Seeking to broaden its range of mortgage products and expand fee income, Barnett Banks Inc. said Monday it signed a definitive agreement to purchase Equicredit Corp., for $332 million in cash.
Equicredit is a Jacksonville, Fla.-based home equity lender that specializes in so-called nonconforming loans, credits whose quality is below bank standards. Barnett said it would pay $32 a share for Equicredit, nearly 12 times the finance company's estimated 1994 earnings per share of $2.75.
Barnett's move is part of a larger trend of banks acquiring mortgage and finance companies. Also on Monday, BankAmerica Corp. announced the purchase of Arbor National Mortgage Inc. of Uniondale, N.Y. (See p. 13.)
"It's all part of the same picture," said David Olson, a home equity consultant based in Columbia, Md. "All of these these independent mortgage companies are getting bought out by the bigger banks, which want to become nationwide" players.
Barnett's stock fell slightly Monday by 37.5 cents, to $43.625 a share, on a day in which bank stocks were generally mixed to lower in advance of today's meeting of the Federal Open Market Committee, which sets Fed monetary policy. Equicredit soared $4.875, to $29.50.
Barnett predicted the acquisition, which is scheduled to close in the second quarter, would be accretive to its 1995 earnings per share, but declined to say by how much. Analysts estimate Equicredit could add between 5 cents and 10 cents on an annualized basis. The Wall Street consensus on Barnett next year is $5.13 a share, according to First Call.
The purchase of Equicredit fits in with Barnett's strategy of building regional or national businesses in nonbank financial services. In February, Barnett purchased Loan America Financial Corp., a large Florida mortgage lender with a network of brokers nationwide, for $62 million.
Equicredit, which has a $1.5 billion servicing portfolio, operates 89 offices in 29 states and also works with brokers. Barnett, which plans to operate Equicredit as an independent subsidiary under its own name, sees an opportunity for Equicredit and Loan America brokers to cross-sell each other's products.
"It gives us geographic expansion and lets us into other markets. We get the potential synergies on the cross-sell of the products, and it really works to our revenue enhancement long term," said Barnett chief financial officer Charles W. "Chuck" Newman.
Equicredit earned $13.8 million in the first six months, which included almost $33 million in fee income. As a consumer finance company geared toward customers with lower-rated credit, its profitability level is higher than that of a standard mortgage originator.
Most of Equicredit's customers lack access to bank financing and use their home equity loans to consolidate debts or finance home improvements.
Equicredit resulted from the October 1991 management-led buyout of Old Stone Credit Corp., which pioneered home equity lending in the 1960s.
Since Equicredit went public at $14 a share in March 1993, the Barnett buyout at $32 a share represents a bonanza for shareholders. "We're always impressed with managements that know how to make money for their shareholders, and this one has hit a home run," said analyst Henry J. Coffey Jr., with J.C. Bradford & Co. in Nashville.
Barnett first looked at Equicredit in 1991 when it was still part of Old Stone but was unable to do a deal because of its own credit problems. Equicredit president and chief executive John T. Hayt said the courtship was renewed several months ago, when Equicredit noticed several standard mortgage banking companies being bought out "at dog-gone good multiples."