Another week, another acquisition player with plenty of capital has emerged in Florida.
First Southern Bancorp Inc. in Boca Raton announced last week that it raised about $400 million to acquire failed banks in the south Florida market. Along with the capital, the company added some well-known bankers.
Taking over the position of chairman and chief executive officer is J. Herbert Boydstun, who has been farming as he waited for his noncompete agreement with Capital One to expire. Boydstun was CEO of Hibernia National Bank, a $23 billion-asset operation in Louisiana and Texas that Capital One acquired in 2005.
First Southern is entering an increasingly crowded field of institutions looking to acquire failed banks in the Sunshine State.
"We are going to see a handful more of these types of transactions, where you have an identified bank and a management team that can attract a substantial amount of capital," said Russ Hunt, the CEO of Kendrick Pierce and Co. and a First Southern shareholder. "I think you are going to see up to four more deals in south Florida from groups that raised $200, $300 or $400 million."
Like others who have set up acquisition shops, Boydstun says this will be his first foray into Florida banking.
"You go where opportunity is, and the opportunity to be successful doing what we do is great in south Florida," Boydstun said. "The condition of lots of banks here is probably not very good. Our primary objective is to be successful bidders of failed institutions."
This is not First Southern's first attempt at the strategy. It had a deal with three private-equity firms last summer, which would have added $450 million. But that deal fell apart, and company officials would not discuss why.
The Southeast has been a busy acquisition market of late. In January, Bond Street Holdings LLC used a shelf charter to acquire the $350 million-asset Premier America Bank in Miami. Bond Street reportedly raised $440 million to buy failed banks.
And on Jan. 29, Community & Southern Bank was chartered to acquire the failed $832 million-asset First National Bank of Georgia in Carrollton. Community & Southern reportedly raised more than $200 million to expand the company.
Industry watchers said a few more groups with large amounts of capital are looking to get involved and will likely seek to move into the area soon — a sign that fresh capital may be ready to come off the sidelines.
Matt Veneri, a senior vice president with FIG Partners LLC in Atlanta, said he is working with investors in Florida on deals that echo First Southern's. He said he has heard of two more that are expected in the Carolinas.
Veneri said the Southeast is an active market right now because regulators are running out of options for failing banks.
"There will be more," he said. "If you look at the Florida and Georgia markets and generally markets in the Southeast, the problem we are running into is lack of bidders on failed institutions. To mitigate the cost to the [deposit insurance] fund, regulators want to bring in more bidders."
Still, the recent deals may not signal a free-for-all for investors looking to put money into banking. Paula Johannsen, the managing director in the Tampa office of Carson Medlin Co., said she frequently talks with investors who have money to put into banks but lack a key component to make deals work — experienced bankers.
"I have groups calling on me all the time that need to find a management team," Johannsen said. "Regulators won't let them get through the process without having a name attached to it."
Nonetheless, the recent deals are a positive indicator for the industry, Johannsen said.
"This is certainly a door opening to a certain extent, because you see what passes muster," she said. "I think the regulators are being very, very cautious about who they are going to let through the process. They recognize there is a lot of money sitting on the sidelines, but they don't want it coming in and then have to clean up after it in five more years."
Joining Boydstun at First Southern are J. Randolph Bryan, chief operating officer, and Marsha M. Gassan, chief financial officer. Gassan had been Hibernia's CFO and Bryan was chief operating officer of the $950 million-asset First Trust Corp. in New Orleans and a former executive vice president of sales at Hibernia. Rounding out the management team are First Southern's president, Franklin G. Burnside, and Brian J. Sherr, its vice chairman.
Kevin Fitzsimmons, an analyst with Sandler O'Neill & Partners LP who followed Hibernia before it was sold, said Boydstun and his team did a good job of increasing value for Hibernia's shareholders.
"He fixed a damaged situation, enlarged the company, made it more valuable and sold it," Fitzsimmons said. "Hibernia shareholders would look back and view Herb's track record positively."
First Southern's recapitalization added 25 new investors, none of whom own more than a 9.9% stake in the company.
First Southern, chartered in 1983, had a leverage capital ratio of 11.23 percent as of Sept. 30. Its bank subsidiary reported a ratio of nonperforming loans to total loans of 5.13 percent at Sept. 30. That is lower than the 6.60 percent average for Florida banks with assets of $300 million to $500 million, according to Federal Deposit Insurance Corp. data.
Boydstun said finding the right bank partner wasn't easy.
"It is pretty difficult to find an institution that has all the qualities and characteristics in the markets that are economically distressed that you would feel comfortable putting your capital into."