By David Dykes
It took South State Corp., the largest community banking company based in the Carolinas, a long time to live up to its name. Formed in 1934, the company adopted its current name in 2014 after merging its five banks that had different brands. The Columbia, S.C.-based company had grown substantially in South Carolina and small slices of Georgia and North Carolina over the last two decades. But South State’s $690 million acquisition of Charlotte-based Park Sterling Corp. last December expanded South State’s asset size by about 30% and raised its business and profile significantly in Charlotte, Raleigh and Richmond, Va. It also prompted the company to plant its bank president, Greg Lapointe, in the Queen City. Lapointe is succeeding John Windley, who is retiring in March after 43 years in banking.
“It gets a senior leader in a very important, critical state in North Carolina and, candidly, it gets me more centralized where it’s easier to get to the other cities in North Carolina,” says Lapointe, who worked for Wells Fargo & Co. and Bank of America Corp. for a combined 25 years before joining South State in 2009. “It was a logical next step for our company.”
South State entered North Carolina in 2007 by purchasing Charlotte-based The Scottish Bank, renaming it North Carolina Bank and Trust. At the time of the Park Sterling acquisition, it had about $570 million in deposits in the Charlotte market. Four other regions — Augusta, Ga., and Charleston, Greenville and Hilton Head, S.C. — were then larger than Charlotte.
Post-merger, Charlotte is the state’s biggest deposit market with more than $1.5 billion in the vaults, CEO Robert Hill Jr. told analysts in October. “We’ve got a lot of traction building,” he said. South State now employs about 300 people in the Charlotte area.
While its roots are in smaller cities in South Carolina, South State now relies on Charleston, Charlotte, Greensboro, Raleigh and Richmond for more than 60% of its overall lending, according to bank officials. In the counties in which it operates in four states, South State has more combined deposits than all but three other banks with offices in the same markets.
South State positions itself as more diversified than other community banks and more customer-friendly than regional and national institutions that dominate the industry. With $14.5 billion in assets, it is about 150% larger than Southern Pines-based First Bancorp, the largest N.C.-based community lender.
“We think right now we are absolutely in the sweet spot,” Lapointe says. “If we focus on continuing to be a true alternative to the big banks — out-big the big and out-small the small — there is a strong niche for us in the marketplace that we can take advantage of.”
Mergers are never easy, of course, and integrating Park Sterling has challenged South State. Park Sterling was assembled through a series of acquisitions between 2006-15, and its profits and assets didn’t match rivals BNC Bancorp, Capital Bank Financial Corp. and Yadkin Financial Corp., which were acquired by out-of-state companies in 2017. Park Sterling also had about triple the concentration in commercial real-estate loans as South State, raising red flags for investors still smarting from the U.S. banking industry’s sharp downturn during the 2007-09 recession.
After more than tripling in value from 2011-18, South State has lost a fourth of its stock-market valuation since May. That’s more than double the decline in the same period reported by the SPDR S&P Bank exchange-traded fund, which includes a mix of big, midsized and small banks. Analysts have blamed higher costs for deposits that have cut net interest margins and a more competitive lending market.
Hill called 2018 a year of transition for South State, adding that the Park Sterling merger “has gone well and is largely behind us.” Repositioning the company’s loan portfolio, including reducing its reliance on commercial real estate, is mostly complete, he said.
South State’s executive team in Charlotte includes two well-known local bankers. Donald Truslow, executive vice president, was chief risk officer for Wachovia Corp. during the years leading up to its rapid descent in the financial crisis. He later joined Park Sterling as chief financial officer and helped engineer the sale to South State. He now oversees legal affairs, risk management and capital markets. Also in Charlotte is Bryan Kennedy, who had been Park Sterling’s president and previously helped develop two local community banks. He now leads South State’s North Carolina and Virginia division.
Windley, the bank’s retiring president, says he expects South State to rank in the top five in market share in each of its regions. While it ranked fifth in deposits in Greenville, S.C., and seventh in deposits in the Charlotte area as of June 30, the bank is 13th in Richmond, 31st in Raleigh and doesn’t show up in the Triad, according to FDIC data.
That puts the challenge squarely on the shoulders of Lapointe and his team. “I see that as an opportunity,” he says.