As William Roemer recently made one of the biggest deals of his career, Wall Street handed him one of his biggest writedowns.
Mr. Roemer's Integra Financial Corp. announced in July that it would become the fourth-largest bank in Pennsylvania by acquiring Equimark Corp. Shares of the Pittsburgh-based banking company, which had traded as high as $40.25, have fallen since the announcement and were trading Wednesday at a lackluster $34.50.
But Mr. Roemer, the chairman and chief executive of Integra, which will have over $13 billion in assets, doesn't take Wall Street's lack of confidence personally. "We were not the least bit surprised that there would be a downtick in our stock," says Mr. Roemer.
Through tax-loss carryforwards will shrink the purchase price of the deal to about twice book value, the worries on Wall Street stem from Equimark's troubling loan portfolio. Nonperforming assets, though they have shrunk slightly since last year, remain high at 6.86% of total assets.
"Only an auditor would know the truth of those loans," says Tom Humphreys, a banking analyst at SNL Securities, Charlottesville, Va.
Mr. Roemer is confident, however, that Equimark's current management has quantified the credit problems. "We don't envision finding any surprises."
Mr. Roemer plans to pare operating costs at the merged bank by an optimistic $36 million a year, or 35% of Equimark's noninterest operating expenses, beginning in the second year of operation. He says he will consolidate 20 branches of Integra and five of Equimark, and reduce the work force by 500 positions.
"He clearly has his plate full," says Robert Kanters, chief of regional research at Legg Mason Wood Walker Inc. in Pittsburgh. Though Mr. Roemer's track record is hardly payed with solid gold he appears to have learned his lessons. While he doubled the company's assets, profitability hit a low in 1990, with a return on average assets of 0.36%. Since then, ROA has climbed to 0.93% in the first half of this year.
Mr. Roemer has seen Integra through some stormy credit problems, as nonperforming assets more than doubled two years ago. They have been reduced to 2.46% of total assets in the second quarter.
Integra was formed from the merger of Pennbancorp and Union National Corp. in 1989 and has absorbed troubled institutions ever since. Mr. Roemer -- an avid collector of modern art -- has gathered up Atlantic Financial, Horizon Financial, Landmark Savings Association, and now Equimark.
After this series of acquisitive plunges, Mr. Roemer says he's ready to surface for air. "I think every once in a while you of kind of have to stop and catch your breath," says the 1995 Princeton graduate, who is 59 years old.
Began His Career at Mellon
Integra will soon hold an 18% share of the Pittsburgh market, where it rubs elbows with its larger neighbors PNC Financial Corp. and Mellon Bank Corp. PNC and Mellon "are tough, tough competitors in the market for retail business," says Mr. Roemer, who ironically, began his career as a management trainee at Mellon.
Part of his competitive strategy has been to divide Integra's banks into three divisions according to geographic location. Each bank chooses products from a standard menu and is allowed to price them accordingly.
"There are separate and distinct markets in western Pennsylvania, and it doesn't make sense to use Pittsburgh pricing throughout the whole area," says Mr. Roemer.
Stint as Community Banker
He left Mellon in 1969 to run a $40 million-asset rural bank. At his multibillion-dollar franchise, Mr. Roemer likes to think he applies his experience as a community banker. And he's not alone, as Integra's four chief officers, who meet every Monday for informal strategy discussions, all spent some time in small banks.
"We will have a whole lot of options before us," Mr. Roemer says, if he succeeds in bringing Equimark up to Integra's levels of profitability. One option could involve being bought by another Midwest banking company looking to expand its franchise.
"Integra has to be considered at some point in time as being a viable acquisition candidate," says Gerard Cassidy, a bank analyst at Tucker, Anthony Inc. in Portland, Maine.
"We have never gone on record as insisting that we will not consider an upstream affiliation," maintains the candid chief executive. "But I think our primary objective next year is to make sure that we make it all work."