To save a small Wyoming bank, the owners are not only selling it to a stronger company, but also providing their own troubled-asset relief program.
Glacier Bancorp Inc. of Kalispell, Mont., said Tuesday that it has agreed to buy First Co., the parent of First National Bank and Trust Co. of Powell, Wyo., for about $17.5 million. The agreement calls for nine participations in construction and land-development loans once valued at $20 million to be transferred from First National's books to a vehicle owned by the family of Dick Nelson, the chairman of First Co. and the president and chief executive of First National.
"When we began talking, one of the first things that arose was that while we were interested, we would have to find a way to move those assets off of the books," said Mick Blodnick, the CEO of the $5.6 billion-asset Glacier. "So the way it was ultimately structured allows it to become a very clean community bank again."
The Nelson family, who also owns 90% of First Co., would be left with the shaky participations after the deal closes, which is expected to occur May 1. But such terms were hard to refuse.
Since September First National has been under a consent order from the Office of the Comptroller of the Currency to hold more capital than the usual minimums. Dividends were suspended last year.
Mr. Nelson said regulators did not force First Co. to make the deal, but it had "begun to see the writing on the wall" if it did not get its house in order.
"We knew that we had to get proactive and solve the issue," Mr. Nelson said. "We knew we didn't have the kinds of resources to do it ourselves."
Joe Gladue, an analyst with B. Riley & Co. LLC, said he does not expect many more deals like this one. "I think there were some unique circumstances here," Mr. Gladue said. "I don't think it would work in most cases. We won't see public shareholders taking the bad assets. Only a small group of owners can agree to do that."
Acquirers looking to minimize their exposure to troublesome assets will likely stick to deals aided by the Federal Deposit Insurance Corp., Mr. Gladue said. "If you are healthy and acquisitive, bide your time and wait to see if there is a government-assisted deal to be picked up."
Glacier agreed to contribute $15.3 million in capital to First National, which the OCC has ordered to hold 8.5% in Tier 1 and 10.5% in total risk-based capital. (To be considered well capitalized, banks are normally expected to hold 5% in Tier 1 and 10% in total risk-based capital.)
But excluding that contribution, it would pay only $2.2 million in cash and stock. Brad Milsaps, an analyst at Sandler O'Neill & Partners LP, said that price comes to just 19.4% of First Co.'s book value and 0.8% of its assets. "This is a solid pickup," Mr. Milsaps said. "As a buyer, it is difficult to get your arms around what the asset-quality problems might be, but here the shareholders are taking the problem assets with them."
Mr. Blodnick called First National an attractive operation. According to the FDIC it has a 30% market share in its home base of Park County, and northwest Wyoming is an area that Glacier had "someday hoped to enter," he said.
Removing the participations would go a long way toward improving First National's credit quality. When the deal closes, its nonperforming loans are expected to be less than 0.5% of total loans, Mr. Blodnick said. On Sept. 30 the bank's noncurrent loans made up 3.33% of total loans, according to the FDIC.
Mr. Nelson, who would continue to lead the bank after the deal closes, said the local economy has held up well, because it never participated in "the bubble." However, in 2006 and early 2007 the bank's management team "thought it was wise and prudent to diversify." So it participated in the out-of-state loans, four of which are in California with the remainder scattered around the West. "On paper, they all looked like solid deals," Mr. Nelson said. "And they cash-flowed very well until the end of 2007."
The company charged off $7.5 million in late 2007, putting it in a "negative income flow" situation, he said. Unable to raise enough capital on its own, it hired Sheshunoff & Co. Investment Banking to "look for a potential merger with someone," Mr. Nelson said.
Glacier, which has bought 10 other banks since 2000, raised $94 million in the fourth quarter through a common stock offering, mainly to finance acquisitions.
Mr. Blodnick said that the First Co. deal "was somewhat of a departure from straight acquisitions and mergers," but that in the current environment, it would consider other deals that could mitigate losses.