Excess Capital Keeps Suitors From Calling on Florida Thrift

A capital overload is preventing one of the most desirable takeover candidates in Florida from finding a buyer.

Home Financial Corp. of Hollywood was expected to be acquired last week, when more than 1.2 million shares of its stock were traded in one day - almost nine times its daily average for the past year.

The company, which is believed to have been in merger talks for at least several months, quelled the trading frenzy, however, when it released a statement that it had not yet reached a deal.

Analysts speculated that the thrift's high equity-to-assets ratio - more than 26%, or three times the industry norm - likely stalled the talks. Such a stockpile would probably dilute an acquirer's return on equity after a purchase and make it less willing to pay a sufficiently high premium for the thrift.

"Until they reduce that equity, we're not going to see anything," said Lynn Laughna, an analyst with Raymond James & Associates Inc., in St. Petersburg, Fla. "I think it's weighing them down. Any acquirer is probably waiting for them to get rid of it."

Home Financial's situation mirrors that of many thrifts that have recently converted from mutual to stock form, and that now find themselves saddled with a mountain of capital from their required public offerings.

A senior official acknowledged that the thrift's high equity has been a difficult issue in its sales talks. The thrift converted from mutual to stock form 15 months ago.

"Let's just say that that's one of the considerations that probably has not helped us," said Harry K. MacDougall Jr., executive vice president of Home Financial. "Because of our capital, it will probably take a humongous bank to buy us."

Interested acquirers likely are big out-of-state banks that already have a Florida presence, which would include NationsBank Corp. and First Union Corp. of Charlotte, N.C., SunTrust Banks Inc. of Atlanta, and Huntington Bancshares of Columbus, Ohio, analysts said.

That's because the thrift has such a small branch network, with a high amount of deposits per branch - $110 million in each of its eight offices - and therefore would not attract a bank without an existing branch network in Florida, analysts said.

The $1.2 billion-asset thrift, located in affluent counties in the central and southeastern parts of the state, said it has been seeking ways of deploying its high capital, such as a special shareholder distribution, share repurchases, and acquisitions.

Mr. MacDougall said the thrift has applied to the Internal Revenue Service to allow it to make a special, mostly tax-free distribution to stockholders, as a way of deploying some of its capital. Last fall, the IRS allowed another thrift, Enterprise Federal Savings Bank, Cincinnati, to make such a distribution, believed to be the first of its kind for a newly converted thrift.

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