The Bank Slate

INSIGHTS INTO THE BANKING INDUSTRY

Beach in Fla. tried to find a CU buyer, filing says

Beach Bancorp in Fort Walton Beach, Fla., made overtures to more than a dozen credit unions before agreeing to sell to First Bancshares in Hattiesburg, Miss.


The $6.2 billion-asset First agreed to buy the $620 million-asset Beach in April for $117 million. 

Months earlier, Beach, through its investment bank, contacted 16 potential credit union buyers as part of its sales process, according to a regulatory filing tied to the pending acquisition. 

Though seven credit unions signed nondisclosure agreements to access confidential data, none advanced the dialogue due to either poor timing, incompatible geography or less-than-ideal financial considerations. 

Beach decided to seek a buyer in October 2021 after its board held a special strategic planning session.

The bank’s board and management spent most of November preparing by, among other things, finalizing a targeted buyers’ list, completing marketing materials and preparing due diligence information. 

The goal was to contact banks and credit unions with $1 billion to $25 billion of assets.

Conversations between First and Beach began on Nov. 4 when Hoppy Cole, First’s president and CEO, informally met with Chip Reeves, Beach’s CEO, at a banking conference. They discussed organizational culture and history, business lines and strategy and views on the industry outlook and future plans. 

Efforts to discuss a deal with credit unions began a couple of weeks later. Reeves and Carl Chaney, Beach’s chairman, also contacted “four active and well-known buyers” beginning in early January.

Chaney and Reeves discussed M&A with Cole and the CEO of an unnamed bank with more than $20 billion of assets during separate meetings in Tampa, Fla., in early January. First and the other bank signed nondisclosure agreements shortly afterward.

After this initial round of outreach, First was the only suitor ready to provide a nonbinding letter of intent, the filing said. First sent its initial letter of intent to Beach on Feb. 18, but the filing did not provide any details. 

Chaney, Reeves and two other Beach executives met remotely on Feb. 23 with executives from a $1.3 billion-asset credit union based in the Mid-Atlantic region. But Beach learned that the credit union did not yet have “consensus level” board backing and that the “regulatory approval process was unproven and not certain,” the filing said. 

The credit union never sent Beach an indication of interest. 

First and Beach went back and forth on First’s letter in late February, with First agreeing to consider adding a Beach director to its board. Reeves signed the letter on Feb. 28. 

After reverse due diligence, Beach’s board discussed an unrealized loss in First’s bond portfolio, deciding that it “was on par with peers and mitigated through strength of earnings, balance sheet liquidity and of no material impact to regulatory capital levels.” 

Beach’s board approved the merger during an April 21 meeting. The deal, which was announced on April 26, is expected to close by the end of this year. It priced Beach at 143% of its tangible book value.
“We are thrilled to be joining forces with Beach Bank and continuing to grow our presence in Florida,” Cole said in a press release announcing the deal. “In addition to strengthening our northwest Florida markets, Beach will add the Tampa metro and central Florida area to our footprint.” 

The deal is expected to be 2.3% accretive to First’s 2023 earnings per share, and 4.7% accretive the next year. It should take less than two years for First to earn back less than 1% dilution to its tangible book value.  

First plans to cut half of Beach’s annual noninterest expense, or roughly $8.2 million. It expects to incur $12.3 million of merger-related expenses. 

Reeves is set to become executive vice president of corporate strategy at First after the deal closes. He will receive an annual salary of nearly $320,000 and be eligible for an annual bonus of up to 10% of that base salary, the filing said. 

First will pay Reeves nearly $1.2 million to extinguish his employment agreement at Beach. Reeves also agreed to an 18-month noncompete agreement and a three-year non-solicitation agreement beginning whenever his employment at First ends.

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