Two North Carolina community banks are teaming up to create a $2 billion-asset company that their top executives hope will be a more formidable competitor against the large ones that dominate the state.
LSB Bancshares Inc. of Lexington and FNB Financial Services Corp. in Greensboro are billing their deal, announced Tuesday, as a merger of equals, though LSB is buying FNB for $125 million in stock. The combined company, which has yet to be named, would be the sixth-largest one based in North Carolina, with 42 branches, including four in Virginia, and about $1.6 billion of deposits.
"We're going to emerge really stronger as a combined company than we are as individuals," Pressley A. Ridgill, FNB's president and chief executive officer, said in a press conference. "In this case, one plus one really equals more than two."
Deals involving similar-size banks have become more common of late as the operating environment for community banks has grown more challenging. Some of the deals are true mergers of equals, and others are not, but the goal is generally the same: to gain the scale needed to challenge larger banks.
The combined FNB and LSB, for example, would have the No. 8 deposit share in the state, with 0.77%, according to Federal Deposit Insurance Corp. data. Though that share would pale in comparison with Wachovia Corp. or Bank of America Corp., it would be a significant leap for the companies getting together. LSB's Lexington State Bank ranks No. 18, and FNB's FNB Southeast ranks No. 21.
In many respects, the deal would be a merger of equals. The new company's 20-member board would be split evenly between representatives of FNB and LSB. Robert F. Lowe, LSB's chairman and CEO, would be the chairman and CEO of the new company and chairman of its subsidiary bank. Mr. Ridgill would be the president of the holding company and president and CEO of the bank.
But technically the deal is a stock swap, with FNB shareholders receiving 1.07 shares of LSB stock for each of their shares.
FNB's shares soared 7.25% on news of the deal, to close at $15.98. LSB's shares plunged 7.63%, to close at $15.26.
LSB's 25 branches are located in five counties in the north central part of the state and do not overlap with FNB's 17-branch network in Greensboro, Rockingham County, the North Carolina coast, and the Shenandoah region of Virginia.
The absence of branch overlap is "a very compelling part of this transaction," Mr. Lowe said at the press conference. "As a result, we expect minimal staffing modifications in our primary locations of service to our customers."
He also said that the companies have identified $5 million of annual cost savings.
Other benefits of combining the companies would include larger lending limits and, according to Mr. Ridgill, more attention from analysts and investors.
"In today's world, it's hard to get at lot of good coverage from the analysts out there [who] have a lot of opportunities to cover a lot of banks," he said. "But at $2 billion [of assets], I think we're going to get a lot more analyst coverage and be a lot more well respected in the investment community."
Both companies have had credit-quality problems of late. LSB's fourth-quarter net income dropped to $338,000, from $2.5 million in the same period in 2005, after deteriorating credit quality led to a $1.9 million writedown on some credits at its finance subsidiary.
FNB recorded a $5.6 million loss for the fourth quarter of 2005 after discovering that an officer in its Harrisonburg Va., region made loans that violated lending procedures. The company rebounded last year, though, reporting a $2 million profit for the fourth quarter and a record $9.1 million for the full year.
Chris Marinac, an analyst with FIG Partners LLC in Atlanta, said the companies have taken steps to repair such deficiencies.
"Both companies enter this with somewhat of a cleaner deck on the credit front than they have had," he said.
The deal is scheduled to close in the third quarter.
