With $250 million of capital headed its way, Seacoast Banking Corp. of Florida could make the big leap from survivor to acquirer.
The $2.2 billion-asset company in Stuart late Friday announced an unusually structured deal — $50 million of permanent capital augmented by $200 million held in escrow and earmarked for an assisted transaction. Should the Federal Deposit Insurance Corp. not pick Seacoast's bid for a failed bank, the latter funds would go back to investors.
"Prior to this, I would not think that Seacoast would have been eligible to buy a failed bank," said Matt Olney, an analyst with Stephens Inc. "But the $50 million puts them in much, much better shape. And a large FDIC deal would really change their story."
Although Florida has no shortage of strugglers, observers speculated that the $200 million is quite likely being targeted for a bid for Seacoast's rival, the significantly undercapitalized $3.4 billion-asset Riverside National Bank of Florida in nearby Fort Pierce — if that bank should fail.
"They are looking at Riverside; everybody knows that," said Ken Thomas, an independent bank consultant and economist in Miami. "It would be a perfect fit for them from both an offensive and defensive standpoint."
About $14 million of the permanent capital is coming from CapGen Capital Group, a private-equity group controlled by Eugene Ludwig, a former comptroller of the currency. The company began investing in Seacoast last summer.
Analysts said this capital-raising effort represents a sea change for Seacoast. By adding Riverside, Thomas said, the bank would flesh out its home market on the Treasure Coast.
It also would bridge the distance between its home base and its Orlando presence.
Still, Thomas said, Seacoast may have a rival for Riverside, as BankUnited would likely bid on the troubled bank if it failed.
If Seacoast did place the winning bid, it would become the largest community bank from Orlando to just north of Palm Beach County, and would limit BankUnited's growth prospects outside its south Florida base.
"Picking up Riverside would really take their franchise from a good one to a great one," Thomas said, adding that Ludwig likely invested in Seacoast to use it as a platform to buy other banks.
Calls to Ludwig at CapGen were not returned.
John Williams, the president and chief executive of the privately held Riverside, said in an interview that Seacoast's press release was the first he had heard of the company's capital raise. Meanwhile, Williams said his bank continues to seek capital, though he acknowledged that it has been a tough exercise.
"We've met with 30 possible investor groups and banks, and we are continuing to look," Williams said. "I met with investors this morning. But finding capital is tough, especially in Florida."
Riverside had a leverage ratio of 2.66% and a total risk-based capital ratio of 4.94% at Dec. 31. A November consent order with the Office of the Comptroller of the Currency gave the bank until early January to raise its leverage ratio to 8% and its total risk-based capital ratio to 12%.
Riverside and Seacoast have experienced significant deterioration in credit quality since the Florida real estate market's downturn began in late 2007. Both banks bet heavily on residential real estate development. Riverside also had to take big writedowns on its exposure to Fannie Mae and Freddie Mac stock.
Seacoast, however, had fewer problems than Riverside and has had more luck in finding capital.
Analysts said this latest capital raise at least ensures its survival. In a research note Monday, Jefferson Harralson, an analyst with KBW Inc.'s Keefe, Bruyette & Woods Inc. said the $50 million infusion should see Seacoast through the remainder of this credit cycle.
Seacoast previously had not been viewed as a likely acquirer. Harralson said regulators may be changing their tune, with the FDIC allowing "unprofitable banks to bid on FDIC transactions, if the buyers' capital base is strong enough or augmented accordingly via a capital raise," he wrote.
Although Seacoast did not indicate that it has gained approval for a failed bank, experts said the company likely would not have pursued the capital without some nod from regulators. And Seacoast had a key ingredient in the mix — former OCC head Ludwig.
"From the view of the regulators, he is probably the most respected man in banking," Thomas said. "If anybody could get a green light, it is him."