Charlotte-based Park Sterling Corp. announced plans Monday to acquire Gastonia’s Citizens South Banking Corp., a $77.8 million deal that would create the largest community bank in the Charlotte area but end Gaston County’s oldest financial institution.
The combined bank will have $2.2 billion in assets and 45 branches through a crescent-shaped footprint reaching from north Georgia to Greenville-Spartanburg, S.C., to Charlotte. The deal is the latest reflection of a consolidating community banking industry and of Park Sterling’s torrid growth strategy.
“This transformative merger is strategically compelling,” Park Sterling CEO Jim Cherry said in a conference call. “Combining our talented teams, products and services will make us an incredibly formidable community banking franchise in what is arguably the most attractive growth market in the Carolinas.”
Citizens South shareholders will have the right to receive either $7 per share or about 1.5 shares of Park Sterling stock, though in total the deal will involve 30 percent cash and 70 percent stock. Together, it marks a roughly 35 percent premium over Citizens South’s closing share price on Friday of $5 and Park Sterling’s price of $4.50.
On the news, Citizens South shares jumped nearly 25 percent to $6.22, while Park Sterling’s shares fell about 8 percent, closing at $4.15.
Shareholders and regulators must still approve the deal, but if the merger gets the go-ahead, it is expected to close in the fourth quarter.
End of an era
Citizens South Bank was founded in 1904 as Gastonia Mutual Building and Loan Association, with one employee. It grew slowly over the decades and went public in 1998 as Gaston Federal Bank.
It assumed its current name in 2002 to reflect its mission and geographic footprint, the bank said.
Like most of its peers, Citizens South struggled during the real estate bust and financial crisis. It received $20.5 million in federal bailout money.
It emerged, however, with solid capital levels and returned to profitability last year, though Citizens South lost $2.3 million in each of the last two quarters as the bank wrote down millions in asset values after a comprehensive review.
In an interview Friday, Citizens South CEO Kim Price said the bank’s history was one of the factors that made it an attractive target.
“We have a very strong and deep historical franchise in the Charlotte region,” Price said. “I call it generational deposits, because we’ve been around 107 years.”
Mindful of Citizens South’s impact in Gastonia, Park Sterling said Monday that it would keep an operations center in the city, and pledged to donate $500,000 to the Gaston County Community Foundation over the next 10 years.
Monday’s announcement also means a change for Price, who has spent 15 years with the Gastonia bank. Price will become vice chairman of Park Sterling’s board of directors, but will leave executive management and take on a consulting role.
The change in control will likely mean a payout of about $1 million for the chief executive, according to the bank’s latest proxy filing.
Price said in an interview that he expected the consulting role to be a “longer-term relationship.”
He also said a number of Citizens South’s top executives will find roles in the combined bank, though he said it was too early to disclose them.
“Our management team is going to be very significantly involved in the leadership of Park Sterling,” Price said.
Rapid growth
Monday’s deal is the latest in what Park Sterling has promised will be a string of acquisitions for the up-start bank.
The bank, which was founded in 2006, closed its acquisition of S.C.-based Community Capital Corp. in the fourth quarter, a deal that doubled its assets to about $1.2 billion. This deal nearly accomplishes the feat again.
Citizens South has made a few deals of its own, purchasing two failed banks in north Georgia, one in 2010 and one in 2011, under loss-sharing agreements with the FDIC.
But bank analysts had kept an eye on Citizens South as a potential acquisition target itself. Financial services firm Keefe, Bruyette and Woods has had the bank on its “consolidation list” for months.
Cherry said in the conference call Monday that he and Price had discussed a deal on-and-off for two years. Price also acknowledged the speculation that it would find a buyer.
"The timing and the market just had to be right, and today we both believe that that is exactly right,” Price said.
While the banking industry has been consolidating steadily for three decades, analysts have been watching for another wave of mergers and acquisitions as community bank balance sheets straighten out and increased regulation drives up overhead costs.
Fifty bank and thrift deals were announced in the first quarter of 2012 worth a combined $3 billion, according to data from SNL Financial. That’s on pace to exceed last year’s total of 176 bank and thrift deals, and this year includes significantly fewer failed-bank transactions.
