VantageSouth, Yadkin merger to create largest community bank in NC

Jan. 28--Raleigh-based VantageSouth Bank, which has become a force in community banking through a series of acquisitions, has forged its biggest deal yet by agreeing to merge with Yadkin Bank of Statesville to create a bank with more than 70 branches and about $4 billion in assets.

The deal, announced Monday morning by the two publicly traded banks, is being billed as a merger of equals. The holding company's headquarters will be in Raleigh, while the banking business will be based in Statesville.

Scott Custer, president and CEO of VantageSouth, will assume that role at the combined bank, while his counterpart at Yadkin Bank, Joe Towell, will be executive chairman of the new company.

"This is going to be a pretty significant company, a $550 million market cap company that is headquartered in Raleigh" and will be the largest community bank headquartered in the state, Custer, the former CEO of RBC Bank, said in an interview.

A company's market capitalization is the total value of its outstanding shares.

"It's a transformational transaction for both sides," said Bill Wagner, a Raleigh-based investment banker with Raymond James. He said the deal made sense for each of the banks and their investors.

Lately, Wall Street has been giving warm receptions to mergers-of-equals among community banks that are in strong markets and offer the potential to reduce costs, Wagner said, and that proved to be the case on Monday.

VantageSouth shares closed Monday at $5.75, up 61 cents, or 12 percent. Shares of Yadkin closed at $18.48, up $1.17.

An undetermined number of layoffs and branch closings at the combined bank are anticipated. Today the banks have a total of 982 employees.

"We don't have it clearly defined yet," Towell said. "But the reality is that you don't need two of everything as you merge two like-sized companies."

Custer stressed, however, that there is little overlap among the banks' branches and called the merger "a story about putting two companies together that have a great upside in terms of their revenue and organic growth opportunities."

Stronger competitor

Top management at the combined bank below the CEO level will be equally distributed between two VantageSouth and two Yadkin executives. VantageSouth executives Terry Earley and Steve Jones will be chief financial officer and chief banking officer, respectively.

Tony Plath, a finance professor at UNC-Charlotte, said the deal makes the combined bank a stronger competitor against regional community banking powerhouses Capital Bank and Bank of North Carolina.

"It's the inevitable, continuing evolution of banking, not only in North Carolina but in the U.S. -- fewer branches, bigger banks, so that they can bear the operating expenses and regulatory costs as they gain scale," Plath said.

The parent company of the combined bank will be called Yadkin Financial Corp. and will be governed by a 14-person board split evenly between VantageSouth and Yadkin directors. However, the brand name that the combined banks will operate under after the deal is completed hasn't yet been determined.

Yadkin, which has 33 branches, struggled with problem real estate loans in the wake of the recession -- it lost money in 2012 and 2011 -- but has been profitable the past three quarters after cutting costs, selling problem loans and raising new capital.

"They had turned that bank around and were doing well," Wagner said.

Five branches close

Towell said that although Yadkin could afford to remain independent, it concluded that "if we could find the right merger partner, which we have found in Scott and (his) team, we could create even more value for our shareholders and create a more powerful community bank presence in North Carolina."

Custer said that of the eight to 10 community banks that VantageSouth considers its peers, "Yadkin really has been the No. 1 performer" over the past 12 months.

"Both companies came at this from a position of strength that will only make the combined company that much stronger," Custer said.

Today, VantageSouth has 45 branches in central and eastern North Carolina. Yadkin has 33 branches in central and western North Carolina, including two in Durham and one in Hillsborough, and three in South Carolina.

Recently, and separate from the Yadkin deal, VantageSouth decided to close five of its branches, including one in the Triangle -- in Knightdale, Custer said. That plan wasn't made public until Monday.

Custer noted that VantageSouth, which was built by acquisitions, until now hasn't closed any of the branches it acquired.

"It's appropriate from time to time to come up for air and assess how your branches are performing," Custer said.

Regulatory approval needed

The roots of what is today VantageSouth Bancshares can be traced to 2009, when Triangle businessmen J. Adam Abram and Steven Lerner formed Piedmont Community Bank Holdings. That was the springboard for four bank acquisitions: most notably Cary-based Crescent State Bank and East Carolina Bank as well as smaller banks VantageSouth of Burlington and Community Bank of Rowan.

Abram previously founded two insurance holding companies, James River Group and Front Royal, that sold for $572 million and $167 million, respectively. Today he is chairman of VantageSouth's board and he will be named to the board of the combined bank.

The deal, unveiled Monday, is subject to regulatory approval and is expected to close before the end of the second quarter. It calls for shareholders of VantageSouth Bancshares to receive 0.3125 shares of Yadkin Financial stock for each share that they own. That values the transaction at $299 million, based on Friday's closing price of Yadkin Financial shares.

VantageSouth also announced that it expects to close on the private sale of $46.9 million in common stock to new and existing investors within the next few days. The money will be used to pay back $42.8 million owed to the federal government -- money it received during the financial crisis under the federal Troubled Asset Relief Program.

When the deal is completed, Yadkin Financial shareholders will own about 45.4 percent of stock in the combined company and VantageSouth shareholders will own 45.5 percent. The remaining 9.1 percent will be owned by investors in the pending VantageSouth stock sale.

The two companies expect to generate about $10 million in annual cost savings thanks to the merger.

Discussions between the two companies got their start last summer when Custer and Towell ran into each other at a conference for bank investors in Greensboro. "And it just picked up speed from that point," Towell said.

Ranii: 919-829-4877

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