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Chris Pettey, left, and Rick Pettey, leave the downtown office of First American Bank in Decatur on Thursday. First American is part of Alabama National BanCorporation, which is being sold to Royal Bank of Canada's RBC Centura Bank for $1.6 billion.
Daily photo by Jonathan Palmer
Chris Pettey, left, and Rick Pettey, leave the downtown office of First American Bank in Decatur on Thursday. First American is part of Alabama National BanCorporation, which is being sold to Royal Bank of Canada's RBC Centura Bank for $1.6 billion.

First American goes Canadian
Royal Bank of Canada concern buying Alabama National's holdings

By Eric Fleischauer
eric@decaturdaily.com 340-2435

Royal Bank of Canada's RBC Centura Bank agreed Thursday to acquire Alabama National BanCorporation — including its First American Bank subsidiary — for $80 per share.

The offer represents a 51 percent premium over Alabama National's closing price Wednesday of $53.12. The deal is valued at $1.6 billion.

"It's certainly something that's very good for our shareholders, a lot of whom live in Decatur," said Will Matthews, executive vice president and chief financial officer of Alabama National.

New name: RBC Centura

All of the 103 acquired branches will be renamed RBC Centura, the name of Royal Bank's wholly owned U.S. subsidiary. RBC Centura is based in North Carolina.

The acquisition, which is subject to regulatory approval in Canada and the U.S., and to shareholder approval, is to close in early 2008.

After the merger, foreign-based holding companies will control about 27 percent of deposits in Decatur banks, according to Federal Deposit Insurance Corp. records. A Spanish holding company bought Compass Bank, the second largest deposit holder in Decatur, in February.

RBC got a toehold in Decatur in March when it purchased AmSouth's Danville Road Southwest branch. AmSouth sold the branch as a regulatory condition for its merger with Regions Bank.

At the same time, RBC bought five AmSouth branches in Madison County and several in Mobile.

"With that they got some great branch talent, but in a branch acquisition you don't pick up commercial lenders and other managers," said Matthews.

The acquisition of Alabama National includes four First American branches in Morgan County, four in Limestone County and five in Madison County.

"Our people are going to play meaningful roles in the combined company," Matthews said. "Up in North Alabama, you're going to see First American people running things."

James "Skip" Thompson III of Decatur will head Alabama operations for RBC. Dan David, Matthews said, has agreed to postpone his retirement from the vice chairmanship of Alabama National during the transition.

Alabama National CEO John Holcomb will become vice chairman of RBC Centura and remain based in Birmingham.

Matthews will head specialty markets for RBC Centura.

"This was very important to the deal," said Wally Terry, First American's Morgan County chief executive officer. "Essentially our ANB management team stays in place."

Retaining autonomy

Matthews said RBC Centura's acquisition of Alabama National is similar to Alabama National's acquisition of First American in that both acquiring companies wanted the banks they were acquiring to retain autonomy.

"Our model has been that we've acquired folks and required that they stay around. As opposed to selling out and getting out, we've said you've got to join up and join in," Matthews said. "In this case, that's what RBC has said to us."

Adding to local independence, Matthews said, are the dramatic differences between the Canadian and U.S. banking market. Canada has five banks, whereas the United States has 10,000. That means Royal Bank relies heavily upon U.S. management.

"The U.S. operation runs with a healthy degree of autonomy," Matthews said.

American National, with $7.9 billion in assets, will represent about one-fourth of Royal Bank's holdings in the United States.

As of June 30, 2006, according to the latest available FDIC records, First American had $248 million in deposits in the Decatur metropolitan area, which includes Morgan and Lawrence counties. That made it second only to Regions Bank. First American's deposit market share in the Decatur metropolitan area was 15 percent.

In the Huntsville metropolitan area, which includes Limestone and Madison counties, First American ranked seventh in terms of deposits as of June 30, 2006. It had a market share of 8 percent and deposits of $412.5 million.

"North Alabama is a market that we feel very strongly is one of our better growth markets," Matthews said. "This will be a positive change because (RBC) has a broader product array and a much more sophisticated technical platform."

Large premium

Matthews said the premium to shareholders was unusually large, but he attributed that in part to depressed U.S. share prices for banking institutions.

"Right now financials are under a lot of pressure because of the famous subprime blow-up," Matthews said.

Relative to earnings and book value, Matthews said the premium "was right in line with similarly sized transactions."

In a published research note, a Dundee Securities analyst said the RBC offer is 1.9 times Alabama National's book value, and a multiple of almost 20 times its 2007 forecast earnings. Those valuations, he wrote, "are essentially in line with other recent acquisitions."

$80 per share

Alabama National shareholders may choose to receive the $80 per share in cash, RBC shares, or a combination of the two.

Alabama National shares jumped $23.89, or 45 percent, on Thursday after news of the merger. The closing price was $77.10.

Alabama National's 52-week high before the merger announcement was $74.15. Its 52-week low was $49.31. Its most recent quarterly dividend was 41 cents per share.

Royal Bank's most recent dividend was 50 cents (Canadian), which is about 48 cents (U.S.).

In addition to the 103 Alabama National branches, the RBC acquisition includes eight mortgage/loan offices and 124 ATMs.

First American sold First American Insurance to EBSCO Industries Inc. in May.

As of June 30, ANB had assets of $7.9 billion, deposit balances of $5.8 billion and loans of $5.7 billion. Upon completion of the transaction, the firms said, RBC Centura will surpass $33 billion in assets and will grow to 85 locations in Alabama, 89 locations in Florida and 68 in Georgia.

Royal Bank of Canada entered the U.S. market with the purchase of Raleigh, N.C.-based Centura Banks in 2001 for $2.3 billion.

Asked whether American National had any concerns about selling to a Canadian-based company, Matthews said, "None whatsoever."

"We spent some time with their CEO in Canada, had a chance to look him in the eye," Matthews said. "Their value system is similar to ours. I think the cultural fit with them is as good as it can be. And of course the U.S. franchise is based in North Carolina, and it's run by some good North Carolina folks."

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