Company. TIB Financial
Key. Investors are acquiring Florida banks for the right price.
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A massive pledge of capital by a group of former Bank of America executives could save TIB Financial from the same fate that befell its Naples rivals.
But the deal by North American Financial Holdings to invest as much as $350 million in TIB came at a steep price for existing shareholders, whose current shares in the company were virtually wiped out through overwhelming dilution. TIB's subsidiary, TIB Bank, is the third largest bank on the Gulf Coast, with nearly $1.7 billion in assets.
North American Financial Holdings, led by former Bank of America Vice Chairman Eugene Taylor and backed by former Bank of America Chairman and CEO Hugh McColl Jr., agreed to invest $175 million in exchange for 700 million new shares of common stock priced at 15 cents per share. In addition, the Charlotte, N.C.-based firm would get 70,000 shares of preferred stock for $1,000 a share, convertible to common shares at 15 cents each. The deal is expected to close within 90 days, pending government approval.
Because TIB Financial currently has about 14.9 million shares outstanding, the newly issued shares would effectively give North American Financial Holdings 99% ownership of TIB Financial if the deal goes through in the third quarter as planned. That leaves current investors, including members of the prominent Collier and Lutgert families of Collier County, with 1% of the company.
But TIB appears to have had few alternatives. Regulators were bearing down on the company's bank subsidiary, TIB Bank, urging it to boost its capital position despite management's efforts to reduce its exposure to bad loans. The company lost $84.9 million in the last three years and another $5 million in the first quarter of 2010, a victim of the economic downturn that forced the closure of rivals Orion Bank, Florida Community Bank and three bank subsidiaries of Bank of Florida.
“We needed capital and a significant amount of it,” says Thomas Longe, vice chairman, CEO and president of TIB Financial. “It's very difficult in an economic downturn like this.”
As an incentive, North American Financial Holdings will offer existing shareholders the right to buy up to 149 million shares of common stock at the 15-cents-per-share price. “You get another shot,” says Howard Gutman, president of The Lutgert Companies and an investor and director of TIB. “If you didn't have the shareholder rights offering, you're pretty much wiped out.”
If the existing shareholders exercise their option to buy more stock, they could own up to 12% of the company's equity. However, that could be further diluted if North American Financial Holdings exercises its right under the deal to invest another $175 million in the 18 months that follow its initial investment.
But the possibility of a second $175 million investment later by North American Financial Holdings might be less dilutive to shareholders than at first blush because those funds may be used to acquire another bank, executives say.
North American Financial Holdings has raised a total of $900 million to invest in undercapitalized regional banks. Investors in North American Financial Holdings include McColl, through his private-equity firm, Charlotte-based Falfurrias Capital Partners.
“We want the bank to grow organically and through acquisitions,” says Christopher Marshall, the chief financial officer for North American Financial Holdings. Marshall is the former CFO and chief operating officer for Bank of America's consumer and small business bank and former CFO of Fifth Third Bank.
Like other banks and private-equity investors that have acquired struggling and failed Florida banks in the last two years, Marshall says the firm is counting on the state's eventual recovery. “I know it doesn't feel like it for a lot of people right now, but the market will come back,” says Marshall. “I've lived through three [downturns] and Florida always comes back stronger. That's the nature of real estate and industries tied so closely to interest rates.”
Lutgert's Gutman says the opportunity to participate in the recovery and growth of TIB with proven bank leaders could blunt the losses of the initial investment in the spring of 2008. It appears shareholders agree. The stock of publicly traded TIB (symbol: TIBB) hovered around 50 cents a share after the deal with North American Financial Holdings was announced on June 29 despite the deal being priced at 15 cents per share.
“You've got to look at it as one transaction,” Gutman says. Together, the Collier and Lutgert families initially acquired 1.2 million shares for nearly $10.1 million, or $8.40 per share, in March 2008. Public filings in 2008 show the families together controlled nearly 15% of TIB stock but don't detail whether either family sold shares since then.
Marshall says TIB's strong ties to the community was one of the reasons North American Financial Holdings picked TIB over dozens of other candidates. “If the ties to the community aren't strong, it's hard to make things work,” he says. “Community banks have a history when they have local shareholders. We wanted them to have an opportunity to enjoy some of the upside if the bank performs.”
Marshall declines to cite specific future plans for TIB, emphasizing that its initial investment is designed to stabilize the bank and help it grow its business with current management in place. “The most important thing for this bank is to start lending again,” says Marshall. “Southwest Florida is one of the most attractive growth markets in the United States.”
Marshall brushes off concern that there is a lack of creditworthy customers in Southwest Florida and the Keys, where TIB started as The Islamorada Bank in 1974. “I don't think demand is weak,” he says. “Capital is scarce.”
Lack of consumer confidence rather than a continued decline of asset prices is what's holding back the economy now, Marshall says. He says the firm marked to market every loan on TIB Bank's books when analyzing the deal. “It takes a long time to buy a bank you feel comfortable with,” he says.
“There's a unique opportunity to take advantage of the disruption,” says Michael Carrigan, president and CEO of subsidiary TIB Bank. In Collier County, for example, six banks have failed in the last two years, including archrival Orion Bank.
Carrigan says many good businesses that banked with failed institutions now have new owners that may not look favorably upon them. Loans covered by loss-share agreements between acquiring banks and the FDIC are good prospects for new business, he says.
In addition, the bank will look to boost residential and consumer lending as well as loans to commercial businesses. It's also growing its trust and wealth management businesses under its Naples Capital Advisors subsidiary, says Longe. “We'll pick up our efforts,” Longe says. “We just have to get out there and work harder.”
at a glance
CEO: Thomas Longe
Total assets: $1.7 billion
Recent stock price: 50 cents
52-week stock high/low: $2.85/$0.35
Stock symbol: TIBB
Market capitalization: $7.6 million
Source: Yahoo Finance