A pair of banks in Eastern North Carolina are merging to create a $1.1 billion institution with more lending power while at the same time signaling the return of M&A, which has been stagnant for the past few years in the state.
PB Financial Corporation (PBNC), the holding company for 17-year-old Providence Bank in Rocky Mount, is buying Coastal Bank & Trust (CABT), a bank founded in the midst of the Great Recession and based in the coastal city of Jacksonville.
The deal – encompassed of 75 percent stock and 25 percent cash – has Coastal merging into Providence, creating a bank with $874 million in loans and $893 million in deposits.
Compare that to what Coastal started with – just $11 million in capital in 2009.
The combined company will operate under the Providence name and keep its headquarters in Rocky Mount.
Providence Bank CEO Ted Whitehurst, who will stay in his role following the deal, told Triangle Business Journal that the combination is about growth – including personnel, all of whom will be retained from Coastal.
Coastal CEO Richard Jefferson will stay on in a senior level position.
For Coastal, the deal means a deeper coffer to draw from in extending loans. Right now, the bank's limit for loan size is about $3 milllion.
“Once we get this deal done, that will move to $20 million,” Whitehurst said, noting that while Coastal has great customer relationships, “they can only do so much business with them, and now they can increase that so we think just the nature of how that will work will make it grow faster.”
Whitehurst said the bank is a good cash position for the buy, having raised just over $8 million in a private placement – some of which will fuel the acquisition.
Once the deal closes, Providence will have 10 full-service offices in Raleigh, Holly Ridge, Jacksonville, Morehead City, Nashville, Richlands, Rocky Mount (where it has two offices), Tarboro and Wilson, with a loan production office in New Bern.
Industry watchers said that the deal looks like a good fit for both banks.
“Providence Bank is one of North Carolina’s most profitable community banks,” said Peter Gwaltney, president and CEO of the North Carolina Bankers Association. “They’re picking up a strong team and customer base through this acquisition of Coastal Bank. The combination of these banks makes a great deal of sense.”
Bill Wagner, managing director of the financial services investment banking group at Raymond James and Associates, said that for Coastal shareholders, it gives longtime backers liquidity options.
“And for Providence, getting bigger is the key to banking these days,” he said.
Ted Roseman, a senior industry analyst for Bankrate.com, agrees, saying community banks are looking for more scale due to heightened regulatory burdens and higher deposit costs. He sees a “healthier,” more scalable financial institution created out of the deal.
“Stronger community/regional banks are a plus, given the important role they play in consumer and small-business lending,” he said.
Under the transaction terms, Coastal shareholders may receive either $10 in cash or just over 0.2 shares of PB Financial common stock for each share of Coastal common stock – terms that value the deal at about $25.8 million for those stakeholders.
Whitehurst said those terms were thought to be a good compromise – giving liquidity to investors looking for cash.
Largest NC Banks
June 2022 NC deposits
| Rank | Prior Rank | Business name/ |
|---|
| 1 | 1 | Bank of America Corp. |
| 2 | 2 | Truist Financial Corp. |
| 3 | 3 | Wells Fargo & Co. |
View this list
Matt Kennedy, managing director of the investment banking group at Performance Trust, said that one reason bank consolidation has been down in recent years is a reticence to sell in a depressed valuation environment.
“In this case, the 75-25 percent stock/cash mix provides Coastal shareholders some cash consideration, but it also allows them to be part of the Providence Bank pro forma moving forward,” he said. “If you’re trading from a stock to a stock, you do get to, hopefully, ride up the stock price of the acquirer post transaction.”
He, along with other analysts TBJ spoke with, expects to see more M&A in the coming months, as those kinds of conversations have picked up in the industry amid rising deposit costs and margin compression.
Deal activity has been, for the most part, stagnant in North Carolina – the most recent exceptions being the First Citizens (Nasdaq: FCNCA) buy of Silicon Valley Bank. Also, Winston-Salem’s Piedmont Federal Savings Bank has a pending $36.8 million buyout of Wake Forest Federal Savings and Loan Association.
The Providence deal has already been approved by both bank boards and is expected to close in the second quarter of 2024.
Both Providence and Coastal have come a long way from the bank startups they were just over a decade ago.
Providence began when a group of investors in Rocky Mount raised $13.6 million to start a community bank in 2006. As Whitehurst would later say, “We just needed a real, local community bank in this area, owned by people in this area and headquartered here.”
In 2018, the bank combined with the Wilson-based parent of Cornerstone Bank to create a $424 million-asset institution, a deal that Whitehurst said Wednesday exceeded expectations and validated its plan for Coastal. The bank opened its Raleigh branch on Six Forks Road in late 2020.
Coastal opened its doors in 2009 as banks across the company were shutting down amid the financial shakeup of the Great Recession.
In an interview in 2018, Jefferson described the move as “either very smart or very stupid – history will determine which.” The founders scrambled together $11 million in startup capital, knowing that, if the bank was successful, it would be “one of the few institutions ready to lend” in that environment.
But it was a close call, Jefferson would later say, pointing to regulatory delays and last-minute flights for one-one-one meetings with the Federal Deposit Insurance Corp.
“Nobody knew this, but we ran out of money,” Jefferson told TBJ in 2018. “They gave us approval on a Friday and we opened on the very next Monday, I think.”
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