With its deal for GBC Bancorp Inc. in suburban Atlanta, First Charter Corp. of Charlotte is taking a big step toward building a regional franchise stretching from Virginia to Georgia.
The $4.3 billion-asset First Charter has agreed to pay $102 million in cash and stock for GBC, which is based in Lawrenceville, Ga. It would be First Charter's first acquisition outside its home state, its first bank acquisition in six years, and the first under president and chief executive Robert E. James Jr., who took the helm in July 2005.
Mr. James' first priority was to make First Charter more profitable by restructuring the balance sheet and cutting expenses. Now, with the company coming off one of its best quarters in years, Mr. James said it is ready to start expanding - through acquisitions or branching or both.
GBC, which has assets of $418 million, is the parent of the 9-year-old Gwinnett Banking Co. Population in its principal market, Gwinnett County, is projected to increase 23.5% by 2010 - against 11.3% for Georgia as a whole and 6.3% for the nation.
"Atlanta is a great market because of its sheer size, and because it's one of the fastest-growing markets in the entire U.S.," Mr. James said in an interview Friday. The deal for GBC was announced late Thursday.
Gwinnett Banking would be merged into First Charter Bank but retain its name and management, including Larry Key, its president and CEO.
The deal is expected to close in the fourth quarter; on completing it First Charter would have assets of $4.7 billion and 60 branches.
Jefferson Harralson, an analyst in Atlanta for Keefe, Bruyette & Woods Inc., said the deal complements the new management team's focus on upgrading the company's performance.
After Lawrence Kimbrough retired in July 2005 as president and CEO of the holding company, Mr. James, First Charter Bank's president and CEO at the time, assumed the top positions at the holding company as well. Four top managers were replaced, including the chief financial officer and the chief risk officer.
First Charter was not a poor performer, but in 2003 it hit a bumpy patch with credit quality problems and a regulatory order to tighten its Bank Secrecy Act procedures.
However, when Mr. James and his new team came onboard, they started restructuring the balance sheet by reducing the amount of securities and borrowings and slashing expenses by consolidating some insurance offices and switching to lower-cost vendors.
"This new management team is more committed to improving ROE and shareholder value," Mr. Harralson said. "The management team before it did not have quite the sense of urgency."
First Charter's goal is to have a return on equity of at least 15% within the next several years, Mr. James said. Its first-quarter ROE was 14.12%, versus 13.21% for last year's first quarter. Its 1.14% return on assets in the quarter was its highest since the third quarter of 2002.
Mr. Harralson said he was surprised First Charter skipped over South Carolina to make its first deal outside North Carolina.
But he said that leapfrogging a state and entering Atlanta first makes sense considering that the price is reasonable - 2.6 times tangible book and 14.4 times trailing earnings - and that GBC is one of the region's top Small Business Administration lenders and had an ROE of 19.59% on March 31.
Moreover, 72% of GBC's loans are construction and commercial real estate loans. That, said John A. Pandtle, a senior vice president at Raymond James & Associates in St. Petersburg, Fla., "should accelerate the repositioning of First Charter's balance sheet away from securities, and more toward higher-yielding loans."
Christopher Marinac, an analyst at FIG Partners LLC in Atlanta, said First Charter should not have much trouble offsetting the certificates of deposit on GBC's books by opening more branches in Atlanta and getting more demand deposits.
First Charter's stock fell 1.3% Friday, to $24.24. GBC's rose 16.7%, to $45.50.
