A small Georgia bank is turning some heads.

A Small Georgia Bank Is Turning Some Heads

Little First National Bancorp is drawing raves from a local investment bank that sees a market franchise that may be a takeover target.

The banking company's headquarters is in Gainesville, Ga., a onetime mill town in the foothills of the Appalachians.

Most of the wealth in north Georgia - between Atlanta and the North Carolina border - is centered in the town. Much of that wealth finds its way into First National. And lately, so have a few well-heeled investors and investment bankers.

The $1.6 billion-asset banking company has nearly 50% of its market's deposits - an example of a rare dominant market position.

The few banks with such dominance are in a position to generate superior profitability over the long term, according to Sterne, Agee & Leach, an investment bank with headquarters in Atlanta. That control is one of the reasons Sterne Agee recommends investors aggressively purchase the stock.

Apparently, the purchasing has begun already. From $16 in October 1990, First National's stock has gone as high as $26. Recently, however, it has dropped to $23.25.

Judged a Good Buy

At that price, Sterne Agee believes it is a good buy compared with other banks in the South. First National shares trade at 9.9 times estimated 1992 earnings.

That compares with Sun Trust at 10.8 times 1992 estimate, or First Alabama, 11.0 times 1992 estimate. Wachovia Corp. trades at an even higher multiple.

But First National's stock, say other analysts, is not undervalued. It trades at nearly 140% of book value, a hefty multiple for a bank that is not clear of loan problems.

Sterne Agee said the stock is a good buy for other reasons. The investment bank expects a superior growth in earnings, as the bank squelches the growth in nonperforming assets and the recession abates. The investment bank expects per share earnings to hit $2.20 this year, and $2.30 in 1992.

A Takeover Prospect

Sterne, Agree considers First National a good buy for another, less predictable reason. The bank, they believe, is a good takeover target, given its franchise and solid performance.

Rumors about a takeover have been circulating for years. Back in 1987, for example, the gossip mill drove the price of shares to 21 times trailing earnings and three times book value.

Still, it is not easy to spot a likely buyer.

"Most banking companies in that area are busy with other acquisitions or are trying to get their own house in order," said Lisa Todaro of SNL Securities. C&S/Sovran is merging with NCNB, for example.

SunTrust and other big regionals are digging out from loan problems. Both companies are absent from the market.

Nor is First National an easy purchase. With more than a billion dollars in assets, First National makes a big takeover target, one that might require the buyer to raise additional capital. In addition, a buyer has to contend with the stock price's high multiple. "It would be hard to buy them out," said Ms. Todaro. "You have to pay a high price."

The recession that hit the rest of the country also settled in northern Georgia.

Unlike some other southern banks, which got bad loans under control early this year, First National's nonperforming assets grew considerably throughout 1990. Sterne Agee notes that nonperforming assets are just now peaking.

First National's percentage of nonperformers has risen to 3.6% of loans in the third quarter, a significant jump from 1990 yearend. The banking company's loan-loss coverage has dropped during that same time to 46% from 84%.

Most bank stocks held steady Friday despite a cut in the Fed Funds rate of one quarter percentage point.

Shares of Wells Fargo & Co., meanwhile, rose $1.50, to $56.625, on heavy volume of 422,500 shares. Observers said the rise followed a speech Thursday by Wells chairman Carl Reichardt at a banking conference.

Mr. Reichart told the audience he was interested in a government-assisted acquisition of a trouble thrift. His remarks appeared to rule out the long-rumored merger with First Interstate, which would entail more risk than a government assisted thrift bailout, sources said.

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