A popular game among bankers and analysts in the merger-happy Southeast is guessing which community bank will be the next to sell, and one name that comes up repeatedly is First Charter Corp. in Charlotte.
In research notes, analysts have identified the $4.2 billion-asset First Charter as a prime acquisition target, because regionals are looking to bulk up in Charlotte. First Charter is the largest bank there not named Wachovia, Bank of America, or BB&T.
The two companies mentioned as the most likely buyers are SunTrust Banks Inc. and Royal Bank of Canada's RBC Centura Banks. Both have fairly sizable operations in North Carolina, but neither one is much of a player in the Charlotte area, observers say.
"Major acquirers don't want to be scattered over small towns," said Steven Delaney, an analyst with BankAtlantic Bancorp's Ryan Beck & Co. Inc. in Livingston, N.J. Instead, they want to focus on major metropolitan markets, and in the Southeast "Charlotte is the place you want to be."
Even Internet message boards are lighting up with predictions that a sale is imminent and that First Charter could fetch as much as $40 a share. The stock has been trading heavily and has risen more than 20% since the middle of August, to $26.10 late Friday.
First Charter certainly was not generating such buzz a year ago. It lost money in two quarters last year, and until a few months ago it was operating under an enforcement order from the Federal Reserve for Bank Secrecy Act violations.
In September 2003, First Charter signed an agreement with regulators after an exam showed lapses in currency transaction reporting policies and procedures. A few months earlier it had unexpectedly raised its loan-loss provision to protect itself against inflated appraisals on residential rental properties.
Historically a high performer, First Charter lost $3.9 million in the second quarter of last year and $490,000 in the fourth. But it has since returned to profitability; it made $11.4 million in the third quarter. It has also substantially improved its anti-laundering policies, and in July it was released from the regulatory agreement.
John Pandtle, an analyst with Raymond James & Associates Inc. in St. Petersburg, Fla., said he believes First Charter worked quickly to improve its earnings and internal controls to prepare itself for a sale.
"Most management teams would prefer not to sell when earnings are under duress, because it undermines their negotiating position," Mr. Pandtle said. "But now that their work is done, I would not be surprised if over the next several quarters they are acquired."
Lawrence Kimbrough, First Charter's chief executive, would not discuss the possibility of a sale.
But observers say it is clearly a desirable target. It is the only community banking company based in the Charlotte metropolitan area that has more than $500 million of assets, and a third of its 58 branches are in the city. It holds the No. 4 market share in the area, behind Wachovia Corp., Bank of America Corp., both of which are based in Charlotte, and BB&T Corp. of Winston-Salem, N.C.
Mr. Delaney at Ryan Beck said SunTrust is a likely suitor for First Charter. The $152 billion-asset Atlanta company gained significant operations in North Carolina but just a 1.44% share of the Charlotte market with its recent acquisition of National Commerce Financial Corp. of Memphis.
Royal Bank of Canada and its U.S. banking subsidiary, RBC Centura, are also on the top of many lists. Like SunTrust, RBC is big in North Carolina but small in Charlotte, so First Charter would be a good fit, analysts say.
Centura has completed just two small bank deals, both in Florida, since 2001, Mr. Delaney said, so he expects it to make a big purchase sooner than later. "I think its time for RBC to step up and show the world why it came to the Southeast."
Any deal with either SunTrust or RBC would probably not happen for a few months, because both companies are dealing with problems of their own.
Last month SunTrust discovered errors in its loan-loss reserve calculations. The findings forced a restatement of first- and second-quarter earnings and prompted an informal investigation by the Securities and Exchange Commission. And RBC Centura, which has struggled to improve profits the past few years, reorganized its management last month and installed a new CEO.
Synovus Financial Corp. of Columbus, Ga., is another possible - and relatively trouble-free - acquirer, said Jeff Davis, an analyst with First Horizon National Corp.'s FTN Midwest Research in Nashville.
Such a deal would be large for Synovus, but it would make sense, Mr. Davis said, because the $24 billion-asset multibank holding company has operations in Georgia, Tennessee, and South Carolina, but none in North Carolina.
The Southeast and the Midwest are the most active regions for bank mergers and acquisitions; so far this year 50 deals have been announced in each of the regions, according to Highline Banking Data Services.
Mr. Kimbrough would not say if he had been approached by potential buyers. Asked about First Charter's direction, he said, "We see a bright future. I think that we are blessed by being in a wonderful market, and we are always looking at opportunities when they present themselves."
In the past First Charter's 21-member board has made it known that it would like the company to stay independent, but the board owns only 6.6% of the stock.
The largest noninstitutional shareholder, Mark Boyd, formed a dissident group, the Committee to Enhance Shareholder Value, in January to pressure the board to seek a merger partner. Mr. Boyd, who owns about 3%, is the former chairman of the $786 million-asset Carolina First Banc Shares Inc., which First Charter acquired in 2000 - its last purchase.
