Yadkin Valley Financial Corp. of Elkin, N.C., would enter North Carolina's largest market and increase its assets by about 40% with the deal it announced Wednesday for American Community Bancshares Inc. of Charlotte, but its investors do not seem impressed.
The $1.4 billion-asset Yadkin said it agreed to pay $92 million in cash and stock, about 2.07 times the seller's tangible book value. American's shares soared on news of the deal, but Yadkin's plunged, with investors apparently thinking Yadkin is paying too much. Its shares fell 26%, to close at $12.54.
Yadkin's branches are on the outskirts of Charlotte, and analysts say its deal for the $530 million-asset American is a good one because it would raise the buyer's profile in one of the Southeast's healthiest markets.
Douglas B. Rainwater, an analyst with Janney Montgomery Scott LLC, said investors' expectations about pricing have changed as the credit crisis has worsened, and perhaps Yadkin's investors were expecting a bargain. He said $92 million is a fair price.
"People have lost perspective about pricing because so many banks are trading at tangible book or below now that people sort of think that's the new pricing paradigm," Mr. Rainwater said. "These guys are still operating in a pretty normalized banking environment" with the economy and the housing market still holding up well in North Carolina. "So two times tangible book, from my perspective, is not necessarily a high price."
Mr. Rainwater said American Community is a solid company, with strong capital ratios and more than adequate loan-loss reserves. American Community's second-quarter earnings were down about 60% from a year earlier, to $484,000, largely because its loss provision increased. Its ratio of nonperforming loans to total loans rose 12 basis points, to 0.52%, though that is well below the industry average these days for banks its size.
P. Carter Bundy, an analyst with Stifel, Nicolaus & Co. Inc., wrote in a note Wednesday that while the price appears "rich," the acquisition would be neutral to earnings in the first year and accretive thereafter. The company said it expects to save $4 million on expenses, about 29% of American Community's operating expenses for the past 12 months.
One eliminated expense would be the salary of Randy P. Helton, American Community's chairman, president, and chief executive. Mr. Helton would sit on Yadkin's board but would not be an employee.
Less than six months ago, Yadkin acquired Cardinal State Bank in Durham, N.C., for about $42 million. Like Cardinal and other banks Yadkin has acquired in recent years, American Community would retain its name.
Bill Long, Yadkin's president and CEO, said in a press release that American was an attractive target because the "demographics of metropolitan Charlotte/Mecklenburg are simply some of the best in the entire nation." The acquisition would also give Yadkin its first branches in South Carolina.
American Community's shares closed at $10.51 Wednesday, up 50%.
Craig Colasono, an analyst with Sandler O'Neill & Partners LP, said American Community investors would get shares in a "well-run company at a discount from where Yadkin has been trading in the past 12 months. So when everything settles, it could be … a pretty good deal for American Community shareholders."