Despite tough times for the financial services industry, another Charlotte community bank is selling for a premium.
Ten-year-old American Community Bancshares Inc. on Wednesday said it was selling to Elkin-based Yadkin Valley Financial Corp. in a transaction valued at about $92 million. The deal creates a bank with about $2 billion in assets and 42 branches stretching from Cherokee County in South Carolina to the N.C. foothills to the Triangle.
American Community is the third Charlotte bank to sell to an out-of-market bank since last August. It's also the second of three area community banks founded in the late 1990s to be snapped up in that span.
Experts said it's a natural life cycle for community banks to be sold after a decade or so, as growth slows and shareholders look for a return on their investment. While community bank deals have declined in the past year, industry observers expect the pace to pick up eventually as smaller banks wrestle with rising loan losses and depleted capital. The big question is whether there will be enough healthy buyers, they said.
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“I think we will see a wave of small-bank acquisitions,” said UNC Charlotte professor Tony Plath. “Everyone will be looking to pair up to pool resources.”
In this deal, American Community shareholders get either $12.35 in cash per share or 0.8517 Yadkin Valley shares, although only 19.5 percent of the total deal can be paid out in cash. American Community shares jumped 50 percent after the transaction was announced, closing Wednesday at $10.51. In the past year, the shares have traded between $4.50 and $13.
Yadkin Valley shares, however, dropped 26 percent to $12.54 on the news. Its shares have traded between $9.85 and $17.90 over the past year.
American Community chief executive Randy Helton said he has long known Yadkin Valley counterpart Bill Long and that talks started heating up this summer. In the past year, a large shareholder had publicly pushed for a sale, but Helton said the deal wasn't the result of that pressure or any problems at the bank.
“We're always looking at strategic opportunities,” Helton said. “They gave us a very attractive price for our shareholders.”
Long, the Yadkin Valley CEO, said he has long eyed the Charlotte market because it was growing faster than his territory to the north. He also liked American Community's financial numbers, including its loan quality, he said.
“The way we look at mergers is that we find banks that are not broken,” he said.
Long said both banks are likely to take hits on preferred shares of Freddie Mac and Fannie Mae that they own, but he said that didn't play a role in the deal. The shares in the mortgage giants, now under government control, have lost value, causing problems for many banks that hold these investments.
The American Community purchase is expected to be completed no later than early next year. The bank will continue to operate under its own name. Yadkin Valley has preserved the brands of other banks it has bought, but regularly considers whether to switch to one uniform name, Long said.
Helton, 53, will remain a director but step down as an executive. After three decades in banking, he said he doesn't know what he will do next. As of a filing in April, he held 145,812 American Community shares, worth about $1.5 million at Wednesday's close. Mark DeMarcus, American Community's chief banking officer, will become market president after the deal closes.
Yadkin Valley expects to cut American Community's expense base by 30 percent, but Long said the bank hasn't determined how many jobs will be lost. American Community has about 125 employees. Yadkin Valley won't close any branches and expects to eventually build new ones, Long said.
Chris Marinac, who follows banks stocks for FIG Partners in Atlanta, said American Community got a good price, showing the value of a solid deposit base in the current banking environment. The merger market has been slow lately, but in this case American Community's board was proactive and “the right party stepped up,” he said.
The deal gives Yadkin Valley the opportunity to expand down Interstate 77, including untapped S.C. markets, Marinac said.
The deal follows Scottish Bank's sale to Columbia, S.C.-based SCBT Financial Corp. and First Charter Corp.'s takeover by Cincinnati-based Fifth Third Bancorp.
Charlotte investment bank McColl Partners, founded by former Bank of America Corp. CEO Hugh McColl Jr., advised American Community on the sale, as it did on the First Charter deal. The head of the firm's financial institutions group, Charlie Welch, led the transaction, but McColl also offered advice, putting him in the unusual position, once again, of selling a Charlotte bank instead of expanding one.
Of four Charlotte banks that opened in the late 1990s, including First Commerce (which sold to Bank of Granite in 2003), only First Trust remains independent. Another round of banks opened in Charlotte this decade, but none of them has been purchased.
First Trust CEO Jim Bolt said he couldn't comment on the possibility of a sale, but noted his bank has stuck to its plan of serving businesses and professionals and has posted double-digit annual returns. Charlotte remains a strong market, and his bank can benefit when customers and employees are disrupted by competitors' mergers, he said. “It's certainly an opportunity for us,” he said.