Community Bank Rising

By Dick Hughes  

JANUARY 27, 2012 9:50 a.m. (0)

Peoples National Bank of Easley came out of the recession better than many small community banks, but its tightly knit group of shareholders experienced little benefit from the stability.

It struck early to purge toxic loans from the real estate collapse, took its first loss in its 25-year history in 2008, built back capital to elevated levels required by regulators, nurtured its core base of customers and returned to consistent profitability.

Still, shareholder value remained stuck at around $1 to $1.50 a share, far below the $8 to $11 per-share range in the two years ahead of the recession and its historical levels.

There was no market for its 1,200 shareholders, many of whom had been with the bank since the beginning. It was difficult to cash out even if they wanted to.

And the company faced increased regulatory costs “in the six figure range” that would eat into profits, dampen shareholder value and hinder growth, said Andrew Westbrook, president and chief executive officer.

After a “pretty exhaustive introspective look,” he said, the Peoples board decided the best thing it could do for shareholders, employees and customers was to accept an overture from a bigger and stronger bank.

Some Job Losses Expected

On Dec. 20, Peoples and SCBT Financial Corp. announced that SCBT would acquire Peoples in a stock transaction valued at $28.4 million. Peoples’ shareholders will receive 0.1413 SCBT shares for each of the 7.1 million outstanding shares of Peoples.

SCBT also will repay U.S. Treasury for the $12.6 million Peoples got under TARP.

Once the deal is approved by shareholders and regulators and the operational transition is complete, Peoples’ eight offices of Peoples National Bank, Bank of Anderson and Seneca National Bank will become SCBT.

John Windley, SCBT’s president and chief banking officer, expects the three banks will be converted over three consecutive weekends to be “operating under the SCBT flag by the end of July, first of August.”

While no offices will be closed and a majority of the 120 employees retained, positions duplicated by SCBT could be eliminated in what Westbrook said “certainly is the most difficult thing of this.”

Bigger Upstate Presence

The combination will give Columbia-based SCBT a stronger presence in the Upstate by adding to its seven existing locations, and it will make Peoples’ shareholders, employees and customers part of one of the strongest and fastest growing banks in South Carolina.

“What excites us about this is what it means for the footprint along the I-85 corridor in the Upstate of South Carolina,” said Windley.

SCBT entered the Upstate market in 2002 with an office in Greenville “with one customer” and has been able “to carve out a fairly significant position just in Greenville County,” he said. “Combined, we think we can continue the momentum in this part of the state.”

With the addition of Peoples’ $36.6 million in deposits in Greenville, SCBT will have $276.6 million in deposits and about 2.5 percent of market share, or 11th largest, in the county, according to the FDIC tally of deposits as of June 2011.

SCBT Adds Three Counties

SCBT gains its first footing in Anderson, Pickens and Oconee counties. Peoples is 7th largest in Anderson with $182.4 million in deposits, 2nd in Pickens with $187 million in deposits and 5th in Oconee with $68 million.

It entered Spartanburg in 2010 with a wealth management office, expanded it to a full service branch and subsequently merged it with a BankMeridan office acquired when that company failed.

In the Upstate, SCBT said, the acquisition will make it 7th largest in deposits. It will be the state’s sixth largest.

For Peoples, the combination “represents for our shareholders picking up 6.7 percent in SCBT, which is in three states and has $4.5 billion in assets versus having 100 percent of a $550 million company that is in four counties,” said Westbrook.

Also attractive, he said, was SCBT’s history of never missing a dividend in its 77-year history and the liquidity offered by heavy trading and institutional investment in SCBT in contrast to Peoples’ zero investment by institutions and very low trading volume. The banks are traded on NASDAQ.

Shares Rise on Announcement

Announcement of the merger instantly benefited shareholders. On the day the deal was announced, Peoples shares more than doubled in value to $3.75. Within 30 days, the closing price rose to $4.24. In the same period, SCBT’s stock rose from $28.53 to $31.96.

The merger of Peoples and SCBT was a natural fit, Westbrook and Windley said. They know one another well and had been “in discussions candidly for the last three years about the opportunities of putting the two organizations together,” said Windley.

SCBT has served “for a long time” as Peoples’ correspondent bank, a behind-the-scenes “bankers bank,” as Westbrook put it, to support services the smaller bank couldn’t otherwise offer and to act as a clearing and settlement house for transactions.

As one of the few banks in the Southeast to remain profitable throughout the recession, SCBT has been able to be aggressive in acquisitions. Peoples will be its fourth in two years.

With FDIC assistance, it acquired two failed Georgia banking companies, Community Bank & Trust of Cornelia and Habersham Bank of Clarkesville, and the smaller BankMeridan of Columbia.

With the pace of failures slowing and fewer opportunities for FDIC-assisted acquisitions, Windley said, healthy banks such as SCBT are beginning to shift “from doing failed sale deals to more traditional” mergers and acquisitions such as the acquisition of Peoples.

Because of the changes in the industry and increased regulatory climate, “it is becoming more and more challenging for smaller community banks to have the infrastructure in place to grow and comply with all the increased regulation,” he said.

“What you will see is a lot of smaller community banks begin to look for opportunities to partner with other banks as this consolidation wave picks up some steam.”

He said SCBT is capable of “doing two deals a year.”