McDERMOTT COLUMN: Two old banks seek to create one big powerhouse

SCBT chief executive Robert Hill (left) and First Federal CEO Wayne Hall started talking about merging their banks in 2009. The timing was never right -- until now.

Mergers and acquisitions in the business world are picking up again, to the relief of bored investment bankers everywhere.

Deal data

The combination of SCBT Financial Corp. and First Finaical Holdings Inc. will create a regional bank with about $8.3 billion in assets, $6.9 billion in deposits and $6.1 billion in loans. The $302 million deal required approval from regulators and shareholders. It's expected to close in the third quarter, but it will take about another year to integrate the two companies.

Some other key facts about the merger:

Branches: The bank will have about 150 in South Carolina, North Carolina and Georgia. Some existing overlapping locations will be closed. The bank has not decided which ones will close or what name will be used on the retail offices after the merger.

Ownership: The bank's holding company will become First Financial Holdings Inc. Its stock will trade as FFCH.

Dividend: Annual payout is anticipated to be 31 cents per share. For First Financial shareholders, who now get 20 cents, that's a 55 percent increase.

Key executives: Robert Hill Jr. remains CEO. Wayne Hall of First Financial becomes president.

Board members: Orangeburg attorney Robert R. Horger will remain chairman of the board, which will include five First Financial directors. Paula Harper Bethea, the South Carolina lottery chief and chair of First Financial, will be vice chair. Also, the combined bank will have a local advisory board in Charleston.

Source: SCBT

Rival retailers Office Depot and OfficeMax are combining as they struggle to compete against industry giant Staples.

Billionaire Warren Buffett's Berkshire Hathaway is part of a group that's buying ketchup icon H.J. Heinz. US Airways is pairing off with ailing American Airlines to form the world's largest carrier.

Out of nowhere, it seems, this M&A wave crashed onto Charleston's shores early Wednesday. Few saw the $302 million buyout of First Financial Holdings Inc. on the horizon. After all, this is a company with legs, with longevity, with growth plans.

The deal is particularly noteworthy locally because First Financial traces its roots to the Great Depression. Its stock is part of many a local investment portfolio. Its main business, First Federal, has remained independent for nearly eight decades. And over that time, the bank grew to become the largest and oldest lender headquartered in the Charleston region.

Now its stock is being snapped by SCBT Financial Corp., an acquisitive Columbia-based bank owner that's also been around since the early 1930s. The combination will create the fifth-largest lender in South Carolina based on deposits, and one that plans to get much bigger.

“It's really about building a platform that puts us in place to build a dominant Southeastern bank in a changing banking landscape,” said Robert R. Hill Jr., chief executive officer of SCBT.

Right time

The idea behind the merger took root in 2009, soon after Wayne Hall was promoted to CEO of First Financial and First Federal.

“We've met several times since then, but it was either not the right time for one company or another,” Hill said Wednesday. “But we always both thought at some point, when the time was right, that we knew our companies complemented each other in such a significant way, and that it would be good for all involved.”

They decided that 2013 would be the year to make it happen. The senior management teams huddled face to face for the first time to talk about a merger about three weeks ago, he said.

Hill called the deal a “natural fit” and “a low-risk transaction” between “two like-minded companies.”

“We've basically been neighbors for about 80 years,” he said. “We've operated in each other's backyards for years. We know each other's customers. We know each other's companies and styles. That alone gives us great comfort.”

Hill, a 1988 Citadel graduate who will remain CEO after the merger, stressed that SCBT and First Financial share some overlap and duplication, but for the most part the companies bring unique strengths to the deal. For example, his bank is a player along the bustling Interstate 85 corridor between Charlotte and Atlanta, while First Federal is more dominant along the coast and has a more robust mortgage business.

“So where we're stronger they weren't as strong and vice versa,” Hill said. “You put the two together and we have an incredible overall presence.”

Putting banks together has been a hallmark of Hill, whose stated goal had been to complete two deals a year and who has been positioning SCBT as a “consolidator” in the Carolinas. The First Financial acquisition is a different animal from the others, which in recent years have involved mostly small or troubled lenders.

“I'd say this transaction for both companies has a lot more to do with the next 10 years than the next 10 months,” Hill said.

Hill sees a prolonged shakeout ahead for the lending business, which is still recovering from the last real estate meltdown and the 2008 financial crisis. He has said that the number of U.S. banks could shrivel by more than 40 percent to 4,500, either by choice or by necessity.

“There will be people who will be looking for partners, and we want to be a partner of choice,” said Hill, who plans to take a break from acquisitions until after all of the SCBT and First Financial operations are integrated.

Seeking dominance

SCBT's $18.30 a share stock-swap with First Financial is expected to be finalized in the third quarter. It will bring together a pair of community banks that opened their doors in the early 1930s.

Hill called First Federal “the gold standard of banking in Charleston and the other communities” it has served since it was founded as a savings and loan association on Broad Street almost 79 years ago.

SCBT's predecessor started around the same time in Orangeburg. The bank expanded in 2006 to the Charleston region, where it now has five branches.

Under Hill, it was fully expected that SCBT would make a local acquisition. Few thought it would take this long. Fewer still would have guessed it would be the stalwart First Federal.

Viewed one way, it's the loss of yet another cherished homegrown institution, even though the business itself won't be going anywhere and is likely to add jobs at its North Charleston operations center as part of SCBT. Seen another way, First Federal has in some ways been breaking loose from its past under Wayne Hall's leadership.

A finance guy who previously was the bank's No. 3 executive, Hall set out to repair the battered balance sheet and stem a run of real estate-related losses when he took the reins as CEO in 2009.

At the same time, Hall began transforming First Federal from an S&L with limited lending capabilities into a full-fledged commercial bank that could work with larger businesses. It switched charters a year ago.

“You want to be able to diversify your balance sheet. ... You want to be able to serve all customers,” Hall said Wednesday.

The three-year overhaul at First Financial and First Federal hasn't been easy or painless. Senior bankers were shown the door, and new blood was brought in. Businesses were shed. Bad loans were written off and unloaded on the cheap.

The efforts began to pay off last year, which included a return to financial stability and a string of acquisitions that added to the bank's footprint in the Hilton Head Island, Grand Strand and Greenville markets.

Now it's about to become part of much larger organization with accelerated growth plans that's already looking ahead to cities like Raleigh and Richmond.

“We believe it's going to create a dominant Southeast institution,” Hall said.

Contact John McDermott at 937-5572.

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