Cheap Deposits Fail to Attract Buyers in Florida

For Florida banks and thrifts looking to expand, this is the best of times and the worst of times.

The state has never been so awash in deposits and surplus banking offices. And the prices just keep plunging.

Buyer's Market Untapped

But the state's major banks find themselves unable to take advantage of the buyer's market. They are preoccupied with their own problem credits and weak loan demand, which makes it difficult to put acquired deposits to work.

"The prices are great, in that they can't get much lower," said Frederick W. Murray Jr., executive vice president of Birmingham-based SouthTrust Corp. "But when you look at the fact that you can't make money, it ain't quite as good a deal as it looks."

Counting all the insolvent Florida thrifts now held by the Resolution Trust Corp., at least 294 branches, with $11.4 billion in deposits, are either being marketed now or can be expected to glut the pipeline before the end of the year. Another 55 branches with $2 billion in deposits are being sold privately.

All together, the branches and deposits would exceed the size of Southeast Banking Corp., the state's second-largest banking company.

Ford Unit May Unload Branches

And more may be on the way. San Francisco-based First Nationwide Bank, a unit of Ford Motor Co., is rumored to have its 26 Florida offices on the block. A spokesman will only say First Nationwide is "reviewing its penetration in the 10 states it's involved with."

The glut of deposits and branches comes at a time when most of the major Florida banks have pulled back from acquisitions, either because of loan quality problems or other strategic concerns. Recent buyers have tended to be either healthy out-of-state S&Ls or entrepreneurial, fast-growing community banks.

During the past year, for example, Beverly Hills-based Great Western Financial Corp. bought 149 branches, with $7 billion in deposits, from the RTC. Meanwhile, Miami-based Bank of North America engineered five acquisitions to quintuple in size, coming from nowhere to reach $538 million in assets.

In-Market Deals Can Work

Such branch purchases work "for somebody who is already in-market and can consolidate the acquisition with existing branches," said Robert S. Boyd, a partner in the Secura Group, Washington.

The huge number of government-held thrifts in Florida, whose inventory ranks only behind that of Texas, California, and Illinois, causes some sellers to grumble privately about the RTC "ruining" the market. Atlanta-based consultant T. Stephen Johnson, who is trying to help New York-based Anchor Savings Bank sell its 18 Florida branches, says he's given up on earlier hopes for a 4% premium over deposits.

"If I can get 2% to 1.5%, I'll take it and run," Mr. Johnson said.

Skimpy Premiums

In the first quarter, the RTC sold pieces of Fort Lauderdale-based Commonwealth Federal to several different institutions, including Bank of North America, for an average 0.21% premium over deposits. Great Western bought Clearwater-based Pioneer Federal for 0.55% over deposits.

The nationwide median premium for RTC deposits sold in the first quarter was 1.3%, indicating that Florida prices are among the most depressed.

Less than two years ago, NCNB Corp. paid the highest premium ever for an insolvent Florida thrift: 5.6% over deposits, for Tampa-based Freedom Federal Savings and Loan.

Why the difference? The supply of insolvent thrifts is greater now, but slack loan demand caused by a slowing economy is another major factor driving down prices. Banks have little use for acquired deposits.

"You really can't deploy incremental deposits at the type of spread that is particularly profitable," said Allen L. Lastinger Jr., president and chief operating officer of Barnett Banks Inc., Jacksonville, Fla.

Costs of Acquisition

On the expense side, acquirers cal lower the rates on acquired certificates of deposit once they take control of an institution, but they must still absorb normal operating costs in the acquired branches.

Federal capital guidelines can also prove a burden. "What happens is, you get these deposits from the RTC, but you don't get any capital to support those deposits," said Mr. Lastinger.

"So, as you add to your deposit base, you also have to add to your capital base. And right now, most banks are working hard to achieve the minimum"

The RTC, the federal agency charged with disposing of insolvent thrifts, is well aware that it's selling into a falling market, but it must press ahead regardless. "I don't see where we have any other options," said Craig Francis, resolutions specialist with the RTC in Atlanta.

Quick Sales Save Money

Insolvent institutions lose more accounts the longer they stay in federal hands, so a quick sale is generally regarded as the fastest way to stem the hemorrhaging of taxpayer funds needed to prop up troubled thrifts.

Despite the glut of thrifts on the market, sellers of bank branches can expect to do better, particularly since those offices come with consumer loans to match the deposits. Southeast Bank last month sold 18 branches in the Panhandle to Birmingham-based AmSouth Bancorp. for what analysts estimate was a 3% to 4% premium over the $300 million in deposits, or $9 million to $12 million.

Last year, Resource Bancshares Corp. of Columbia, S.C., paid a 3.8% premium for 13 branches with $185 million in deposits sold by First Union Corp. in Jacksonville.

"A common complaint from prospective buyers is: Why should I pay anything for a bank branch when I can simply wait around and get something from the RTC for 50 basis points? That's simply not true," said John Weisel, senior vice president with BEI Golembe in Washington.

"By the time a branch makes it into the RTC, the customers in that branch have been beat about so much it's really not an attractive customer base. You're really better off getting a branch way before it ever makes it into the RTC."

In the Panhandle, Southeast was fortunate in finding a buyer that wanted to expand in that region. But the troubled Miami bank may have more difficulty if it decides to sell offices in other areas where there are more RTC properties on the market.

Jacksonville-based Duval Federal, for example, is expected to dump 21 RTC-owned branches on the market later this year. On the west coast, bidding is under way for 87 branches and $2.5 billion in deposits belonging to St. Petersburg-based Florida Federal.

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