Community banks are wheeling and dealing.
• At the end of August, Mountain 1st Bank and Trust, a 12-branch bank based in Hendersonville, agreed to be acquired by a much larger regional bank, Raleigh-based First Citizens.
• Last month, High Point-based Bank of North Carolina, which has a presence in the Triangle, completed its acquisition of Randolph Bank & Trust of Asheboro and its six branches, including one in Mebane.
• On Friday, Raleigh-based CapStone Bank, which has four branches, agreed to be acquired by NewBridge Bank of Greensboro for stock valued at $63.6 million.
NewBridge announced the Capstone deal a month after it completed its acquisition of Security Savings Bank, a six-branch bank based in Southport. And Capstone itself had acquired Patriot State Bank of Fuquay-Varina in January.
The M&A (mergers and acquisitions) wave is coming, is here, said Tony Gaeta, a banking attorney with the Raleigh law firm Wyrick Robbins Yates & Ponton. I dont think its a tsunami ... but a number of them are catching the wave.
Nor is the wave restricted to local banks.
Its statewide and nationwide, said Thad Woodard, president and CEO of the N.C. Banking Association.
Woodard predicts that North Carolina, which has more than 100 banks and savings and loans operating in the state, will have 10 fewer banks by the end of 2014 as mergers and acquisitions thin the industrys ranks.
Some community banks are even looking to make themselves more attractive acquisition candidates by seeking to make small acquisitions, said Woodard. He called it applying a brighter shade of lipstick.
Industry experts say the current realities of banking have created a bigger-is-better scenario.
Factors such as increased pressure on banks from federal regulators in the wake of the recession, a low-interest-rate environment that limits what banks can charge for loans and the inability of many community banks to raise capital from investors have made it especially hard for smaller community banks to go it alone.
Costs are higher. Capital requirements are higher, said Tony Plath, a finance professor at UNC-Charlotte. Revenue growth is slower and your profit margin is slimmer. Well, put all that together and community banking sucks.
Thats driving smaller banks into the arms of larger banks, which are better positioned because they enjoy economies of scale.
Some community banks that are selling out have been struggling mightily.
That was the case with Mountain 1st Bank, which was acquired by First Citizens for just $10 million. All but $2 million of the purchase price went to pay off funds that Mountain 1st received under the federal bailout program for banks, the Troubled Asset Relief Program.
Gaeta called Mountain 1st a deeply troubled bank. It had been under the gun to raise additional capital since 2010, when it entered into a consent order with state and federal regulators.
Mountain 1st CEO Michael Mayer said when the First Citizens deal was announced, As you would imagine, we have pursued every avenue available for us to raise capital.
Plath said that in North Carolina the banks in the most vibrant urban markets the Triangle, Charlotte and the Triad are especially attractive acquisition targets.
NewBridge needed a bigger presence in Raleigh. Thats what made Capstone worth overpaying for, Plath said. They paid a lot of money for Capstone. If Capstone were ... in any smaller market in North Carolina, it wouldnt have attracted the value that it did.
NewBridge officials couldnt be reached for comment on the Capstone deal.
Given the advantages of being bigger, Plath predicts that the next wave of deals will be mergers of equals between community banks that already have grown through acquisitions.
Among the community banks that have been in acquisition mode is Raleigh-based VantageSouth Bank, which roughly doubled in size earlier this year when it completed its acquisition of East Carolina Bank.
Terry Earley, chief financial officer of the 45-branch bank, said VantageSouth is focused on completing the integration of East Carolina Bank into its operations and sees ample opportunity for organic growth as well.
That said, he added with regard to the possibility of future acquisitions, we always have our eyes and ears open for good opportunities.