Organizers of a proposed start-up community bank in Winston-Salem said Friday they are moving forward with their Plan B of acquiring an existing bank instead.
Community Bank of the Carolinas, led by Simpson “Skip” Brown Jr., ended its start-up efforts June 28 after just more than a year even though it had secured conditional state and federal regulatory approvals.
Organizers voluntarily withdrew those applications with the N.C. Commissioner of Banks and the Federal Deposit Insurance Corp.
At that time, Brown said Community Bank organizers were considering other alternatives that “could create a better bank in the long run,” such as “partnering with or acquiring another financial institution.”
During the past 10 weeks, organizers searched the Carolinas and Virginia for acquisition targets.
On Friday, Brown said in a statement that organizers have “signed a letter of intent to purchase a well-established ... healthy, profitable community bank” with about $100 million in total assets. Brown would serve as chief executive of the acquired bank.
By comparison, Community Bank’s initial public offering of $11 a share attracted more than 350 investors with a goal of raising between $22.5 million and $25 million in capital.
Brown said the acquisition bank would be identified once a definitive purchase agreement has been signed “within seven to 10 days.” The deal is projected to close within 60- to 90-days from the date the agreement is signed.
According to the state Banking Commission, there are four community banks in N.C. around the $100 million total asset mark as of July 31: First Capital Bank of Laurinburg ($102.4 million); Taylorsville Savings Bank ($102.1 million); Belmont Savings Bank of Belmont ($91.8 million); and Morganton Savings Bank ($90.4 million). There is also Wake Forest Federal Savings and Loan Association at $104 million.
There is one bank each in South Carolina (First Federal Savings Bank of S.C. Inc. of Walterboro at $95.7 million and Virginia (Miners Exchange Bank of Coeburn at $92.7 million.
Brown could not be immediately reached for comment on whether the acquired bank would be moved to Winston-Salem or remain where it is currently based.
It is not clear which brand the acquired bank would have if the transaction is completed.
Community Bank organizers are applying a similar strategy to another proposed start-up community bank, Dogwood State Bank of Raleigh, though at a significantly smaller asset scale.
The state banking commission would oversee any such deal as a change in control transaction.
After ending its start-up bid in 2018, Dogwood organizers announced plans in January to acquire Sound Bank of Morehead City and move it to Raleigh with Scott Custer, former chief executive of Yadkin Financial Corp., as its chairman.
Sound Bank, acting on Dogwood’s behalf, completed a $100 million recapitalization effort in May. It has seven branches and $366 million in total assets.
The decision to end the Community Bank start-up initiative was surprising in large part because bank officials said March 29 they had gained commitments of $18.26 million from local investors, or 81% of the $22.5 million in total capital needed for regulatory approval.
“While we were close to having our capital raised with the de novo (start-up) effort, we are finding that investors are much more interested in a Dogwood-Sound Bank type of transaction because the bank will start with an existing base of business and without the de novo regulatory restrictions that impede growth,” Brown said June 28.
The opportunity to acquire a bank was the organizers’ first objective since an acquisition would meet their strategy “of being further along in its business model,” Brown said.
Community was the fourth of five start-up attempts in North Carolina over the past two years to end their attempts, counting Dogwood, Spirit Community Bank of Statesville and Carolina State Bank in Greensboro. American Bank & Trust of Monroe has completed its start-up process.
Most start-up banks require two to five years to reach profitability.
In many instances, start-up banks are sold within five to 10 years, primarily to enable bank executives and investors to recoup a profit.
“The capital raise shortfall is not in any way a negative reflection on Skip, or his plans for bringing de novo community banking back to Winston-Salem,” Tony Plath, a retired finance professor at UNC Charlotte, said in June.
“The regulatory compliance costs; the availability of alternative risk-capital investments with better financial prospects; and the competitive nature of the North Carolina banking industry. The financial returns to risk capital just aren’t there anymore to justify the risk of the investment.”
On Friday, Plath said Community Bank organizers likely are targeting a region "that's less favorable for community banking than urban North or South Carolina, and a location and state that's a good strategic combination for a Triad-headquartered community bank."
A likely scenario, Plath said, is buying a little country savings bank in the North Carolina mountains, then do a charter flip into a North Carolina-chartered community bank.