Dive Brief:
- Roswell, Georgia-based First Century Bank’s parent company on Sunday terminated its proposed merger with Fishers, Indiana-based First Internet Bank, according to a press release Monday.
- The Federal Reserve Board of Governors announced Friday afternoon it had approved the merger. The banks, however, couldn’t close the deal by the April 30 deadline to which they initially agreed because of statutory waiting periods, and could not agree on extension terms, First Internet said.
- “Despite efforts to negotiate, we could not arrive at a mutually agreeable increased purchase price in exchange for an extension,” First Internet Bank CEO David Becker said in Monday's release. “While the acquisition initially appeared to provide opportunities to diversify our revenue streams, we will not support excess deployment of capital without a clear and likely pathway to an acceptable payback.”
Dive Insight:
The tie-up, initially announced in November at a value of $80 million, would have given First Internet — the first Federal Deposit Insurance Corp. (FDIC)-insured digital-only institution — access to a First Century payment service that had processed more than $13 billion in Automated Clearing House volume and $32.5 billion in virtual lockbox payments since 2018.
Additionally, First Century has developed a “substantial niche” in the homeowners’ association services sector that could have given First Internet a boost in low-cost deposits.
The Fed, in recent months, has habitually lagged in its approval of bank mergers. The central bank had not approved the pending combination between New York Community Bank and Flagstar Bank in the year before the institutions extended the end date for their proposed tie-up.
The nonprofit organization Better Markets has taken the central bank to task over its track record of signaling its sign-off on deals late on Friday afternoons.
“Such end-of-week, late-in-the-day announcements are a disservice to the public and beneath the proper role of the Fed,” Phillip Basil, Better Markets’ director of bank policy said in a March press release calling out the timing of the regulator’s approval of M&T Bank’s acquisition of People’s United Financial. “This is becoming a disturbing pattern that undermines the credibility of the Federal Reserve.
Basil noted the Fed also green-lighted three bank mergers late on a Friday afternoon roughly a week before Christmas.
In this case, perhaps, the central bank’s intentions appear to have come too little, too late.
“Even as we worked diligently on integration with First Century, we continued to source and evaluate additional strategic opportunities and have built a pipeline of actionable projects to drive results higher in future periods,” Becker said in First Internet’s release. “I offer heartfelt thanks to the employees of First Century Bank for their openness, hospitality and collaboration throughout the diligence and planning.”
Becker had said in November that the $80 million purchase price for First Century represented a $21 million capital investment beyond the bank’s $59 million in tangible book value expected at closing.
First Internet and First Century are not the first banks this year to scrap a pending tie-up. Blue Ridge Bank and FVCB terminated their planned combination in January. The Office of the Comptroller of the Currency (OCC) had found “certain regulatory concerns with Blue Ridge,” although neither bank would say those misgivings necessarily caused the deal to fall apart.
Several banks, meanwhile, have extended the timeline of their mergers and acquisitions. M&T and People’s United, for one, pushed their date out two weeks before the Fed signed off. First Citizens BancShares and CIT Group also extended their merger deadline before the Fed approved that combination in December.
