A key domino in North Carolina bank consolidation appears to have finally tipped, after Yadkin Financial (YDKN) and VantageSouth Bancshares (VSB) finally agreed on a long-rumored merger valued at $300 million.

Smaller banks in the state have been warming up to meaningful M&A. But recent deals have been relatively small, including purchases by BNC Bancorp (BNCN) in High Point, NewBridge Bancorp (NBBC) in Greensboro and HomeTrust Bancshares (HTBI) in Asheville.

At NewBridge, Chief Executive Pressley Ridgill made in clear in a recent interview that North Carolina's banks needed to combine to form the kind of super-community bank "that South Carolina and Virginia now have."

The merger of VantageSouth and Yadkin "could be the first biggie," says Robert Singer, a banking lawyer at Brooks, Pierce, McLendon, Humphrey & Leonard in Greensboro who isn't involved in the deal but has advised NewBridge.

"I think it's a possibility that there will be more," Singer adds. "Banks are coming back. Asset quality [is] improving all over the state. Stocks are picking up and trading very well."

Yadkin, the financial acquirer, will become the biggest community bank based in North Carolina, edging ahead of BNC with $4 billion in assets. In terms of accounting, VantageSouth is the acquirer. The company will be based in Raleigh.

It is unclear to Joe Towell, Yadkin's president and CEO, if this deal will fulfill Ridgill's prediction that a super-community bank will emerge out of North Carolina. But he says the combined scale will help Yadkin cut costs and reach more borrowers.

The company will incur $23 million in merger-related expenses, and it will take two years to earn back dilution to tangible book value.

Private equity has been viewed by some industry experts as a catalyst for consolidation, in North Carolina and elsewhere. In 2010, a number of private-equity investors began investing in North Carolina's banks, and some could be looking to cash out.

Stone Point Capital and Lightyear Capital are VantageSouth's biggest investors, but the merger, shouldn't be viewed as an exit strategy for the firms, says Scott Custer, VantageSouth's president and CEO.

Stone Point and Lightyear will remain "significant investors," says Custer, who will become Yadkin's president and CEO. "Both are very supportive of the transaction."

The nature of the funds' investments will change, Custer notes. Currently, the funds are investors in Piedmont Community Bank Holdings, a privately held entity that acts as VantageSouth's holding company. Following the merger, the firms will be investors in a publicly held security.

Rumors of the deal were stoked last month when a Yadkin director resigned over a disagreement relating to the company's growth strategy.

VantageSouth will conduct a $47 million private placement, using proceeds to redeem preferred stock and warrants issued to the Treasury Department under the Troubled Asset Relief Program.

VantageSouth and Yadkin are describing their combination as a merger of equals, a structure type that Singer says is somewhat rare. "You've got to have two relatively same-sized banks," Singer says. For such a deal to work, the "demographics and chronologies must work for the various players."

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