North Carolina banks once dominated the industry’s consolidation. Those days are long gone. In the first four months of this year, eight North Carolina banks changed hands for almost $7 billion. Six were or will be acquired by out-of-state institutions. It represents twice the number of N.C. bank deals as in all of 2016 and almost a third of the bank sales announced across the South this year, says Bruce Elder, chief executive officer of Washington-based First South Bank.
Pending completion of the deals, Elder’s bank of about $1 billion in assets will be the 10th-largest commercial lender based here, according to Business North Carolina’s annual ranking of the state’s financial institutions. Twenty years ago, it ranked 34th. Maybe First South will be sold by the time this story is published — the company delayed its annual shareholders’ meeting by a month, sparking speculation of a pending sale. Asked about a possible takeover, Elder responded: “Our mission is to be a high-performing, independent community bank.”
North Carolina is among the five states most affected by banking-industry consolidation in recent years, says Peter Gwaltney, presidentof the N.C. Bankers Association, citing an American Banker story. That reflects state population growth, which is expected to be 30% greater than the U.S. average in the next five years, and the desire of major bank investors to sell when the iron is hot.
In the case of Capital Bank Financial Corp. and BNC Bancorp, large private-equity investors had held stakes for more than five years, a time that often leads to a sale. New York-based Aquiline Partners, whose principals include former Wachovia CEO Ken Thompson, bought about 25% of BNC for $25 million in 2010. It has sold some of its stake. Tennessee-based Pinnacle Financial Partners is paying $1.9 billion for BNC. Age may play a role in mergers: Capital CEO Gene Taylor is 69; Paragon Commercial Bank CEO Bob Hatley is 65. (TowneBank of Virginia is buying Paragon.)
Before the 2007-09 recession, the deal-making would have been followed within months by news of startups in various N.C. communities. A former bank CEO would recruit local business owners to start a new institution, pledging to offer superb customer service. That’s what former Centura exec Hatley did at Paragon in 1999, selling an initial share for $52,500 to attract wealthy investors committed to the company. Adjusted for splits, each initial share has grown to 10,000 shares, equating to an original price of $5.25, says Buddy Howard, a bank analyst at Raleigh-based High Rock Partners. TowneBank is paying Paragon $59.25 per share, a tenfold return for original investors.
Don’t look for repeats. Startups have evaporated in the last decade because of low interest rates that squeeze bank profit margins, technology barriers and increased regulation, Gwaltney says. He is optimistic new banks will emerge. “We’d certainly like to see more local CEOs surrounded by local boards.”
Sadly, the momentum is in the other direction.