( Source: Richard Craver Winston-Salem Journal, N.C. (MCT) — The top two executives of Southern Community Financial Corp. will not be a part of the bank’s merger into a Charlotte private-equity group, Southern’s board of directors said Thursday.
The board released a statement saying it had told Scott Bauer, Southern’s president and chief executive, and Jeff Clark, its first executive vice president, that their jobs would end Sept. 22.
The board said it has named James Hastings, its chief financial officer, as interim president and chief executive.
The board did not give a reason for the management shake-up. William Ward Sr., the board’s chairman, thanked Bauer and Clark for their service to the bank.
The decision answers perhaps the biggest lingering question about Southern since Capital Bank Financial Corp. announced March 27 that it was buying the struggling bank in a deal valued at that time at $48 million. The offer since has been raised to an all-cash deal valued at $52.5 million.
Bauer has been the face of Southern, having led the bank since its founding in 1996.
Officials with Southern and Capital Bank Financial could not be reached for comment about the shake-up.
Bauer said when the deal was announced that there was the relief in knowing Southern is being bought by a growing group with plenty of capital and plans for an initial public offering.
But Bauer and Hastings acknowledged the merger would bring job cuts and that their own job status was uncertain.
Capital Bank Financial also is expected to spend an additional $42 million to $46 million on paying off Southern’s obligation to the U.S. government’s Troubled Asset Relief Program.
A Southern shareholders meeting to vote on the purchase is expected to be held in September.
Ward defended the deal when it was announced saying it “maximizes value for our investors and creates growth opportunities for our employees.”
That reality didn’t make the deal any less of a bittersweet accomplishment for Bauer.
Ward took over as independent board chairman in December, removing Bauer from the role after eight years. Bauer also stepped down from the Southern board at that time.
The board said it made the chairman move “to establish clearer lines of reporting between itself and the company’s management.” The decision was not unexpected given increasing investor demand for an independent board chairman.
The deal would bring to Capital assets of $1.5 billion, 22 branches and its first major presence in the Triad. Capital, founded in 2009, would then have $8.1 billion in assets and 165 branches in five states.
Bauer said in March that “being a part of Capital will give us the capital to grow more and sooner than we could have in the short term. It takes the chains off us to be on the offensive again and combines us with a bank that covers all the major N.C. markets.”
Essentially, the same resilience that helped Southern survive the financial crisis of 2007-11 made the Winston-Salem bank a takeover target too attractive to remain independent. That was especially true at a time when Capital could buy Southern at 70 percent off its value of $10 a share before the housing bubble burst in 2007.
Southern, like many local community banks, has struggled significantly with trying to resolve problem commercial and residential mortgage loans. It had demonstrated improving financial health by posting four consecutive profitable quarters.
But its management and board knew the bank remained on a hard slog because it still operates under a state and federal regulatory consent order that limits its financial flexibility.
Southern is the second Winston-Salem community bank to be bought since the financial crisis began. TriStone Community Bank was bought by First Community Bancshares Inc. for $9 million in April 2009. TriStone also had become a profitable bank before it agreed to be sold.
Chris Marinac, an analyst with FIG Partners in Atlanta, said Southern “got a better price than I and others had expected.” Marinac predicted in 2011 that at least three North Carolina community banks would be bought by private-equity groups.
“Southern’s capital base was getting thin, and this helps getting the TARP repayment off the tables quicker,” Marinac said. “Given its circumstances, it’s a great outcome.”
Analysts had expected Capital — recently renamed from North American Financial Holdings Inc. — would buy a Triad community bank in a similar manner to its purchase of Capital Bank of Raleigh in November 2009.
“This is the kind of merger we are going to see a lot more of as the economy improves,” said Arnold Danielson, chairman of Danielson Associates, a bank consulting company in Bethesda, Md.
“One bank needs to raise capital, but because of large amounts of nonperforming assets it finds it almost impossible to do so without giving the stock away.
“The other has excess capital and is finally feeling confident enough about the economy to take on the seller’s problems,” Danielson said. “The seller would have liked a better price but is convinced the best way to increase value is in tandem with the buyer at the price offered.”
Capital Bank Financial has been pursuing an initial public offering.
Marinac said there has been skepticism among private investors of Capital Bank Financial as to the IPO share price. He said the speculated share price has ranged from $15 to more than $20 a share.
“Since it would be helpful to have the Southern deal wrapped up before the IPO, the all-cash offer may be a way to keep Southern and the private investors on board,” Marinac said.
©2012 Winston-Salem Journal (Winston Salem, N.C.)
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