Encore Bancshares Inc. in Houston is paying to get out of Florida.
The $1.6 billion-asset company announced an agreement last week to sell its six Florida branches, with $231 million in deposits and $86.2 million in loans, in two deals that will cost the company $1 million.
Still, analysts who follow the company said the sales are positive for Encore.
"For a while they have been looking for an opportunity to concentrate solely on Texas," said Brad Milsaps, an analyst at Sandler O'Neill & Partners LP. "It is difficult to manage a franchise from so far away, and this is a way to get some capital relief."
James S. D'Agostino Jr., Encore's chairman and chief executive officer, said the sales will cut expenses by almost $4.8 million with only a modest loss of net interest income. "That is a reasonable cost to effect the strategy that we think will reward us," he said. "The cost will be made up fairly quickly."
As at many banks in Florida, asset quality and deterioration of collateral value have been a headache for Encore. The company charged off $15.3 million in loans, or 1.33% of its total, in 2009, largely in the Florida market. At Dec. 31, nonperforming assets totaled $50.6 million, or 4.63% of loans and real estate.
In truth, Encore will not completely leave Florida. It will still have $108 million of loans in the market, $26 million of which are nonperforming. The company will keep three employees in Florida to handle them.
To get the branches sold, Encore found two buyers.
One deal is with Ovation Holdings Inc., a company owned by an investor group led by A. Malachi Mixon 3rd. Ovation is to buy the $38 million-asset National Bank of Southwest Florida in Port Charlotte in a separate transaction to get a platform bank for buying Encore's assets. The Mixon group would get $171.6 million in deposits, four offices — two in Naples, and one each in Fort Myers and Sun City Center — and about $86.2 million in loans from Encore.
The second deal is with the $270 million-asset HomeBanc in Lake Mary. HomeBanc would get $59.7 million in deposits and the offices in Belleair Bluffs and Clearwater.
Financial terms of the deals, which are expected to close in the third quarter, were not disclosed.
The deals would improve Encore's capital ratios. D'Agostino said the Tier 1 risk-based capital ratio would rise to about 16% and the leverage ratio to 12.5%. At Dec. 31, the company's Tier 1 ratio was 12.72%, and the leverage ratio was 9.11%.
Because a big portion of the deals depends on a group — Ovation — with no experience in banking, there is some risk that regulators will not approve them, industry watchers said.
"It's a possibility that regulators will disallow this because they are focused on liquidating FDIC assets from banks taken into receivership," said Brady Gailey, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc.
Once its deal closes, Ovation plans to keep Thomas Ray, Encore's president for the Florida operation, to head the combined institution as president and chief operating officer. The plan is to build the company through internal growth, he said.
"We'll start with sufficient capital to take advantage of opportunities as they present themselves, but our plan doesn't require us to do that," he said. "Our first plan is to integrate and start lending and making sure we are focusing on our employees and they are comfortable."
Ovation's Mixon, who has a house in Naples, has succeeded with business ventures like Invacare Corp., the largest maker of home medical supplies.