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Good Value in Valrico
A tiny east Hillsborough County bank bounces back just in time to go private. The bank's performance was among the best three in the area.
By Francis X. Gilpin
Associate Editor
Valrico State Bank is bowing out with a bang.
The 15-year-old east Hillsborough County bank isn't being absorbed into a big financial network from somewhere out of state. But its owner, a one-bank holding company known as Valrico Bancorp, Inc., is going private.
The company hopes to reduce regulatory costs by reducing the number of shareholders so that it no longer will have to report to the U.S. Securities and Exchange Commission.
Those who will be left holding the stock must be cheering.
After a couple of rocky years coming out of a recession, Valrico State roared back in 2003. The bank posted a $1.4 million profit, almost double the net income of 2001, when Valrico State had to pay a $1,000 civil money penalty to the Federal Deposit Insurance Corp. to settle charges that it had submitted inaccurate mortgage-loan data to the agency.
The favorable momentum has continued into 2004. Valrico State's performance through June 30 was among the three best of any local bank or thrift in the Tampa and Sarasota metropolitan markets, according to a GCBR analysis. The ranking excluded institutions organized as subchapter-S corporations, which are treated as partnerships by the Internal Revenue Service, don't pay federal income taxes, and therefore have an easier time turning a decent profit.
Valrico State's return on equity was 15.3% for the first six months of the year. Only the 25% at Zephyrhills-based Community National Bank of Pasco County, which enjoyed an extraordinary gain from the sale of two branches, and the 17.8% at Century Bank in Sarasota, whose president was recently named GCBR's banker of the year, reported higher ROE among C-corporation banks.
Valrico State is one of only four financial institutions that are based in east Hillsborough.
Jerry L. Ball, president and chief executive at Valrico State, couldn't be reached for comment by GCBR. The bank lost the electricity at its main office for a time following Hurricane Jeanne.
Ball, who earned $122,938 in 2003, has also been busy finishing up the yearlong process of getting Valrico Bancorp out from under the SEC.
Bank officials say the last straw was congressional passage of the Sarbanes-Oxley Act of 2002, which tightened financial reporting requirements for public companies in the wake of the Enron collapse and other corporate accounting scandals.
Valrico Bancorp's current outside auditor, Rex Meighen & Co. LLP of Tampa, predicts SEC compliance expense will rise almost threefold by 2005 from what accountants, lawyers and others vendors were paid in 2000.
Rejecting a reverse stock split or an affiliate merger, Valrico Bancorp's board of directors decided on a tender offer.
The SEC allows public companies to terminate their registration if they can get the number of their investors below 300. To accomplish that, Valrico Bancorp is offering to buy out holders of 100 or fewer of the company's 325,150 outstanding common shares.
The company's offer of $53 a share represents a premium of 77% over the highest sale price of the closely held issue known to have been completed during 2003, according to regulatory filings. It is also a 66% premium over the Dec. 31 per-share book value.
Extra inducements for those selling out included free checking, certificate-of-deposit rates 25 basis points better than the market, and half off the annual fees on safe-deposit boxes.
After the deal closes, which is expected no later than the end of the year, Valrico Bancorp hopes to have taken more than 20,000 shares out of circulation and lowered its shareholder count from approximately 473 down to around 230.
The company's biggest current holders are two members of the Valrico State board. Local nurseryman Douglas A. Holmberg and produce grower LeVaughn Amerson each own more than 10% of the common stock. Their stakes increase to more than 11% each after the stock buyback.
The director with the fewest shares is David A. Gee, the man expected to be sworn in as Hillsborough's next sheriff in January. Gee, who has been a Valrico State director since 2002, has a stake that would be worth more than $254,000 at Valrico Bancorp's recent offering price to small shareholders.
Besides the cost savings, the Valrico State board's rationale for terminating SEC registration goes something like this:
A community bank of Valrico State's size, $127 million in assets as of June 30, seldom receives enough attention from securities analysts to generate much liquidity in the market. Shareholder equity has grown internally, doubling in the past five years to $10.5 million as of June 30. The capital hasn't been depleted by acquisitions because there have been few chances to take over compatible banks at attractive valuations.
The bank hired Austin Associates LLC for $20,000 to put a price on the shares and issue an accompanying fairness opinion. The Toledo, Ohio-based investment banker forecast average earnings growth of 9.2% over the next five years for Valrico State. Based on that projection, Austin Associates estimated Valrico State's price to tangible book value to be $53.58 a share and discounted that by 58 cents.
Valrico Bancorp expects the stock repurchase to cost $1.25 million and will finance it primarily through the recent issuance of trust preferred securities that raised $2.5 million.
Sarasota's Century Bank saw a 22% increase in first-half profit over the same 2003 period, without benefiting from any one-time events. The federally chartered thrift is on track to earn just shy of $5 million for the year.
Return on equity
NAMECITYROE
Community National Bank of Sarasota CountyVenice27.06
First Home BankSeminole25.23
Community National Bank of Pasco CountyZephyrhills24.91
"Century Bank, a Federal Savings Bank"Sarasota17.76
Platinum BankBrandon17.49
Valrico State BankValrico15.26
First National Bank of PascoDade City14.01
Gold BankBradenton12.5
1st National Bank & TrustBradenton11.9
First Community Bank of AmericaSaint Petersburg11.89
Madison BankPalm Harbor11.87
First Bradenton BankBradenton11.77
First State BankSarasota11.61
Manatee River Community BankPalmetto11.14
Terrace BankTampa11.02
Flagship National BankBradenton10.97
Heritage Bank of FloridaLutz10.66
The Bank of TampaTampa10.38
Community Bank of ManateeBradenton9.63
Horizon BankBradenton9.5
The Bank of CommerceSarasota9.37
Hillsboro BankPlant City8.95
"Raymond James Bank, FSB"Saint Petersburg8.65
Cornerstone Community BankSaint Petersburg8.46
Bay Cities BankTampa7.78
LandMark Bank of FloridaSarasota7.18
First Commercial Bank of Tampa BayTampa6.91
Century Bank of FloridaTampa6.12
United Bank and Trust CompanySaint Petersburg5.93
"Bay Financial Savings Bank, F.S.B."Tampa5.32
Signature BankSaint Petersburg4.85
Sunshine State Federal Savings and Loan AssociationPlant City4.82
"TCM Bank, National Association"Tampa4.47
Peoples BankPalm Harbor4.15
GulfStream Community BankPort Richey4.09
People's Community Bank of the West CoastSarasota4.04
Suncoast BankSarasota3.94
First Citrus BankTampa3.1
Coast Bank of FloridaBradenton2.93
First National BankTarpon Springs1.65
Southern Commerce BankTampa1.33
United Bank of the Gulf CoastSarasota0.69
The Palm BankTampa-1.76
The Bank of VeniceVenice-5.34
Old Harbor BankClearwater-5.79
Members Trust CompanyTampa-5.86
First America BankBradenton-7.75
Bank of St. PetersburgTampa-9.37
First Priority BankBradenton-16.28
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