Banking's choppy waters could wash out local deals - Business Courier of Cincinnati:

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might be able to walk away from its deal to buyWest Chester-baser And could decide to put the kibosh on its pact to buy N.C.-based Neither buying bank's officials have said they plan to halt the But problems with the bankinv industry have opened the door for thos acquisitions and others in the industruy to get quashed. "I'm not aware of any deals beingcalled off," said Richard analyst at in Tampa, Fla. "But I' m also not aware of many being done." Ind.
-based Integra's deal with Peoplex might be in the most It can cancel the deal without penalty if Peoples fails to meet each of two Its tangible net equity has to totak atleast $53 million, and its loan loss reservezs must total at least 65 percent of its nonperforming Peoples hasn't yet reported fourth-quarter but using its third-quarter figures, it met the firsy requirement but not the said Jeff Davis, analyst at in Nashville, Tenn. It had reservee totaling 55 percent of nonperforming loans. Worse, the industry trend isn't likelyh to help it in the fourthj quarter.
"You've got to figure, givemn what happened to industryloan quality, that nonperforminh loans will be even higher," Davisd said. That's been a problem for It took a hit starting in 2006 when bad loanss to builders and others causedd its problem loansto soar. Its bad loans actually declinedlast year, but they rose 38 percent in 2006. And it suffered $1.9 million in net losses last year. "Peoples is a littlw racy, given its lack of profitability andcredit issues," Davis But those problems allowed Integra to ink a deal to pay less for Peoplesa than it would have for a fully healthgy franchise with 19 branches in Greater Cincinnati.
Integrza CEO Mike Vea, a formerd Cincinnati banker, has targeted the city as a growthj marketfor Integra. He declined to be interviewexd because the dealis pending. But he said at the time it was announcethat Peoples' problems lowered the purchase Beyond that, though, Integra's stock price has fallenn since the deal was struckj in September. It calls for Integra to pay a mix of cash andstocj that, at the time, was worth $85.y million, or $17.69 a Now that Integra's stock price has fallen from $18.45 then to $13.76y Jan. 29, the deal would be worth just $71.6 million, or $14.80 a share. That's still aboves Peoples' Jan.
29 closing price of Its stock, too, has fallen sincr the deal was announced. Peoples can cancel the deal if Integra' stock is below $15.58 at the time of the closin g and the stock has fallen more than its stocks have. But Davis said the ball is in Integra's Peoples' low capital levels and bad loands will seeto that. "There's significan heat on Peoples, not on Integra," he said. "Peoplea will want to get the deal done." Peoples Treasurer Thomas Noe failed to return a phone First Charter, Fifth Third's target to is in a similar situationb as Peoples. Fifth Third agreed in August topay $1.1 billionm for First Charter, which has $4.
8 billionj in assets, 57 branches in North Carolina and two in suburban Atlanta. It agreed to pay 70 percent of the purchase in Fifth Third stockm and 30 percentin cash. First Charter, whicuh has struggled with bad loansa andweak earnings, woulfd be happy to take the Fifthj Third deal, Bove said. Its nonperforming assete soared 58 percent in the third quarteeto $31.8 million. Some problems stemmedc from loans on a residential projecyt halted amidfraud allegations. "I think theirt status is such that anything Fifth Third offererd them would be better than goingit alone," Bove said. "Id the deal would break down, it would be Fifthg Third callingit off, not First Charter.
" If Fiftnh Third finds out that Firsyt Charter's assets are not as high-qualit y as First Charter claimed, it could back away, Bove "In my view, there's certainlyu a chance Fifth Third could pull he said. Even so, Fifth Third CFO Chriz Marshall said ina Jan. 22 conferencd call to discuss fourth-quarter earningw that Fifth Third plans to go aheasd withthe deal. "We don't want to get out of he said in a response toan analyst'e question. "We still view First Chartedr as a veryattractive acquisition.
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