-
Park Sterling Corporation in Charlotte, N.C., announced Monday that it is buying Citizens South Bank in Gastonia, N.C., in a deal that would instantly double its size.
May 14 -
The names of 18 former CapitalBank branches in South Carolina have been changed to Park Sterling Bank.
December 1
A $78 million deal involving two North Carolina banks shows how inexpensive sweeteners can help persuade a seller to accept a low-priced offer.
Park Sterling would preserve jobs for employees of Citizens South's 21 branches in North Carolina, South Carolina and Georgia; keep open a mortgage-processing and call center in Gastonia, N.C., where Citizens South is based; and make a $500,000 donation over ten years to Citizens South's charitable foundation.
Those so-called "social" concessions helped seal a deal the banks have been discussing on and off for two years. They should ease the stress for customers and employees of the former mutual thrift, Citizens South Chief Executive Kim Price says.
Park Sterling "was very sensitive and very wise to recognize that we are a community bank," he says. Keeping the operations center in Citizens South's home city should help maintain the health of an important expansion market for Park Sterling, he says.
Salaries are also lower in Gastonia than they are in Charlotte, where Park Sterling is based, he says. Park Sterling would have to pay higher salaries if it moved those operation jobs.
"I can't say that there aren't some mixed emotions," Price says. "But my emotions are overwhelmingly happy. It is clearly the right thing to do for shareholders. It is good for our employees long term because they have more opportunities for growth and advancement."
Price, the CEO of Citizens South since 1997, is to become a consultant and board member of the $2.2 billion-asset, 45-branch company that would result from the deal. The banks have similar numbers of branches and assets.
Social concessions in bank mergers generally involve sellers' employees, brands or charitable causes. They tend to be given short shrift in deals involving a troubled bank, but often are deeply important in deals like the planned sale of Citizens South, in which two banks with similar cultures but somewhat disparate financial health pair up.
Hancock Holding's (HBHC)
In this instance, social issues were integral to delivering value to stakeholders in a willing seller only worth so much in a down market.
The deal values Citizens South at a price equal to 114% its tangible book. That is on the high end of what banks in North Carolina have sold for lately, but low by historical standards — and lower still than what decent banks tend to sell for in the Northeast and West Coast.
Citizens South — despite an unprofitable first quarter — is healthy enough to stay independent, says James Cherry, Park Sterling's chief executive.
The cash-and-stock deal is structured in a way that recognizes that, he says. Shareholders of Citizens South would receive 30% of the $78 million purchase consideration in cash. (The $78 million value excludes the exchange of $20.5 million Citizens received from the Treasury Department's Small Business Lending Fund.)
"The value you place on them and their communities is important," he says. "Bankers were historically well known for the involvement in community activities. To express on the front end that we will continue to do that, that is the way you build your relationships."
Both banks trade below the value of their tangible books. They also have little operating overlap, which means fewer cost savings than if they were in the same market. Those are key price-depressing factors.
Combined they should have higher profits and more valuable equity.
"This is a strategic merger of interests," Cherry says. "We're going to be one [company]. So it needs to be beneficial to both parties, and I think it is."
