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Good Value in Valrico
A tiny east Hillsborough County bank bounces back just in time to go private.
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.
Platinum Bank in Brandon had a better ROE for the first six months of 2004, at 17.5%, but it is an S-corp. Hillsboro Bank and Sunshine State Federal Savings and Loan, both with headquarters in Plant City, had ROE of 8.95% and 4.82%, respectively.
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 include 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 for its stock 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.
As for the other two top performers, Community National Bank of Pasco County's half-year results were boosted by the divesture of the two branches in Lake County, says President and Chief Executive James S. Stalnaker Jr.
Community National Bank of Pasco County is a subsidiary of Winter Haven-based CenterState Banks of Florida Inc., which is publicly traded on Nasdaq.
"I wish I could tell you that was just good core earnings and we're making our shareholders happy," Stalnaker says of his bank's first-half returns. "But it was just average, without the extraordinary item."
The after-tax gain on the branch sale was $1.2 million, representing 64% of the net income of the bank and 45% of the holding company's entire profit for the first six months of the year.
"That jacked our return on equity and return on assets way up," Stalnaker told GCBR.
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.
First half results for local banksCityReturn on Equity
Community National Bank of Sarasota CountyVenice27.06
First Home BankSeminole25.23
Community National Bank of Pasco CountyZephyrhills24.91
Century Bank, a Federal Savings BankSarasota17.76
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, FSBSaint 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 AssociationTampa4.47
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
Source: FDIC
First half results for local banksCityNet Income
Gold BankBradenton$3,793
Raymond James Bank, FSBSaint Petersburg$3,161
United Bank and Trust CompanySaint Petersburg$2,504
Century Bank, a Federal Savings BankSarasota$2,421
The Bank of TampaTampa$2,346
Community National Bank of Pasco CountyZephyrhills$1,795
1st National Bank & TrustBradenton$1,384
Platinum BankBrandon$1,269
Peoples BankPalm Harbor$1,226
Madison BankPalm Harbor$1,136
Community National Bank of Sarasota CountyVenice$1,000
First State BankSarasota$960
First Community Bank of AmericaSaint Petersburg$957
Valrico State BankValrico$792
First Home BankSeminole$791
The Bank of CommerceSarasota$610
Cornerstone Community BankSaint Petersburg$586
Terrace BankTampa$567
Bay Financial Savings Bank, F.S.B.Tampa$558
Bay Cities BankTampa$515
Sunshine State Federal Savings and Loan AssociationPlant City$496
Community Bank of ManateeBradenton$484
First National Bank of PascoDade City$481
Heritage Bank of FloridaLutz$465
Manatee River Community BankPalmetto$407
Coast Bank of FloridaBradenton$373
Hillsboro BankPlant City$372
Flagship National BankBradenton$360
LandMark Bank of FloridaSarasota$340
Horizon BankBradenton$323
First Commercial Bank of Tampa BayTampa$310
First Bradenton BankBradenton$287
People's Community Bank of the West CoastSarasota$267
Century Bank of FloridaTampa$252
Signature BankSaint Petersburg$251
First Citrus BankTampa$250
TCM Bank, National AssociationTampa$241
Suncoast BankSarasota$146
GulfStream Community BankPort Richey$95
United Bank of the Gulf CoastSarasota$66
Southern Commerce BankTampa$62
First National BankTarpon Springs$25
The Palm BankTampa-$92
The Bank of VeniceVenice-$156
Old Harbor BankClearwater-$200
First America BankBradenton-$373
Members Trust CompanyTampa-$447
First Priority BankBradenton-$641
Bank of St. PetersburgTampa-$1,005
InstitutionCityReturn on Assets
First Home BankSeminole2.26
Community National Bank of Sarasota CountyVenice2.07
Community National Bank of Pasco CountyZephyrhills1.83
Platinum BankBrandon1.26
Valrico State BankValrico1.26
Hillsboro BankPlant City1.17
Century Bank, a Federal Savings BankSarasota1.12
First National Bank of PascoDade City1.12
United Bank and Trust CompanySaint Petersburg1.09
Madison BankPalm Harbor1.06
Heritage Bank of FloridaLutz1.01
First Community Bank of AmericaSaint Petersburg0.97
Bay Financial Savings Bank, F.S.B.Tampa0.97
First Bradenton BankBradenton0.96
1st National Bank & TrustBradenton0.94
Gold BankBradenton0.87
First State BankSarasota0.86
Terrace BankTampa0.83
Manatee River Community BankPalmetto0.81
Peoples BankPalm Harbor0.79
Cornerstone Community BankSaint Petersburg0.78
Century Bank of FloridaTampa0.77
The Bank of CommerceSarasota0.75
Raymond James Bank, FSBSaint Petersburg0.72
The Bank of TampaTampa0.71
Flagship National BankBradenton0.69
Community Bank of ManateeBradenton0.68
Horizon BankBradenton0.64
Bay Cities BankTampa0.62
Sunshine State Federal Savings and Loan AssociationPlant City0.55
TCM Bank, National AssociationTampa0.52
First Commercial Bank of Tampa BayTampa0.5
LandMark Bank of FloridaSarasota0.48
GulfStream Community BankPort Richey0.45
Signature BankSaint Petersburg0.4
First Citrus BankTampa0.4
People's Community Bank of the West CoastSarasota0.37
Suncoast BankSarasota0.33
Coast Bank of FloridaBradenton0.25
Southern Commerce BankTampa0.21
First National BankTarpon Springs0.2
United Bank of the Gulf CoastSarasota0.13
The Palm BankTampa-0.34
Old Harbor BankClearwater-0.97
The Bank of VeniceVenice-1.09
Bank of St. PetersburgTampa-1.78
First Priority BankBradenton-4.37
First America BankBradenton-5.07
Members Trust CompanyTampa-5.59
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