Money talk: Capital gains

 In Money talk

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Gene Taylor, left and Chris Marshall

Gene Taylor’s paycheck, though substantial, is a fraction of the old days. His deals are in the millions, not in the billions. But the enthusiasm for building a bank remains, 47 years after Taylor signed
on at the former NCNB Corp. in Charlotte.

Taylor’s second chapter started after his July 2007 ouster from Bank of America Corp., just as the housing crisis was developing. The move signaled the lender was in a serious bind. Taylor, then paid about $9 million a year, had been a key foot soldier as Hugh McColl Jr. and Ken Lewis, his close friend for decades, built BofA into the biggest U.S. bank at one time.

Instead of pouting, Taylor, now 68, joined BofA alums Chris Marshall and Bruce Singletary and former Wall Street bank analyst Ken Posner to form a holding company to buy troubled banks. They raised $900 million, mostly from private-equity groups, including McColl’s Charlotte-based Falfurrias Capital Partners and New York-based Crestview Partners.

The empire building started with government-assisted purchases of $1.2 billion in assets from three failed banks in Florida and South Carolina in 2010. Over the next 18 months, they bought four more banks for a combined $673 million. The latter purchases included Raleigh-based Capital Bank — from whence they got their name — and Southern Community Financial Corp. of Winston-Salem, which together had more than 50 N.C. offices.

Since 2011, Capital Bank Financial Corp. has consolidated its seven institutions into one operation and whittled nonperforming loans to $59 million from $377 million. “Considering we had no brand, no brand recognition, no real size or scale, we’ve been able to achieve appropriate growth in the markets we serve,” Taylor says. Adds Marshall, “If you look back at 2010 and the [new] banks that were formed then, I think we’ve outgrown every one of them.”

It outgrew CommunityOne Bancorp, created through the 2011 merger of Asheboro-based FNB Corp. and Granite Falls-based Bank of Granite. In October, Capital bought CommunityOne for $361 million, adding 45 North Carolina offices.

With about $10 billion in assets, Capital is now the largest community bank based in North Carolina, about 25% bigger than High Point-based BNC Bancorp., which sports better profitability.

Taylor, who was paid $1.4 million last year, says building another interstate bank is satisfying. “You change, or you are not relevant,” he says. “We have added more customers, and that is the definition of winning. We’ve sustained a revenue stream and taken out costs as needed to ensure we met our investors’ requirements.”

That cost cutting included dismissals of executives of acquired banks and a refusal to pay about $320,000 in retirement benefits to a former CFO of its Tennessee bank, sparking a five-year court battle. That hard-nosed approach draws criticism from competitors and Tony Plath, a UNC Charlotte finance professor who has followed N.C. banks for decades.

“Capital’s Draconian treatment of acquired banks has become an impediment in its ability to convince other potential targets to join the team,” Plath says. Capital preyed on unfortunate “community bankers who stayed with their little businesses long after the crisis erupted and worked their asses off trying to save them,” he says.

The acquired banks’ troubles make clear that changes were overdue, Marshall says. Terminating managers of acquired banks was a hallmark at BofA, so it shouldn’t surprise that Taylor’s strategy hasn’t changed. With low interest rates and tighter regulations, Capital and other small banks have little margin for error: No new bank has started in North Carolina in more than five years, and Yadkin Financial Corp. of Raleigh, with $7.5 billion in assets, cited inadequate size as a factor in its pending sale to Pittsburgh-based F.N.B. Corp.

Its success in turning around struggling banks shows Capital can compete. “We just spent $360 million in Charlotte, and that’s a big bet,” Taylor says. “Whether you are the biggest or smallest doesn’t matter. It’s what your clients and teammates say about you that defines who you are.”

 

Photos provided by Capital Bank Financial

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