How two banks arrived at an $82M merger

Park Sterling recently opened a new Richmond branch along Patterson Avenue.

Park Sterling recently opened a new Richmond branch along Patterson Avenue.

The two sides of Richmond’s latest banking merger have a history.

It goes back to 2010, when veteran banker Jim Cherry and a group of executives were in search of a bank they could buy, recapitalize and use as a foundation for their plan to recreate the sort of medium-sized regional bank that was pervasive until the heyday of consolidations.

While they ultimately found their launching pad with Park Sterling Bank in North Carolina, Glen Allen-based First Capital Bank was on the short list of choices at the time.

“Park Sterling embarked on this initiative in 2010,” Cherry said Thursday. “We spoke to five banks five years ago. First Capital was one of those five.”

Now, the Charlotte-based bank has an offer on the table to acquire First Capital in a deal valued at $82.5 million that would give Park Sterling an instantly larger foothold in Richmond to rival or surpass many other local banks.

Jim Cherry

Jim Cherry

Should it close as expected in the first quarter of 2016, the combination would bring together First Capital’s $616 million in assets with Park Sterling’s $2.44 billion. And it would combine First Capital’s eight local branches with Park Sterling’s 50 offices, including two in Richmond.

The deal will make Richmond Park Sterling’s second-largest market based on deposits, second only to its home territory of Charlotte.

“It’s very quickly becoming one of the most important markets we have in the franchise,” Cherry said.

Park Sterling first arrived in the Richmond market in early 2014 when it picked up a pack of local bankers from StellarOne Bank, which was then in the midst of merging with Union Bank.

Cherry said the company targeted Richmond for two reasons: its stable economy and the connections that he and many of Park Sterling’s executives and directors have to the region and the state.

“Richmond has always been on our radar screen,” he said.

Four of its executives and 10 of its board members have lived, worked or gone to college in Virginia, Cherry among them. He’s a Virginia native who attended Hampden-Sydney and spent about a decade in Richmond beginning in the late ’90s as an executive of Wachovia and its predecessors.

It was during that time that he said he got to know First Capital CEO John Presley. Presley was then an executive at National Commerce, a Memphis-based bank that was the 50 percent owner of the former Richmond institution First Market Bank.

John Presley

John Presley

Presley took over as First Capital’s CEO in 2008 and has stayed in touch with Cherry and Park Sterling since then.

When it was time for Park Sterling to look for acquisition targets in Richmond, First Capital was ready.

Presley said the bank was at a point where it needed to gain larger scale to keep growing but couldn’t reach that goal on its own. And it needed to offer new value for its shareholders, who have seen the bank’s stock price remain largely flat for the last year and half. Park Sterling could help with both.

“It just got to the point where all the stars aligned, in that our business momentum had taken off and we were getting to the point where we were stretching the limits of our bank from a capital and asset perspective,” Presley said.

First Capital had also put itself in the proper condition to be an attractive target. The bank has been on an upswing in recent years after bringing on a Northern Virginia investor in 2012 who recapitalized the bank and helped it get out of a bad loan-fueled rut that lingered from the recession.

“Park Sterling saw a bank with locations in the right part of town. They saw a group of really good, well-respected bankers,” Presley said. “(First Capital) is a bank that went through the crisis, raised some capital and was able to right the ship and get it cleaned up.”

As part of the deal, First Capital common stockholders will have the right to receive either $5.54 in cash or 0.77 shares of Park Sterling stock for each First Capital share they hold. That’s subject to a limitation that the consideration be 30 percent cash and 70 percent stock. That’s a premium based on First Capital’s $5.12 per share closing price Thursday, up 7 percent on the day.

The merger has been approved by the boards of each company.

After the closing of the deal, Presley will stay on with the merged company in a consulting role that will run 2½ years. First Capital President Bob Watts will stay on in a customer relationship manager role, Presley said.

The bulk of First Capital’s 90 employees will make the move over to join Park Sterling’s 20 local employees, though there is likely to be some attrition from duplicative back-office positions. Park Sterling’s companywide headcount will be about 600.

The First Capital signage around town will be replaced by the Park Sterling name.

This likely won’t be the last deal Park Sterling goes after in Virginia. Cherry said the bank, which has closed three acquisitons deals in North and South Carolina since 2010, may eventually target the western part of the state and/or Hampton Roads.

And Cherry said he sees more consolidation headed for the Virginia banking market as a whole. With changing regulations, many community banks will need greater size than they have now to grow for shareholders and for their customers.

“It’s a mature industry and there’s huge changing going on,” he said.

Park Sterling recently opened a new Richmond branch along Patterson Avenue.

Park Sterling recently opened a new Richmond branch along Patterson Avenue.

The two sides of Richmond’s latest banking merger have a history.

It goes back to 2010, when veteran banker Jim Cherry and a group of executives were in search of a bank they could buy, recapitalize and use as a foundation for their plan to recreate the sort of medium-sized regional bank that was pervasive until the heyday of consolidations.

While they ultimately found their launching pad with Park Sterling Bank in North Carolina, Glen Allen-based First Capital Bank was on the short list of choices at the time.

“Park Sterling embarked on this initiative in 2010,” Cherry said Thursday. “We spoke to five banks five years ago. First Capital was one of those five.”

Now, the Charlotte-based bank has an offer on the table to acquire First Capital in a deal valued at $82.5 million that would give Park Sterling an instantly larger foothold in Richmond to rival or surpass many other local banks.

Jim Cherry

Jim Cherry

Should it close as expected in the first quarter of 2016, the combination would bring together First Capital’s $616 million in assets with Park Sterling’s $2.44 billion. And it would combine First Capital’s eight local branches with Park Sterling’s 50 offices, including two in Richmond.

The deal will make Richmond Park Sterling’s second-largest market based on deposits, second only to its home territory of Charlotte.

“It’s very quickly becoming one of the most important markets we have in the franchise,” Cherry said.

Park Sterling first arrived in the Richmond market in early 2014 when it picked up a pack of local bankers from StellarOne Bank, which was then in the midst of merging with Union Bank.

Cherry said the company targeted Richmond for two reasons: its stable economy and the connections that he and many of Park Sterling’s executives and directors have to the region and the state.

“Richmond has always been on our radar screen,” he said.

Four of its executives and 10 of its board members have lived, worked or gone to college in Virginia, Cherry among them. He’s a Virginia native who attended Hampden-Sydney and spent about a decade in Richmond beginning in the late ’90s as an executive of Wachovia and its predecessors.

It was during that time that he said he got to know First Capital CEO John Presley. Presley was then an executive at National Commerce, a Memphis-based bank that was the 50 percent owner of the former Richmond institution First Market Bank.

John Presley

John Presley

Presley took over as First Capital’s CEO in 2008 and has stayed in touch with Cherry and Park Sterling since then.

When it was time for Park Sterling to look for acquisition targets in Richmond, First Capital was ready.

Presley said the bank was at a point where it needed to gain larger scale to keep growing but couldn’t reach that goal on its own. And it needed to offer new value for its shareholders, who have seen the bank’s stock price remain largely flat for the last year and half. Park Sterling could help with both.

“It just got to the point where all the stars aligned, in that our business momentum had taken off and we were getting to the point where we were stretching the limits of our bank from a capital and asset perspective,” Presley said.

First Capital had also put itself in the proper condition to be an attractive target. The bank has been on an upswing in recent years after bringing on a Northern Virginia investor in 2012 who recapitalized the bank and helped it get out of a bad loan-fueled rut that lingered from the recession.

“Park Sterling saw a bank with locations in the right part of town. They saw a group of really good, well-respected bankers,” Presley said. “(First Capital) is a bank that went through the crisis, raised some capital and was able to right the ship and get it cleaned up.”

As part of the deal, First Capital common stockholders will have the right to receive either $5.54 in cash or 0.77 shares of Park Sterling stock for each First Capital share they hold. That’s subject to a limitation that the consideration be 30 percent cash and 70 percent stock. That’s a premium based on First Capital’s $5.12 per share closing price Thursday, up 7 percent on the day.

The merger has been approved by the boards of each company.

After the closing of the deal, Presley will stay on with the merged company in a consulting role that will run 2½ years. First Capital President Bob Watts will stay on in a customer relationship manager role, Presley said.

The bulk of First Capital’s 90 employees will make the move over to join Park Sterling’s 20 local employees, though there is likely to be some attrition from duplicative back-office positions. Park Sterling’s companywide headcount will be about 600.

The First Capital signage around town will be replaced by the Park Sterling name.

This likely won’t be the last deal Park Sterling goes after in Virginia. Cherry said the bank, which has closed three acquisitons deals in North and South Carolina since 2010, may eventually target the western part of the state and/or Hampton Roads.

And Cherry said he sees more consolidation headed for the Virginia banking market as a whole. With changing regulations, many community banks will need greater size than they have now to grow for shareholders and for their customers.

“It’s a mature industry and there’s huge changing going on,” he said.

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