Shortly after crossing the $10 billion asset threshold, FCB Financial Holdings Inc. is stretching its presence in coveted Florida markets with a relatively small, in-market deal.
It also marks FCB Financial's first deal announcement in more than four years, following years of being highly acquisitive, and is its first deal since its 2014 initial public offering.
On Nov. 27, Weston-based FCB Financial announced plans to acquire Davie-based Floridian Community Holdings Inc., in an all-stock deal valued at roughly $88.1 million. SNL calculates the deal value to be 184.8% of book and tangible book, and 34.9x earnings, on an aggregate basis. It is expected to be 1% accretive to 2018 EPS and 2% accretive to 2019 EPS.
Raymond James' Michael Rose wrote the transaction doesn't imply the historically acquisitive bank is jumping back into the "M&A arena." Rather, he said it represents an "opportunistic in-market transaction at an accretive price that can help offset the impacts from crossing $10B."
The company crossed the $10 billion asset threshold during the third quarter. Matthew Paluch, head of investor relations at FCB Financial, said Durbin amendment costs didn't play a role in the company’s decision to execute another deal, although it will be an added benefit.
"For us, we are a very commercially oriented bank. We do not have a big consumer portfolio," Paluch said in an interview. "The impact of Durbin for us, as compared to many others, is much less from a loss-fee revenue perspective."
He said Durbin costs total about $1 million a year. "That's on a revenue base of $90 million a quarter ... not a big number in terms of that being a reason to do a deal," he said.
He said the deal is a "strategic fit," and financially accretive from an "overall franchise perspective."
"The overall plan has always been: We want to be deeper in Palm Beach, we want to be deeper in Orlando, we want to be deeper in Tampa," Paluch said. "We look at all of the alternatives in order to do so. ... The organic is a focus, but the strategic is certainly an option to the extent something becomes available."
Upon completion, FCB's Florida Community Bank NA will gain five branch locations, and expects to have $4.3 billion in pro forma deposits in Southeastern Florida. Rose wrote that currently, out of FCB's 46 branches, it only has one within 5 miles of a Floridian branch — suggesting there is little opportunity for branch consolidation.
In his note, Rose implied FCB Financial could become a seller. He wrote "scarcity value for Florida banks of size" leaves FCB an "attractive takeout candidate."
"It's become a much more prominent state from a commercial perspective than it has in decades past," Paluch said of Florida's economy and booming M&A market. "It's primarily always been a real estate-driven economy, whereas our focus from a lending side and a relationship side is making sure we have the balance in our portfolio between commercial and industrial, commercial real estate, and our residential mortgage products."
Sandler O'Neill & Partners analyst Stephen Scouten wrote the deal is a "small but attractive fill-in, with ample cost saves." He said he views it as a low-risk transaction, given notable in-market overlap and an "easily digestible" target. FCB estimates pretax annual cost savings of 45% of Floridian Community’s run-rate expenses in 2018.
Scouten wrote that while the deal doesn't "move the EPS needle too meaningfully," it accelerates FCB’s organic growth goals in Palm Beach and Broward counties. He said the two companies have similar loan profiles, with a focus on one- to four-family lending. But he wrote Floridian's 87-basis-point cost of deposits "doesn’t really help FCB's legacy deposit cost issues."
"We were hopeful that FCB would find a deposit rich institution to ease some of the bank's deposit pricing pressures, but the similar lending profile could potentially create revenue synergies not currently modeled and the additional branches will help as the bank continues to push for more core account growth," Scouten wrote.
FCB Financial expects tangible book dilution of less than 1% to be earned back in 2.75 years, using the crossover method. The deal is expected to close in the second quarter of 2018.