Select in N.C. discussed a merger with four banks

Select Bancorp in Dunn, N.C., decided early on to deal exclusively with First Bancorp in Southern Pines, N.C., according to a regulatory filing tied to their pending merger.

The companies announced a $314 million deal in early June. 

First, a review of the acquisition’s terms:

The deal, expected to close in the fourth quarter, priced the $1.8 billion-asset Select at 185% of its tangible book value. 

The $7.7 billion-asset First Bancorp said it expects the deal will be 10% accretive to its earnings per share. It should take First Bancorp about two years to earn back an expected 3% dilution to its tangible book value.

First Bancorp expects to incur $20 million of merger-related expenses. The company will look to cut about 45% of Select’s annual noninterest expenses. 

Here’s what we learned from First Bancorp’s recent regulatory filing:

• Select began the process of actively seeking a potential buyer in March.
• It contacted four potential merger partners in April, including First Bancorp.
• William Hedgepeth, Select’s president and CEO, and J. Gary Ciccone, the company's chairman, met with the president and CEO of one bank on April 3, discussing potential pricing and cultural fit.
• Hedgepeth and Ciccone met with Richard Moore, First Bancorp’s CEO, and Michael Mayer, the company’s president, on April 7. They discussed the potential advantages and pricing. “At the conclusion of the meeting, the participants agreed that the potential combination had merit.”
• First Bancorp on Aug. 8 asked to negotiate exclusively.
• The Select executives met with the management team of another bank on April 12. They discussed pricing and corporate cultural issues.
• First Bancorp and Select entered into a nondisclosure agreement on April 13 so they could conduct due diligent. Select entered into a similar agreement with another bank two days later.
• Hedgepeth met with the chairman and CEO of a fourth bank on April 28, covering potential pricing and cultural fit. After the meeting, Select “determined that the pricing of a potential transaction with First Bancorp was superior to the pricing indications received from” the other banks. 
• First Bancorp and Select entered into a 45-day exclusivity agreement on April 29.
• Executives from First Bancorp and Select met in-person on May 19. The filing never goes into the specifics of negotiations.
• Select’s board unanimously approved the merger on May 28. First Bancorp’s directors did the same on June 1. The merger was announced late on June 1.
• Hedgepeth is set to earn an annual base salary of $429,000 as an executive vice president of First Bank. He is also in line to receive a $100,000 bonus on his last day of employment and $700,000 for agreeing to certain non-compete and non-solicitation covenants. 
• Lynn Johnson, Select’s chief operating officer, will also join First Bank as an executive vice president and be paid $294,000 a year. She is in line for a $100,000 bonus on her last day of employment, along with $150,000 tied to non-compete and non-solicitation covenants.
• Hedgepeth and Johnson agreed to two-year consulting periods that begin after their employment ends. Hedgepeth will be paid $8,333 a month, or nearly $200,000. Johnson will receive $12,500 per month for the first year and $8,333 for the second year, or roughly $250,000.

First Bancorp in N.C. sells insurance business

First Bancorp in Southern Pines, N.C., has sold its insurance business. 

The $7.7 billion-asset company disclosed in a regulatory filing Friday that Bankers Insurance in Glen Allen, Va., bought "substantially all" of the operating assets and certain liabilities tied to First Bank Insurance Services. 

Bankers Insurance paid $13 million upfront. The deal includes a future earnout payment of up to $1 million.

First Bank's insurance business focused on property and casualty coverage. 

Bankers Insurance was formed by an association of community banks in 1999.

The sale "represents a good business opportunity for First Bank," Michael Mayer, the bank's president and CEO, said in the filing.

"Our customers will continue to benefit from an ongoing referral relationship with Bankers Insurance," Mayer added. "In addition, the capital provided from this transaction will further support First Bank's continuing loan growth an regulatory capital needs."

The Loan Source buys another block of PPP loans

The Loan Source has acquired more Paycheck Protection Program loans.

Blue Ridge Bankshares in Charlottesville, Va., disclosed in a regulatory filing Friday that it sold about $713 million of PPP loans to The Loan Source. 

Blue Ridge said it received about $706 million in cash proceeds for the loans. Blue Ridge said it used a portion of the proceeds to pay off roughly $431 million of borrowings under the Paycheck Protection Program Liquidity Facility.

Blue Ridge also said it expects to record a gain in the second quarter from the sale.

The bank still has about $140 million of PPP loans.

This is the third block of PPP loans that The Loan Source has bought in recent days. The company also bought $344 million of loans from Trustmark and $585 million of loans from Dime Community Bancshares.

CFBank in Ohio winding down DTC mortgage business

CF Bankshares in Columbus, Ohio, is winding down its direct-to-consumer mortgage business.

The $1.6 billion-asset parent of CFBank said in a press release Thursday that it had suspended the origination of new rate-lock commitments through the direct-to-consumer business, effective June 30. The bank will look to close out its existing loan pipeline and commitments in coming few months.

The company said its direct-to-consumer business will likely have a $2.5 million after-tax loss in the second quarter of 2021. 

CF Bankshares said the number of borrowers paying off loans in the first six months after origination has increased “significantly,” leading to a rise in early payoff fee expense. The company's early payoff fee expense for 2021 will likely exceed $2 million as of June 30.

The company also pointed to price volatility, along with “diminished refinance volumes, margin compression and increased market competition,” for its decision to shutter the business.

CF Bankshares started making direct-to-consumer mortgages in 2018.

The business “has been a significant driver of fee income … over the past two years, and the fee income generated from this business has allowed CFBank to invest in expanding its footprint and presence, along with building capital,” Timothy O’Dell, the company’s president and CEO, said in the release.

“Going forward, CFBank’s focus will continue to be on growing and expanding our core commercial and retail bank, along with retail mortgage lending,” he added. 

The direct-to-consumer business contributed about two-thirds of the company's revenue in 2020, Brendan Nosal, an analyst at Piper Sandler, wrote in a note to clients. 

"We suspect the ramifications will impact our EPS estimates, perhaps in a significant way," Nosal added. "At the very least, we can say this marks an abrupt, unexpected about face in strategy."

Community Bank System buys employee benefits firm

Community Bank System in DeWitt, N.Y., has bought a company that provides consulting services tied to retirement plans and benefits.

The $14.6 billion-asset company said in a press release Thursday that it acquired Fringe Benefits Design of Minnesota, which has offices in Minnesota and South Dakota. Fringe Benefits Design will become a unit of Benefit Plans Administrative Services.

Community Bank System did not disclose the price it paid.

The acquisition is expected to add more than $110 million of annual revenue.

“We are very excited to be partnering with FBD, a respected and growing provider of retirement plan administration and benefit consulting services,” Mark Tryniski, Community Bank System’s president and CEO, said in the release.

“The transaction will strengthen and complement our existing BPAS businesses and represents an attractive opportunity to expand our benefits business in the Midwest,” Tryniski added.

German American lines up next phase of CEO succession

German American Bancorp will have a new CEO next year. 

The $5.2 billion-asset company said in a press release Thursday that D. Neil Dauby will succeed Mark Schroeder on Jan. 1. Schroeder will remain chairman.

Schroeder plans to retire as an executive during the second quarter of 2022 but remain chairman until German American’s annual meeting the following year, the company said.

Dauby, German American’s president and chief operating officer, was also appointed to the company’s board. To accommodate Dauby's appointment, German American expanded the size of its board from 12 to 13 directors.

Bradley Rust will succeed Dauby as chief operating officer on Jan. 1. He will remain the company’s chief financial officer. As COO, he will have “more extensive involvement in the executive oversight of the operations of the company’s business units,” the release said.

Group in southern Georgia applies to form a bank

A group in Moultrie, Ga., is looking to form a bank.

Organizers of the proposed Moultrie Bank & Trust filed an application with the Federal Deposit Insurance Corp. on Wednesday for deposit insurance. The application wasn’t immediately available.

The group is looking to raise $20 million to $25 million in initial capital, said Byron Richardson, a senior consultant at Bank Resources in Atlanta. Bank Resources has been providing consulting services to the organizers.

Donna Lott would serve as the bank’s CEO, while Collin Batchelor would be the chief financial officer.

Lott previously served as an executive vice president at Southwest Georgia Bank. Batchelor previously worked at Ameris Bank.

All but one of the bank’s organizers have ties to Moultrie, Richardson said.

“This is one of the strongest groups I’ve ever worked with,” Richardson added.

A call to Lott wasn’t immediately returned.