Many banks sell themselves because they lack the capital to grow, but 1st State Bancorp Inc. in Burlington, N.C., is selling because it has too much.
The $369 million-asset company announced late Wednesday that it had agreed to sell for $115 million in cash and stock to the $885 million-asset Capital Bank Corp. of Raleigh, N.C.
James McGill, 1st State’s chief executive officer, said that ever since going public in 1999 it has been trying to deploy the capital it raised.
At one point it bought back 10% of its stock. Later it tried to do so again, but too few shares were tendered. It looked into buying other banks in its markets but found nothing suitable.
It even gave shareholders a special one-time $5 dividend — but that did not even make a dent.
On March 31, 1st State’s equity capital equaled 16.2% of assets. The average for banks with $300 million to $500 million of assets was 9.6%, according to Federal Deposit Insurance Corp. statistics.
“We wound up saying that we have too much capital and we can’t get shareholders the return on equity they expect, so there may be more opportunity in a merger,” Mr. McGill said.
The excess capital is less of a concern for the buyer. The 8-year-old Capital Bank said it is eager to use that capital to grow in other markets, through acquisitions or by building branches.
“We have other markets in western part of the state with significant demands,” said Grant Yarber, Capital’s president and CEO. “And with the additional capital we have a chance to expand there.”
The deal, expected to close in January, would bump Capital from No. 5 to No. 2 (Wachovia Corp. is No. 1.) in Alamance County, in North Carolina’s booming Triad region.
Capital entered the county at the start of 2002 by buying the $211 million-asset First Community Financial Corp. of Burlington. It deferred expansion in Alamance after discovering millions of dollars of bad loans at High Street Corp. of Asheville, which it also bought that year.
For the extra capital and market share, Capital is paying up. The price equals nearly one-third of 1st State’s assets; the average for deals announced in the last year is 18%, according to Highline Banking Data Services.
First State put itself on the block in February and considered several other bids before accepting Capital’s. Not only is the price right, Mr. McGill said, but the deal would create jobs in Burlington, where Capital plans to move its back-office operations.
