The combination of a 10-month slide in the price of its stock and a growing number of developers in default on loans in a slumping housing market was enough for directors of GB&T Bancshares to accept a stock buyout from the state's largest bank.
Friday's announcement of the acquisition of GB&T by Atlanta-based SunTrust came on the same day the Gainesville bank holding company announced a third-quarter loss of $6.3 million.
"It is all related to the slowdown in the housing market," said Richard A. Hunt, CEO of GB&T Bancshares. "In all of my years in banking, I've never seen the housing market come to a screeching halt like it did this summer. With the concentration all of our banks have in construction and development loans, we've got builders who cannot sell houses and are having trouble paying back loans."
Hunt said the bank has had to foreclose on a number of properties. Chris Marinac, an analyst with FIG Partners, an Atlanta-based investment firm, said much of the decision rested with GB&T's chairman of the board, Philip Wilheit, a Gainesville businessman and civic leader.
"I think for years it has been a mystery what Philip Wilheit would do with the company," Marinac said. "No one really had a good feel for what he actually would do. As credit quality became worse at the company, he decided to bail and find the right suitor and find a stock he could double-dip on in a few years time."
While Hunt said the directors looked a number of options, Marinac said this was a decision to get out quickly. "This was to stop the hemorrhaging," Marinac said. "It was an attitude of, ‘the credit quality may get worse, let's find ourselves a buyer.'"
Wilheit did not dispute those assertions. "Like all community banks that deal in real estate to the level we do, there are some credit problems out there in housing and development," Wilheit said. "We felt like this thing (credit problems) could go on for two years and the best interest of the stockholder would be to partner up with someone like SunTrust."
It has been a challenging year for GB&T Bancshares. A December examination by the Federal Deposit Insurance Corp. of HomeTown Bank of Villa Rica, a subsidiary of GB&T, revealed several loan relationships originated by the bank's president at the time violated bank policies.
In February, the company had to restate its fourth quarter 2006 results, turning a $4 million profit into a $1.9 million loss.
While the bank took steps to tighten its credit policy, the news was quickly followed by nationwide troubles in the mortgage industry, which sent bank stocks spiraling downward across the board.
GB&T stock, which is traded on the NASDAQ market, reached a high of $22.28 per share on Jan. 3.
Following the announcement of the situation at the Villa Rica bank, the stock began a tumble that continued until Thursday, when it reach a low of $8.75 per share. The stock surged following the announcement of the agreement with SunTrust, closing Friday at $10.63.
With stock prices falling, Hunt said the board felt the SunTrust offer was the best option. "Our board feels like this is the best option for our shareholders in the long run," Hunt said. "We feel like there is great growth opportunities in stock values with their stock, probably quicker than we would get with our stock."
For SunTrust, it is an opportunity to expand their presence in Hall and the other communities where GB&T does business. SunTrust first entered the Hall County market as Trust Company Bank through the acquisition of Home Trust, which began business as Home Federal Savings & Loan Association.
"With this transaction we're taking advantage of an unusually attractive and timely opportunity to efficiently expand our metro Atlanta franchise in line with our long-term growth strategies and consistent with our high financial standards and disciplined approach to mergers," said James M. Wells III, SunTrust president and chief executive officer.
Under the agreement, GB&T stockholders would receive 0.1562 shares of SunTrust common stock for each share of GB&T common stock. Based on Friday's closing price of SunTrust shares, that would amount to $10.72 per share.
Marinac said that the price will result in a loss for some shareholders, who will be banking on SunTrust shares to grow.
"The hope is that SunTrust would sell in three years time. If they sell at $100 (per share) that creates a good 40 percent upside from where it is now," Marinac said. "This doesn't feel like a good price today and it may not feel like a good price three years from now."
Before the SunTrust acquisition is completed next year, the company could face a rough fourth quarter.
"In light of the difficult economic conditions and the prospect of continued deterioration in the residential real estate markets, we have taken a $14.1 million loan loss provision in the third quarter to increase our loan loss reserves," Hunt said in the company's third quarter report. "The market has not stabilized and we continue to actively monitor our portfolio."
A report issued by FIG Partners said that total "problem loans," or delinquent loans, are now $74.5 million at GB&T, with the overwhelming majority of problems at the Home Town Bank of Villa Rica subsidiary ($43 million of the total), although a significant portion is also on the books of Community Trust Bank in Hiram and Gainesville Bank & Trust.
"There is every reason to believe that further deterioration of credit quality could happen," Marinac said. "We are in a multiquarter process of nonperforming assets going up."
But he points out that banks of similar size are also experiencing similar problems. "From a perspective of what we've seen, there has definitely been deterioration of credit quality," Marinac said.
Gainesville Bank & Trust, the flagship bank of the company, was founded 20 years ago and was the first of a number of community banks to be established in Hall County.
The man who is credited with having the idea for starting the bank is Gainesville businessman Don Carter, who enlisted Abit Massey, president of the Georgia Poultry Federation. Massey said Friday that the two men began talking about starting a bank in the parking lot of Carter's building on Candler Street.
They enlisted others, including attorney Sam Oliver and Wilheit, who later succeeded Massey, the bank's first chairman of the board.
"It was exciting to have a community bank," Massey said Friday. "But it was time to take this step."
Wilheit and Carter had been directors of Gainesville National Bank, which was acquired by First National Bank of Atlanta, now Wachovia Bank.
Gainesville Bank & Trust was on the verge of leading the Hall County market in deposit share in an FDIC report of June 30, 2007. The report showed GB&T with a 19.06 percent share of the market and just $24 million shy of perennial market leader, Regions Bank.
The holding company, GB&T Bancshares, was founded in 1998 and became publicly traded on the NASDAQ market. The company grew to include seven community banks in North and Central Georgia.
Hunt, who was the founding president of Gainesville Bank & Trust, said the decision to sell was difficult for him because of his 20-year relationship with the bank and its directors and staff.
Ron Quinn, a former executive with Gainesville Bank & Trust, is now president of Peach State Bank & Trust, which will become the largest locally owned bank when SunTrust completes its acquisition of GB&T.
"SunTrust and Gainesville Bank & Trust are both good banks and we're glad they were able to work out a deal together," Quinn said, adding that he is hopeful that it could present an good business opportunity for Peach State.
"Any time banks merge or consolidate, it always opens more room for a community bank to capture more market share."
William Blanton, chairman of First Century Bank, formerly known as National Bank of Gainesville, said the acquisition is a loss for the community. "For Gainesville as a whole, it is a loss," Blanton said. "As good as SunTrust is, I think for Gainesville to lose a large bank with the name ‘Gainesville' in the charter is a shame. Instead of a takeover, this was a ‘take under.'"