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Capital Bank agrees to be sold for $2.2 billion to First Horizon

Capital Bank agrees to be sold for $2.2 billion to First Horizon

Published in the Winston-Salem Journal
By Richard Craver 

Capital Bank agrees to be sold for $2.2 billion to First Horizon

The last domino is falling in the Triad of a super-community or regional bank with a major private-equity ownership stake being sold.

Capital Bank Financial Corp said Thursday it has agreed to be sold to First Horizon National Corp. for $2.2 billion.

The deal, subject to regulatory and shareholder approval, is expected to close in the fourth quarter. Upon closing, Capital shareholders would own 29 percent of First Horizon’s common shares.

First Horizon will keep the Capital Bank brand outside Tennessee.

Capital, based initially in Miami before moving to Charlotte in 2016, entered the Triad in 2012 through buying a struggling Southern Community Financial Corp. of Winston-Salem and its 22 branches for $52.5 million.

Capital represents the evolution of private-equity firm North American Financial Holdings Inc.’s initial buying spree before going public through its purchase of Capital Bank of Raleigh.

Chris Marinac, managing principal with FIG Partners in Atlanta, said he believes the trend of N.C. community-bank deals is based primarily on the anticipated easing of federal banking regulations and tax reform boost that banks may get under the Trump administration, especially if the corporate tax rate is cut from 35 percent to 15 percent.

Capital Bank is eighth in North Carolina deposits market share, according to Federal Deposit Insurance Corp. data.

First Horizon, based in Memphis, Tenn., had Winston-Salem serve as its first sizable N.C. hub for its First Tennessee Bank subsidiary until it acquired a Raleigh bank and shifted its main state presence there.

In recent months, there has been industry rumors of Capital’s willingness to sell, in part as it surpassed the $10 billion threshold for total assets.

That $10 billion threshold, through the federal Dodd-Frank Act, brings heightened regulatory oversight and expenses that have compelled some regional banks, such as Yadkin Financial Corp. and BNC Bancorp, to agree to be bought by out-of-state regional banks.

"This could be a match made in heaven," said Lee Burrows, chief executive of Banks Street Partners.

"Capital was looking for the appropriate partner, and First Horizon had long desired a highly strategic and meaningful way into the Carolinas. First Horizon is also one of the few acquirers where the footprints are a logical match."

Tony Plath, a finance professor at UNC Charlotte, has said he expected Capital to be involved in a deal, whether as a buyer or seller, because of the $10 billion threshold.

Gene Taylor, Capital’s chairman and chief executive, would become vice chairman of First Horizon and be one of two Capital representatives on the First Horizon board of directors.

“Together with the accomplished team at Capital Bank, we will be able to leverage the strengths of both banks and capitalize on growth opportunities in attractive, high-growth Southeast markets and enhance our strong presence in our Tennessee markets,” Bryan Jordan, First Horizon’s chairman and chief executive, said in a statement.

“This partnership will help us more quickly achieve our critical bonefish financial targets.”

Taylor said the Capital board agreed to sell because being acquired by First Horizon “will allow us to sustain the success Capital Bank has achieved and create new opportunities for growth.

“The strategic fit between the two organizations is compelling, especially for our valued customers who will benefit from the enhanced balance sheet strength and broader array of products and services offered by a $40 billion Southeastern bank.”

Burrows said Jordan knows the North Carolina banking market having grown up in Salisbury with a father, Dave, "who was a very successful and extremely well-liked and well-respected banker in North Carolina."

Analysts typically say a deal carries some risk when one bank is acquiring another bank that is more than 15 percent to 20 percent of its own size in terms of total assets.

In this instance, First Horizon, with $30 billion in total assets, is buying a bank one-third of its size in Capital, which surpassed $10 billion during the first quarter.

For example, Capital has more branches – at 193 in the Carolinas, Florida, Tennessee and Virginia – than First Horizon has at 170.

However, Capital officials told analysts April 28 that they plan to close 18 branches throughout its territory during 2017, reducing its network to 175.

According to the bank, some branches will be closed beginning in the second quarter, but the bulk will be shut down in the second half of the year.

Officials did not say which branches are being closed. The bank will take a charge of about $4 million with the branch-closing initiative.

“In addition to successfully completing the CommunityOne systems conversion, we’ve put in place new plans to rationalize excess facilities, which will help us achieve our stated profitability and return targets,” Chris Marshall, the bank’s chief financial officer, said in a statement in the first-quarter earnings report.

At $40 billion, First Horizon would become the fourth largest regional bank in the Southeast.

The only main branch overlap is in Tennessee with First Horizon’s limited North Carolina presence.

The deal is valued at 1.750 First Horizon shares and $7.90 in cash for each Capital share held. In the aggregate, Capital shareholders will receive a mix of approximately 80 percent stock and 20 percent cash.

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Richard Craver | , Press
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