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The North Carolina market is poised for a big round of M&A, and executives at NewBridge Bancorp which has made two acquisitions this year believe they can build the state's first super-community bank.
December 9 -
Yadkin Financial revealed in a regulatory filing that merger talk is running rampant across the state. Yadkin agreed to merge with VantageSouth in January to create North Carolina's biggest community bank.
March 27 -
Executives at NewBridge Bancorp share insiders' views on the challenges of making loans and pursuing M&A in a state where big banks, regionals and well-funded community banks have created heavy competition.
December 9 -
The more than $500 million that investors pumped into banks in the Tar Heel State has turned marginal players into consolidators, provided a way to absorb failures and instilled new discipline.
June 14
NewBridge Bancorp in Greensboro, N.C., has begun writing the last chapter of its commendable turnaround story.
But, in agreeing to sell itself for nearly two times tangible book value, the ending would be much different than what some might have envisioned for the $2.8 billion-asset company.
Less than five years ago, NewBridge was struggling financially. It had lost $86 million from 2007 to early 2010 because of credit issues and a large goodwill writedown. Nonperforming assets still made up 4.28% of total assets at the end of 2010.
Management turned to private equity in 2012, raising $56 million
Instead, it officially became a seller Tuesday and, provided it is approved, the deal would cement Yadkin Financial's standing as the largest community bank in North Carolina.
Management’s efforts at cleaning up credit also played a role in Yadkin’s willingness to pay a
“Look at their asset quality and how solid it is,” Scott Custer, the chief executive of Raleigh-based Yadkin, said when asked during a conference call Tuesday to justify the premium, which compares to
“There is almost no [credit] adjustment,” Custer said. “We’re taking on less than 2% [tangible book value] dilution to get 10% earnings accretion. … That’s a deal I’d take almost any day.”
It certainly helped, too, that NewBridge fills a major hole for Yadkin in the middle of North Carolina. “It connects the state completely for us … and it makes us better in key markets we’re already in,” Custer said.
“For a long time, a lot of us looked at ways to create a super-community bank in North Carolina,” Pressley Ridgill, NewBridge’s chief executive, said in brief comments during the conference call. “This one truly makes the most sense from both sides.”
Ridgill was coy when asked about NewBridge’s decision-making process. “I’ve received a lot of calls through the years” from interested buyers, he said, while declining to specifically address the events that led to talks with Yadkin.
Private equity has big stakes in NewBridge and Yadkin, along with many other banks in North Carolina. Basswood Capital and Endicott Management are among NewBridge’s shareholders, while Yadkin lists Lightyear Capital and Stone Point Capital as its biggest investors.
Custer, meanwhile, was asked about his future plans as Yadkin is poised to become a $7 billion-asset company. While he admitted that Yadkin would “pretty quickly” hit $8 billion in assets just from organic growth, Custer said there are no immediate plans to cross over the $10 billion threshold, where banks are required to perform stress tests and are subject to caps on interchange fees.
“Right now we’re focused on this deal,” Custer said, though he admitted that it would make more sense to cross $10 billion in assets with a meaningful acquisition rather than organic growth. “That’s not a number we plan to test right now.”
While he did not discuss the possibility of eventually selling, Custer said in his opening remarks that “the franchise value that comes with the back end of this is exceptional.”
There are no immediate plans to upgrade systems, either.
“Between the two companies, we’ve largely got what we need in terms of the level of compliance and risk management support for the company,” Custer said. “We already have a robust enterprise-risk-management framework today. … For today and the foreseeable future, we’ve got what we need.”
Custer also addressed Yadkin’s decision to pay its shareholders a special dividend of 50 cents a share prior to the deal’s expected second-quarter completion.
“That’s something we’ve been discussing around the board table for some time,” Custer said. “Our earnings have been solid. … We felt like in the context of the transaction that it made sense to go ahead and return some capital to our shareholders.”
Custer also expressed optimism that, in terms of regulatory approval, “this thing can travel through a normal process.”
Finally, Ridgill said he was confident the company could retain NewBridge’s top-performing loan officers. “This is something we want to stay focused on … but our producers will be able to thrive in this environment,” he said.
