Pricing the bank

How much is a Florida community bank worth today?

Consider Stonegate Bank's proposed acquisition of Florida Shores Bancorp.

Fort Lauderdale-based Stonegate has offered to pay a group of Michigan and Florida investors 1.4 times Florida Shores' book value. That's about the average of what banks are trading for these days nationally, according to SNL Financial. And it's about the same IberiaBank paid for Fort Myers-based Florida Gulf Bancorp last year when it set a benchmark price for healthy banks in the region.

But it's a far cry from the go-go days of the last decade. Jim Kuhlman, the president and CEO of Florida Shores Bank subsidiary in Venice, was part of a group of investors who sold Premier Community Bancorp to Colonial Bank for 4.3 times book value in 2004.

Kuhlman says the biggest lesson he's learned from both transactions is not necessarily how much the buyer is willing to pay. “It's whom you're selling to,” he says.

When Colonial acquired Premier, it paid shareholders 25% of the price in cash and 75% in Colonial's publicly traded stock. While the payout was rich, everyone knows what happened to Colonial: Bank regulators shut down the Alabama bank in 2009 after it failed, wiping out investors and rendering its stock worthless.
Fortunately, Kuhlman says he had sold his Colonial stock for investment diversification purposes, but others weren't so lucky.

Now, even as Florida Shores shareholders aren't getting the bonanza payout they may have expected in the boom years, Kuhlman says they can be confident with Stonegate, a well-capitalized and well-managed bank that has applied for listing its stock on the Nasdaq market (it now trades thinly over the counter.) Florida Shores shareholders will receive 20% of the $48.8 million Stonegate payout in cash and the rest in Stonegate stock that they can either sell on the market or keep in their portfolio if they think it will appreciate.

“You're getting an undervalued stock,” Kuhlman says. “Stonegate stock has tremendous upside.”

Florida Shores Bancorp is controlled by a group of Michigan and Florida investors via private-equity fund Smith Associates Bank Fund. The holding company has a majority ownership of each of the subsidiary banks: Florida Shores Bank — Southwest in Venice and Florida Shores Bank — Southeast in Pompano Beach.

Each subsidiary bank has its own minority shareholders, many of them local business owners, and Stonegate is buying out all the Florida Shores investors for an estimated total of $48.8 million, or 1.4 times book value. The deal's value will fluctuate based on the price of Stonegate's stock and the value of Florida Shores Bancorp and its subsidiaries at the deal's closing, expected at the end of the year.

For example, Kuhlman says Stonegate will pay Florida Shores Bank - Southwest shareholders an estimated $14.65 for each of their shares. Shareholders paid $10 for each share when they started the bank in late 2007, earning them close to 50% over the past six full years of operation.

“There's a sense of sadness that we've done so well in a crappy economy,” says Kuhlman, 56. “But we're not getting any younger,” he adds, noting that many banks failed, their investors wiped out and their employees out of work. Kuhlman says he personally invested $250,000 with the Smith fund and another $275,000 in the Southwest subsidiary bank.

While some backroom operations will be consolidated within Stonegate, Kuhlman and his team will remain in place. Kuhlman will be Stonegate's market president for the same area he covers today, from Charlotte Harbor to Tampa Bay. Florida Shores shareholders get three additional seats on the Stonegate board of directors, but those individuals have not yet been identified.

For their part, Stonegate executives say the acquisition will fill in a missing geographic presence between its current locations in Tampa and Naples-Fort Myers. Stonegate's $1.1 billion in assets combined with Florida Shores Bancorp's $555 million will create a lender with close to $1.7 billion, making it Florida's 15th largest bank by assets.

Stonegate is now big enough that it can absorb the costs associated with listing its stock on the Nasdaq market. “Nasdaq is expensive,” says Dave Seleski, president and CEO of Stonegate. “We were really waiting for the right acquisitions to generate more earnings and absorb those costs.”

When the stock trades on Nasdaq next year, both Stonegate and Florida Shores investors will own a more liquid investment. It would have taken several more years for Florida Shores to reach the $1.5 billion in assets needed to start trading publicly, Kuhlman notes.

Seleski says he also was keen to land Florida Shores' condo and homeowners association business. Florida Shores banks associations that cover about 80,000 homeowners. This is a cheap source of deposits because the bank holds funds for future repairs in low-interest bearing accounts. Kuhlman says he plans to roll out the program statewide for Stonegate.

Meanwhile, Florida Shores lends money to homeowners associations too, and Kuhlman says he's never received a late payment from one in 18 years he's done business with them. “We love making loans to associations,” he says. “It's like a little municipality.”

Seleski highlighted Florida Shores' homeowners association business in a conference call with investors and analysts. “Leadership and good people are the key,” Seleski says.