Yadkin Financial and VantageSouth Bancshares announced plans to merge Monday in a deal that would create North Carolina’s largest community bank.
The $299 million stock deal would create a bank with $4 billion in assets and a footprint stretching from Wilmington to the Triangle to Charlotte. The combined bank would rank seventh in deposits in North Carolina, behind No. 6 SunTrust.
Yadkin Financial will keep its name, but the bank would be headquartered in Raleigh – the home of VantageSouth. Banking operations would continue to be run out of Statesville, where Yadkin Financial keeps its offices.
“What you really have here is a true merger of equals,” VantageSouth CEO Scott Custer said on a Monday conference call with analysts. He will be the chief executive of the combined bank. “We’re going to think about how we take the strength of both companies and really create a franchise that has unique positioning in the state.”
Yadkin CEO Joe Towell will be executive chairman and lead the board of directors of the combined bank.
The banks hope to save $10 million in annual costs by combining. They also hope it will add 15 percent to earnings by 2015.
Together the banks employ more than 900 people. Executives said an undetermined number of layoffs is possible.
Eventually, the two banks will come together under a single statewide brand. Custer said the banks have not decided what it will be.
Analysts generally applauded the deal. Yadkin Financial shares closed up nearly 7 percent, at $18.48. VantageSouth shares were up more than 11 percent, to $5.75.
How the deal came to be
The merger comes as Yadkin Financial turns its eyes back to growth after a few years of painful cost-cutting and consolidation. The bank was forced to lay off a quarter of its workforce and close branches as the impact of the financial crisis played out. In late 2012, the bank raised $45 million in capital to write down a large chunk of bad real estate loans.
But by April, Towell said Yadkin was ready to get “back to the basics of banking” and grow. It targeted a doubling in its loan production and plotted expansion in Charlotte.
Meanwhile, VantageSouth has spent the last three years cobbling together a banking franchise from smaller companies across the state. Custer had been CEO of RBC Bank before leaving in 2009. A few weeks later, he was named chief executive of Piedmont Community Bank Holdings, a new company that raised more than $12 million from investors.
In April, the bank doubled in size by purchasing East Carolina Bank.
Towell and Custer first brought up the idea of a merger over the summer when they were both attending an industry conference, Towell said. The two continued to talk, and they arranged meetings between executives at the two banks that fall to see if there would be a good match.
As fall turned to winter, the banks began a more traditional due-dilligence period. Keefe, Bruyette & Woods Inc. advised Yadkin, while VantageSouth employed Sandler O’Neill + Partners LP.
On Monday, both Towell and Custer talked about the complementary nature of their banks. Their branch networks do not overlap and would together create a bank that stretches from the mountains to the coast. More importantly, they said, it gives the bank a deep presence in the Charlotte and Raleigh markets.
VantageSouth brings with it a strong small-business lending platform that has made it the top Small Business Administration program lender in the state. The bank also last year created a homebuilder finance division in Charlotte to address demand for new homes.
Yadkin Financial has a strong statewide mortgage business based out of Greensboro and a well-developed wealth management unit with more than $200 million in assets under management.
Start of a new wave?
Towell and Custer both described their banks’ merger as the first of its kind in North Carolina. But the state’s banking industry widely expects a wave of consolidation in the coming years. The state is already shedding banks at its fastest rate in two decades, which many industry insiders attribute to the cost of complying with new post-crisis federal regulations.
Towell told the Observer in an interview that while the industry does expect more mergers to happen, regulatory pressure was not the key driver of this deal. Instead, saving money on compliance is an added benefit, he said.
“We’ve got a strong state in North Carolina,” he said. “You’ve got two strong management teams. Putting them together just made good sense. It’s a good natural fit.”
In conjunction with the merger, VantageSouth announced a $46.9 million private stock placement capital raise, set to close by the end of the week. The money will be used to pay back the U.S. Treasury for an investment it made in VantageSouth subsidiary banks during the financial crisis-era Troubled Asset Relief Program bailout.
Yadkin Financial no longer has TARP money on its books after the U.S. Treasury auctioned off its holdings in the bank to a private investor.
The merger must still be approved by each bank’s shareholders and by regulators. As is common in business mergers, a number of law firms have already announced that they’ll investigate the terms of the merger on behalf of shareholders who believe they did not get the best deal.
Closing is expected in the second quarter. The (Raleigh) News & Observer contributed.
Dunn: 704-358-5235; Twitter: @andrew_dunn
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