Capital Sources: Company buying failed banks to become regional leader

Posted on Friday, December 17, 2010

When it acquired two failed Miami community banks on July 16, North American Financial Holdings didn't arrive on the South Florida banking scene with the splash of the private equity group that acquired BankUnited last year.
But it showed up with just as much capital — $900 million — as well as plans that are no less ambitious.
"The plan is to acquire more banks," said Evan Rees, the South Florida market president of the company's banking unit NAFH National Bank. "We've been talking to a lot of different people and we have a lot of different balls in the air. There is certainly no shortage of banks that need capital and if they can hook up before the bank is taken over then there is opportunity for upside for the stockholders."
Rees said that seems to be playing well with "the number of banks that we are talking with."
The company acquired the failed Turnberry Bank and MetroBank of Dade County from Federal Deposit Insurance Corp. receivership on the same Friday in July that it also picked up a South Carolina institution. It has picked up a couple of more institutions along the way and is setting its sights on emerging as a regional player across the Southeast on the scale of a SunTrust or Regions Bank.
"We really look at the relationship that we can obtain from the customer," said Rees, a North Carolina native with a long history in South Florida banking as an executive at Barnett Bank, Regions Bank and CNLBank. "If it's somebody who just wants a transaction, than I would say that's something that we're not going to be interested in. If they want us to finance an apartment building and that's it, that's not going to be the kind of deal that we do."
Turnberry and MetroBank were recently consolidated under the NAFH National Bank banner, the latest step on the timetable of the Charlotte-based group formed by four former Bank of America executives to invest in failed and undercapitalized banks. Chairman and chief executive Gene Taylor is a retired BofA vice chairman who has nearly 40 years in the banking industry.
"They've got capital now to get to a $10 billion bank, but if it performs, it is expected that if we got additional capital we could make it a $20 billion bank," Rees said. "It's a good time to be buying banks, that's for sure."
Miami banking analyst Ken Thomas said the holding company's name gives some clues about the company's ultimate ambitions.
"When you start with a name like 'North American,' you've got pretty broad hopes," Thomas said. "It's not like 'Southeast' or 'South Atlantic'. My question is how far-flung a strategy are they going to develop?"
NAFH also recently acquired $1.7 billion asset TIB Bank of Naples for $175 million and announced plans to acquire an 85 percent stake in $1.6 billion asset, Raleigh, N.C.-based Capital Bank Corp. for $181 million.
"They have a very nice footprint in West Florida and also the Keys and a good management group," Rees said of TIB Bank, which also has two branches in Homestead. "We just closed on that Sept. 30."
Thomas said that while TIB is a good franchise, he warned that the franchise could be diluted if NAFH goes into too many markets too quickly.
"If you're focused on really just growing in a profitable way, you're in one of the best banking markets here in Southeast Florida, and of course Southwest Florida also," he said. "If you put together TIB, Turnberry and MetroBank, that's a pretty good franchise. They're in a good position to grow because they are in really attractive markets here."
Having franchises in the Carolinas concurrent with those in Florida is not dissimilar to what North Carolina-based banks did in the '90s, Thomas said.
The company acquired Turnberry and MetroBank together feeling that their combined 10 offices complemented one another well.
"There's one place in particular where the branches are right across the street from one another, but other than that most of them provide for a better footprint across the Miami-Dade marketplace," Rees said.
Combining the cultures of the two banks wasn't the challenge it often is under such circumstances.
"I think one thing you can always say about community banks is that they both have a very strong service culture and even during the turbulent times really did a great job of taking care of their customers," Rees said. "So what you've got to do is just build upon that."
While now known collectively as NAFH National Bank, the two banks still have their old names on the buildings – at least for now.
"We're looking at another name that we're going to come up with in the not too distant future for the entire franchise," Rees said.
Rees's pitch has been that while the names are the same, the combined banks themselves are very different from the ones that sank in July under a mountain of bad loans.
In its first quarter as NAFH, the bank posted a $25.1 million profit. As part of its agreement with the FDIC to acquire the two banks, NAFH entered into loss-share transactions on $299.3 million of Metro Bank of Dade County's assets and $194.6 million of Turnberry Bank's assets. NAFH National Bank will share in the losses on the asset pools covered under the loss-share agreement.
"Now, we've gone from a defensive mode into an offensive mode instead of just telling customers everything is going to be all right," Rees said. "Now we can say everything is all right and we've got $900 million in capital and we've got extra products and we're free from all of those problem assets which were pulling us down and we can focus on doing new business."
Thomas said the two banks combined makes sense because together they cover some of Miami-Dade's most attractive markets, from Pinecrest to Aventura. At the same time, if NAFH is to become a true South Florida franchise, "they're going to have to do another deal here – and I'm sure they're looking at other deals – in order to become a major player and compete with the likes of BankUnited."
That means NAFH would have to grow to somewhere between 20 and 30 offices in Miami-Dade County and around 15 each in Broward and Palm Beach, Thomas said.
The good news there is that it is still very much a buyer's market for bank franchises.
"There are a number that are going to become available in the first part of the year. That's just the way it is, unfortunately," Thomas said.
Crucially as it stakes its claim in South Florida, NAFH as a new institution is free of the baggage of many of its local competitors.
"The advantage that you have if you have capital is that you are able to make larger loans," Rees said. "We're really targeting the commercial and industrial market, and quite frankly found that we have quite a few clients that are very responsive to it."
That's important in a market where, Rees said, banks have tightened up to the point where it makes it difficult for people to operate their businesses.
"We've been going after the business customer primarily," he said.
While conceding that the C&I market is extremely competitive right now as many local banks attempt to diversify their portfolios, "the community banks certainly have struggled because they have a very high concentration of commercial real estate and they're somewhat hamstrung."
The bank's South Florida operations for now remain centered in Miami-Dade, but as past chairman of the Broward Alliance and past chair of the Fort Lauderdale chamber Rees has the network to recruit business from farther north – even if NAFH has only two branches in Broward County.
"The thing of it is, particularly with commercial customers, you have this remote deposit capture where you simply put your check through a scanner and you make your deposit and the customers love it," Rees said. "It's always nice to have a branch nearby, but it's not as necessary as it used to be particularly with your commercial customers. It's just a lot more efficient, a lot quicker."Wayne Tompkins DBR

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