-percent discount, Chrisco said. Community Bank Shares will acquire $20 million in preferred stock for $12.3 million in a deal that could close as early as the fourth quarter of 2014.

Based on Community Bank’s 20-trading-day average common stock price of $22.33 per share, as of April 17, and assuming no exchange ratio adjustments, the transaction is valued at approximately $17.9 million, according to a news release.

“We believe this transaction creates a dynamic community banking franchise across the entire Louisville MSA,” James D. Rickard, president and CEO of Community Bank Shares, stated in the release.

The acquisition of First Federal is the second transaction for Your Community Bank in the last year. In April 2013, Your Community Bank acquired First Federal Bank, which had operations in Lexington and Georgetown, Ky.

This is a bit of a complex deal.

One complication is that First Federal’s outstanding preferred stock was issued under the Troubled Assets Relief Program. In their infinite wisdom, Federal Reserve officials built in warrants that allow the government to sell shares later to recoup TARP money along with a potential profit for taxpayers.

Chrisco said those warrants expire in 2019, but he expects them to go unredeemed.

The 91-year-old First Federal ran into major financial problems starting in the second quarter of 2010, according to BankTracker, an investigative partnership between NBC News and American University in Washington, D.C.

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By mid-2011, First Federal was losing money, and had a troubled asset ratio of 90, far above the national median of 13. However, the bank returned to profitability in the final quarter of 2013, according to BankTracker.

Now, for all those bankers and M&A attorneys out there, the nitty-gitty details:

• Community Bank executives expect the transaction to be accretive to earnings per share in the first full year of operations, excluding any one-time restructuring charges, and that all subsidiary banks will exceed “well-capitalized” thresholds under Federal Deposit Insurance Corp. standards, which have been scaled up since the recession.

• Community Bank has entered into subscription agreements with investors to purchase approximately $25.0 million of Community Bank Shares common stock immediately prior to the consummation of the share exchange transaction at a price of $22.33 per share. The transaction is subject to receipt of First Federal shareholder approval, Community Bank shareholder approval and customary regulatory approvals.

Sterne, Agee & Leach, Inc. is serving as financial advisor to Community Bank Shares on the transaction and as placement agent on the offering. Stoll Keenon Ogden in Louisville is serving as legal counsel to Community Bank Shares on the transaction and the offering. First Federal is represented by the investment banking firms of Keefe, Bruyette & Woods and Professional Bank Services Inc., and the law firm of Frost Brown Todd in Louisville.

About Community Bank Shares: Community Bank Shares of Indiana, Inc. is a bank holding company with $846 million in total assets as of March 31, 2014 and includes two wholly owned, state-chartered subsidiary banks include Your Community Bank and The Scott County State Bank. The Company’s stock trades on the NASDAQ Global Select Market under the symbol “CBIN”.

About First Federal Savings: Established in 1923, FFKY, through its wholly owned subsidiary, First Federal Savings Bank of Elizabethtown (“First Federal Savings Bank”), operates 17 offices in Kentucky including seven offices in the Louisville metro area, seven offices in the Elizabethtown metro area, and two offices in Bardstown. At December 31, 2013, FFKY had approximately $859 million in total assets, $467 million in loans and $783 million in deposits.

 

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