Investment bankers recently shopped around two Florida thrifts. One sold; the other - burdened with excess capital - did not.
The contrast demonstrates that acquirers have become picky, even in the fast-growing Sunshine State.
Florida First Bancorp, which has $304 million of assets, agreed last Wednesday to be acquired by Birmingham-based Regions Financial Corp. for $40 million in cash, a price equivalent to 190% of the thrift's book value and nine times projected 1996 earnings. Florida First did its deal the same day the much larger Home Financial Corp., with $1.2 billion in assets, took itself off the market.
Florida First and Home Financial had both been shopped around to larger institutions by their investment bankers. Robert W. Baird & Co. represented Florida First, and a team of Alex. Brown & Sons and Ryan, Beck & Co. worked for Home Financial.
The major difference between the two S&Ls was capital. Home Financial, which converted from mutual to stock ownership in 1994, had too much of it: $313 million, producing an equity-to-assets ratio of 25.5% The comparable ratio at Florida First was only 6.9%.
The problem with too much capital is that the acquirer has to include it when calculating the target company's book value, which reduces the premium that can be offered. "Nobody's going to pay for that excess equity," said analyst Samuel J. Beebe, with William R. Hough & Co. in St. Petersburg.
Home Financial executive vice president Harry MacDougall said "several" potential acquirers signed confidentiality agreements and conducted due diligence on the Hollywood-based thrift. But all balked at the excess capital, he said.
One source, who participated in the due diligence but asked to remain anonymous, said that Home Financial's low margins represented another serious obstacle for an acquirer. Seventy-five percent of the thrift's assets are mortgage-backed securities, which are vulnerable to rising interest rates.
Home Financial is moving on several fronts to deal with the capital issue. It has asked the Internal Revenue Service to allow it to issue a special $3-a-share dividend to shareholders on a tax-free basis. And the company's board has authorized a stock buyback program for as much as 10% of the 2.4 million outstanding shares.
Mr. MacDougall estimated that the two measures combined might reduce Home Financial's capital by about $150 million over the next several months, making the thrift more attractive "if we ever talk to anybody again" about a sale.
But Mr. MacDougall acknowledged that conditions have changed in Florida from past years, when banks or thrifts that went on the block were snapped up at high prices as the larger banks raced to build deposit market share.
"A lot of the bigger boys have done what they wanted to do," Mr. MacDougall said. "When it became our turn, they scrutinized more carefully."
Regions Financial assistant comptroller Ronald C. Jackson said Florida First was attractive to his bank, which has $18 billion of assets, because it would boost Regions' deposit share in Florida's Bay County to nearly 18%, from the current 2%.