For months now, private-equity executives and bankers have been in opposing camps in the battle for struggling banks.
But Jacksonville Bancorp Inc. in Florida showed this week that it's sometimes better to recruit a rival than fight it.
The $452 million-asset company announced Monday that it has agreed to acquire Atlantic BancGroup Inc. of Jacksonville Beach for $2.5 million in stock. Sealing the deal is a $30 million investment led by CapGen Capital Group, the private-equity firm founded by former Comptroller of the Currency Eugene Ludwig.
"Given that they have capital needs and we have access to capital, it made this the right time," Gilbert J. Pomar 3rd, Jacksonville's president and chief executive, said in an interview Monday.
As competition for failed-bank deals increases, particularly in the Southeast, experts said, acquisitions of struggling banks assisted by private-equity financing will likely grow more common as a way to ensure buyers get their targets.
"There is a great amount of interest in Florida and there are no major banks left to resolve here, but there are several smaller banks that can be put together into small franchises," said Ken Thomas, a Miami-based bank consultant and economist. "I think we are going to see more private equity going after the banks they want while they are still operating to make sure they get them."
Private-equity groups are finding creative ways to get into banking, in several cases striking deals directly with ailing institutions. Yet they also have begun pumping up healthy banks. For example, Green Bancorp Inc. in Houston announced last month that it was receiving $115 million in fresh capital from private-equity firms as the company bulks up to become a significant acquirer.
CapGen has had some recent stumbles along this path. The firm led a $50 million investment in the $2.2 billion-asset Seacoast Banking Corp. of Florida in Stuart in April, which helped the company attract $200 million of contingent capital earmarked for its bid for Riverside National Bank, Seacoast's local rival. The combination would have created a $5.6 billion-asset Florida powerhouse. Yet TD Bank, a unit of Toronto-Dominion Bank, outbid Seacoast for Riverside in a deal assisted by the Federal Deposit Insurance Corp.
"After Riverside, they are taking another approach," Thomas said of CapGen's strategy.
Calls to CapGen for comment were not returned Monday.
In the case of Riverside, Thomas said it would not have made sense for Seacoast to attempt an unassisted deal given its size. That is a safer bet when dealing with a company the size of Atlantic, he said. Atlantic has $286 million in assets.
As of March 31, Atlantic's Oceanside Bank unit was undercapitalized, with a leverage ratio of 4.32% and a total risk-based capital ratio of 7.74%. In January, Florida's Office of Financial Regulation and the FDIC issued a consent order requiring the bank to boost the ratios to 8% and 11% within 90 days.
Karen Dorway, the chief executive of BauerFinancial Inc. in Coral Gables, Fla., said Oceanside Bank would need about $12.5 million to reach those ratios.
Dorway added that although the bank is undercapitalized, its asset quality ratios are stabilizing. It posted a $6.9 million loss in the fourth quarter, driven primarily by aggressive chargeoffs. Nonperforming loans fell that quarter and were flat in the first quarter.
"It looks like they cleaned house and things are starting to improve," Dorway said. "But they are still undercapitalized and still are losing money. "
Those are challenges that Pomar said his company is willing to work out, given the private-equity backstop.
"The catalyst for this is the fresh capital," he said. "Without it, we wouldn't be doing it." (Once the deal closes in the third quarter, Pomar is slated to become the company's president, as well as president and CEO of the combined bank.)
Atlantic shareholders would receive 0.2 shares of Jacksonville Bancorp stock for every share they own. The deal represents about 26% of Atlantic's tangible book value. Jacksonville Bancorp added a sweetener that would allow shareholders to receive an additional $700,000 on the workout of a particular troubled loan.
The private-equity component of the deal calls for Jacksonville Bancorp to issue 3 million shares of its common stock at $10 a share, a 1.1% premium to the company's closing stock price Friday. CapGen, the lead investor, is expected to invest $20 million.
Not all of the funds are earmarked for the absorption of Atlantic, Pomar said. Though he would not provide pro forma capital ratios, he said the combined entity would be exceedingly well capitalized.
The approach now, he added, will be to use the capital opportunistically — yet conservatively.
"We are lucky to have access to capital," Pomar said. "And we are going to look for good ways to deploy it."