If their sale of 37 branches to National Commerce Financial Corp. of Memphis goes through, the soon-to-be-married First Union Corp. and Wachovia Corp. may strengthen the hand of a competitor already on a growth tear right in their backyard.
The deal, announced Monday and expected to close in the first quarter of 2002, would add $1.5 billion of deposits to $18 billion-asset National Commerce and give it a foothold in two new and lucrative markets Asheville, N.C., and Savannah, Ga. It also would leap to the No. 2 spot in a third key market, Roanoke, Va., and fortify its already strong business in Winston-Salem, N.C., where Wachovia is based. The branches are in 21 markets in the Carolinas, Virginia, and Georgia.
National Commerce executives say that after acquiring and converting the new branches, the company will try to take advantage of its added heft by doing what it has done elsewhere in the region: open supermarket branches to fill out a hub-and-spokes network.
We think that well be able to come along in our style and find a supermarket partner, said Sheldon Fox, National Commerces chief financial officer. We have no commitments at this point, but now that we have a definitive agreement on the branches, well be actively looking for a partner.
Store branches are a major part of the expansion strategy at National Commerce. It has them in Kroger grocery stores in Tennessee, Virginia, and West Virginia and in Wal-Mart stores in north Georgia. Its Carolinas subsidiary, CCB Financial, operates in Harris Teeter and Kroger stores in the Raleigh/Durham and Greensboro/Winston-Salem areas.
And in July the company announced plans to piggy-back on its deal to buy SouthBanc Shares Inc. of Anderson, S.C., by opening branches in Bi-Lo groceries in the Greenville/Spartanburg, S.C., market. The $126 million stock and cash SouthBanc deal was announced in July and is to close next quarter.
Neither First Union nor National Commerce would discuss financial details of the branch deal, which is contingent on Wachovia and Charlotte, N.C.-based First Union closing their $14.5 billion merger. That could happen in early September.
National Commerce has climbed in the ranks of midsize southeastern banks over the past few years, and closed its largest purchase ever about a year ago in buying CCB Financial Corp. of Durham, N.C., the parent of Central Carolina Bank. It now has about 400 branches in Virginia, Tennessee, and the Carolinas.
Analysts called the branch deal a good one for National Commerce, though Robert S. Patten, an analyst with UBS Warburg, said it probably will take them out of the bidding for branches that Huntington Bancshares Inc., of Columbus, Ohio, is selling in Florida. National Commerce executives have said they would be open to further acquisitions, especially of banks with assets of $400 million to $1 billion.
We think its a very good strategic fit, Mr. Patten said of the 37-branch deal. He said the price for the First Union and Wachovia branches was not out of line with similar transactions and should add 1 or 2 cents to National Commerces per-share earnings in 2002.
First Union and Wachovia also has agreed to sell a 38th branch, in Salisbury, N.C., to First Bancorp of Troy, N.C. The divestitures were required to satisfy regulators that the Wachovia-First Union merger would not harm competition.
National Commerce executives have said they would be open to further acquisitions, especially of banks with assets of $400 million to $1 billion.
Michael Granger, an analyst with J.P. Morgan Securities Inc., said in a research note Tuesday that National Commerces SouthBanc deal, in-store agreements in South Carolina, and the First Union/Wachovia branch deal should provide the company fuel for additional earnings growth in the years to come. He also wrote that National Commerce has smartly expanded into a number of new markets at very reasonable entry costs.
National Commerce also announced Monday a plan to put its operations under a single national bank holding company charter Jan. 1 to save money and increase efficiency. That would mean that CCB Financial would give up its North Carolina state charter but branches in the Carolinas would still use the CCB name.