After announcing a large in-market deal last week, First Charter Corp. in North Carolina says it is ready to expand outside the Charlotte region. But to do that, the company might have to convince investors that it hasn't bitten off more than it can chew.
Concord-based First Charter announced last week it would buy Carolina First BancShares for $260 million in stock. The deal would create the state's eighth-largest banking company and move it to fifth in deposit-share in metropolitan Charlotte.
In an interview this week, chief financial officer Robert O. Bratton said the company is looking to grow in the Charlotte area and beyond. First Charter recently opened a loan production office in Greensboro, N.C., and intends to convert the office into a branch next year. The company is also eyeing Raleigh-Durham, N.C., Myrtle Beach, S.C., and Greenville, S.C., he said.
"We try to be very opportunistic, entering high-growth markets when we can," he said. "Greensboro makes a lot of sense to us, as do a few other markets in the Carolinas."
But before management arranges any more deals, it might have to find a way to lift First Charter's stock out of the doldrums. The shares lost 8.7% of their value on Nov. 8, the day the deal was announced, closing at $17.125. At midday Wednesday they were trading at $16.625.
Analysts say investors probably ran for the exits because of the deal's high price: 3.8 times book and 24.7 times earnings.
"I think the market told us exactly what they thought of the deal," said Mark Fitzgibbons, an analyst with Sandler O'Neill & Partners in New York.
Mr. Fitzgibbons said he was troubled by First Charter's projection that it would take almost two years -- until the third quarter of 2001 -- for all cost savings to be realized. "When I look at a transaction that dilutive, it is hard for me to make a strong case to investors that it is a good deal."
Mr. Bratton said he understands investors' concerns, but argued that the deal is worth the price.
"Charlotte is the second-fastest-growing city in the nation," he said. "There is a tremendous amount of opportunity to cut costs and grow from this deal."
First Charter predicts it will cut costs by 35%.
Other analysts said the deal would make First Charter more attractive to larger acquirers. They noted that because of the high degree of consolidation in North Carolina, the new First Charter would be the only take-out target of its size should it decide to sell. The next-largest bank holding company in the state would be $7.8 billion-asset CCB Financial Corp. in Durham; the next-smallest would be $720 million-asset Fidelity Bancshares of Fuquay-Varina.
Carolina First Corp., a separate company based in Greenville, S.C., and Centura Banks Inc. of Rocky Mount, N.C., were mentioned as potential acquirers of First Charter.
Mr. Fitzgibbons said that though First Charter would make a good takeover target, "my sense is that management is not interested in selling." He said he expects the company to announce another pooling-of-interest deal before the accounting method disappears in 2001.
"The company has been acquisitive, and I think they will continue to be acquisitive," he said. "And it makes me cautious seeing transactions getting done before other deals are contributing to earnings."