In the wake of NationsBank Corp.'s agreement to buy Bank South Corp. of Atlanta, analysts are again scouring the Southeast for any remaining takeover targets.
The number is dwindling, but there are still several that roughly fit the profile of Bank South: banking companies in attractive markets that have run into some earnings difficulties or are grappling with relatively heavy cost structures.
Examples: Amsouth in Alabama; Hibernia and Whitney in Louisiana; Central Fidelity in Virginia; and Riggs National in the District of Columbia.
Bank South, which has $7.7 billion of assets, was saddled with an efficiency ratio - the key measure of costs as a percentage of revenue - of 67%, which compares with a median 62% for southeastern regionals.
Earnings momentum was also slowing, and Bank South management could scarcely turn down NationsBank's offer of 2.4 times book value, when they had no hopes of providing such a return to shareholders on their own.
In the aftermath of the $1.6 billion deal's announcement on Tuesday, Bank South insiders pointed out that a company straining for profitability, as Bank South was, can hardly maintain the level of investment spending needed to keep up in a rapidly changing financial services industry.
"At the end of the day, banking is a scale business," said George Bicher of Alex. Brown & Sons. "To be operating in the realm of traditional bank products, you need to have scale. And beyond that, you need to take that scale and leverage it into investing in new products."
It is possible, analysts say, to identify other banks with Bank South- like characteristics that could be vulnerable to an attractive offer, in- market or not. But they don't expect the premium paid to Bank South to be replicated elsewhere in the Southeast.
"You either need a very enlightened management or a pressure point to get people to sell," Mr. Bicher said. "They often don't go hand in hand."
But several factors aligned favorably to induce the NationsBank-Bank South deal.
NationsBank's ability to wring significant costs out of Bank South - in the sense of in-market consolidations - was seen as justifying the price tag of 2.4 times book value.
Another of Bank South's unique circumstances was its concentration on the Atlanta market, the Southeast's premier growth area outside Florida and one of the $184 billion-asset NationsBank's Corp.'s key outposts.
Charlotte, N.C.-based NationsBank was eager to lock in its market dominance in time for the '96 Summer Olympics. The bank has identified itself closely with those events as a corporate sponsor. With the addition of Bank South, its local market share will approach 30%, double that of its nearest rivals, Trust Company Bank and Wachovia.
Bank managements often resist the idea of selling out, even in the midst of earnings problems.
At Central Fidelity Banks Inc. in Richmond, for example, top executives have been publicly adamant about their desire to remain independent, despite earnings problems that cropped up last year when the $10 billion- asset company was forced to realign its investment portfolio in the face of rising interest rates.
Net income fell 12% in the first six months of this year from the comparable period in 1994. "Clearly, Central Fidelity has had problems sustaining its momentum," said Anthony R. Davis of Dean Witter Securities.
In contrast to Bank South, Central Fidelity enjoys a better-than-average efficiency ratio of 57%. An acquirer might not be able to find the cost reductions that NationsBank could expect from Bank South, but could possibly do a better job cross-selling products to boost revenues.
Amsouth Bancorp. in Birmingham, Ala., is another company struggling with earnings because of some expensive acquisitions in Florida. But those deals may also be a blessing from a buyout point of view. A bank already operating in the Sunshine State would be able to extract substantial cost savings when combined with Amsouth's business on Florida's west coast and panhandle, and Alabama would be the icing on the cake.
Compass Bancshares of Birmingham is not straining for earnings as much as Amsouth, but it also features an extra dimension - in this case, Texas - that could attract an acquirer. And since Compass endured a well-publicized proxy fight earlier in the year and still has some dissident directors on its board, the bank could be open to an offer at some point.
Whitney National Corp. and Hibernia Corp., both of New Orleans, have excessive overhead traceable to credit problems earlier in the decade. As the banks reduced their balance sheets to remove the bad loans, they were left with outsized infrastructures, and hence costs.
Hibernia also faces the problem, like Bank South, of paying taxes at full rates into the future, without the benefit of tax-loss carryforwards. Hibernia will be back to a full tax rate in 1996.
As a growth opportunity, New Orleans does not offer the thriving economy of Atlanta, or even of Richmond or Birmingham. But Whitney or Hibernia could still receive an offer from Ohio-based Banc One Corp., which is buying one of their major competitors, Premier Bancorp, or from Regions Financial Corp. of Birmingham, which has also been making acquisitions in Louisiana.
As damaged goods, Riggs National Corp. of Washington, probably tops them all, with poor earnings and sky-high expenses. "If Riggs doesn't improve its performance, somebody else quite likely will come in and do it for them," said Scott Edgar, an analyst with the Sife Trust Fund, which specializes in bank stocks.
A possible discouragement for Riggs is the fact that it is heavily concentrated in downtown Washington, which is of limited appeal, and has owners that have been resistant to selling out.
J.C. Bradford & Co. analyst Henry Coffey ranks Gainesville, Ga.-based First National Bancorp high on his takeover list. First National, with $2.4 billion of assets, is not in Atlanta proper, but would make an attractive adjunct to an Atlanta bank operating or expanding to the north.
"First National Bancorp would be a real extension of the Atlanta franchise for any of the big banks in that market," Mr. Coffey said.
Similar to First National is Citizens Bancorp of Laurel, Md., which serves Washington suburbs.
"Their profitability has been improving," said David West of Davenport & Co. in Richmond. "But still, on an expense basis, they look a little heavier than most. And they have a good franchise in a highly desirable market area."
Mr. West also pointed to $2.4 billion-asset Provident Bankshares of Baltimore, with a low 0.75% return on assets and a lofty 79.8% efficiency ratio.
First American Corp. in Nashville is on many speculative takeover lists, mainly because it is the largest independent bank left in economically rebounding middle Tennessee. But First American's profitability and overhead ratios are pretty much in line with its peer group, which probably makes it less vulnerable than some of the others.