New pressure on banks to pay back their bailout money should spur more mergers and acquisitions — eventually.

That was the prediction this week by the heads of two banks involved in a $28 million merger in South Carolina, SCBT Financial Corp. and Peoples Bancorporation Inc. Badgering from the Treasury Department to get banks to return their Troubled Asset Relief Program aid will drive many to sell, according to the executives — though they said their deal was spurred by shareholder demands and not federal pressure.

SCBT, of Columbia, intends to pay back Peoples' more than $13.2 million in Tarp as part of its $28 million takeover of the Easley bank.

The question of whether government arm-twisting was a factor was raised in a conference call on Tuesday by Joseph Fenech, a managing director with Sandler O'Neill & Partners LP, who cited "the article I think in the American Banker earlier this month speculating that Treasury is stepping up efforts" to recoup outstanding Tarp money.

"No, the regulators were not really a factor in terms of this decision for us," Andrew Westbrook, the president and chief executive of $550 million-asset Peoples, said. "For us it had more to do with, unfortunately, [the fact that] we have been a pretty thinly traded stock … . We have not been paying a dividend."

SCBT Chief Executive Robert R. Hill Jr. said Tarp repayment is a problem for other targets SCBT has spoken with, describing it as something "hanging around their neck" because "all their future earnings are going to really pay that out."

"So I think you're going to see the Tarp overhang as an M&A catalyst over the next couple years," Hill said.

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.