For the first time in its 90-year history, North Carolina's highly successful Bank of Granite is buying a bank.

The $465 million-asset Granite Falls bank last week agreed to buy $125 million-asset Carolina State Bank in Shelby, some 40 miles to the south, in a stock swap valued at $31.1 million.

Bank of Granite stock has been trading at more than three times its book value - strong currency for stock deals - but until last week the bank had been content to grow internally.

"We have no reason to expand for the sake of expanding," said chairman and chief executive John A. Forlines Jr. "But we feel this is a community bank with real good management that will expand our normal marketing area."

The announcement also was surprising in that renowned investor Warren Buffett had cited the Bank of Granite two months earlier as an example of a bank that has excelled without the benefit of mergers.

Analysts said Mr. Forlines may have hopped into the merger market for a couple of reasons.

He may have felt that the bank's existing markets were saturated and it couldn't maintain its profitability without venturing farther afield - toward Charlotte, 55 miles to the southeast, or South Carolina's Cherokee and Spartanburg counties.

"We're talking some pretty tall cotton, as they say," said analyst Gray Medlin of the Carson Medlin Co. in Raleigh, N.C., referring to the more buoyant markets. Carson Medlin advised Carolina State Bank in the deal.

Also, the Carolina State purchase would bring some new management to the Bank of Granite, and possibly some candidates for an eventual successor to Mr. Forlines, who is in his 70s.

The deal would pay $27.75 a share, or 2.6 times book value, to Carolina State Bank shareholders, who still must approve the transaction.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.