THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Monday, April 24, 1995 TAG: 9504220223
SECTION: BUSINESS WEEKLY PAGE: 17 EDITION: FINAL
SOURCE: BY TOM SHEAN, BUSINESS WEEKLY
LENGTH: Medium: 92 lines
Banks and thrifts with abundant capital are under the gun to use it.
Some are putting their surplus capital to work by acquiring other financial institutions or putting more loans or securities investments on their books. Some are boosting their dividends or buying back their stock.
Share-repurchase programs have become widespread among companies whose shares are trading near or below their book value.
When Life Bancorp Inc. reported its first-quarter results last week, the Norfolk thrift holding company signaled its intention to consider buying back some of its 10.91 million shares.
But the process is more complicated for Life than it is for most publicly traded financial institutions. Federal regulations have restricted thrifts from repurchasing shares within three years of converting from a depositor-owned association to a stock company.
Life, the parent of Life Savings Bank, converted from a mutual association last fall, raising slightly more than $100 million of fresh capital in the process.
Life's shares, offered at $10 each, have recovered in recent months from their low of $8.125 late last year, but they still trade below their book value of $13.91.
That's partly because Life, like a handful of other thrifts that converted from mutuals to stock companies last summer and fall, raised more capital than it initially intended to.
During 1993 and 1994, the officers and directors of some thrifts collected windfall profits when their institutions were appraised at modest values and the share prices surged after conversion to stock companies. The Office of Thrift Supervision responded last year by putting pressure on thrift appraisers to boost the values of thrifts that were converting to stock companies.
Some mutual savings banks in the process of becoming stock institutions, including Life, came to market with higher values than they initially expected. It left these companies with more capital than they could quickly put to work. However, regulations have barred them from putting their capital to work by buying in shares.
It may be mid-May before Life learns whether the Office of Thrift Supervision will allow it to repurchase shares, Life president and chief executive officer Edward Cunningham said last week. If it does receive permission, Life will have to consider several factors, including alternative uses for its capital, before launching a repurchase program, he said.
But securities analysts monitoring Life's performance have said in recent reports on the company that they expect an eventual repurchase of shares.
News of stronger first-quarter earnings and the application to repurchase shares triggered heavy trading in Life's stock last Thursday. More than 987,000 shares changed hands, making it the second-busiest trading day since the company went public.
Life's shares, which reached a new high of $13.50 on Friday, were up 5/8, or 62 cents, for the week.
Life already had received national attention before its announcement of higher first-quarter earnings and the application for permission to buy back shares. Barron's, the financial newspaper, published a lengthy interview two weeks ago with a mutual-fund manager whose funds have a 5.8 percent stake in Life.
James K. Schmidt, who manages three bank-and-thrift funds for John Hancock Advisers Inc. in Boston, included Life on a list of eight financial institutions whose stocks he found particularly attractive. Hancock's 5.8 percent stake makes it the largest shareholder in Life after Life's employee stock ownership plan trust.
``A lot of savings and loans' franchise values exceed their stand-alone values,'' Schmidt told Barron's. ``They are worth more dead than alive. And that makes them interesting acquisition targets.''
Cunningham contended that Life's thrift subsidiary still has a role in the delivery of financial services but said he was pleased with Hancock's investment. ``Hancock,'' he said, ``is a credible, stable investor. They are more long-term oriented'' than some investors in thrift stocks.
Life is scheduled to hold its annual shareholders' meeting on Thursday at the Norfolk Waterside Marriott Hotel.
Life isn't the only Hampton Roads thrift holding company that John Hancock Advisers has taken an interest in. Schmidt's mutual funds hold an 8 percent stake in CENIT Bancorp Inc., the Norfolk parent of CENIT Bank, and a 5.6 percent stake in Seaboard Bancorp Inc., parent of Seaboard Savings Bank in Virginia Beach.
First Union Corp. joined the roster of financial institutions announcing stock buybacks. The Charlotte-based banking company said last week that it may buy back as many as 15 million shares, or more than 8 percent of its common stock, during the next two years.
First Union had repurchased 7.5 million shares under an earlier program to buy in 15 million shares, said Ken Stancliff, senior vice president and corporate treasurer. ``This was a reloading of a buyback program'' already in place. by CNB