Florida banking hot

Eighteen merger and acquisition deals have been announced so far this year, and that level of activity is expected to continue.

Bill Sedgeman has seen plenty of banks come and go during his 35 years in local banking.

There's rarely a time when Florida financial institutions aren't buying and selling, but 2006 is shaping up to be an especially busy year.

"We're on everybody's radar screen. Everybody wants a piece of a hot market," says Sedgeman, chairman of Community Bank of Manatee.

Wachovia Corp.'s $25.5 billion deal to buy Golden West Financial Corp., parent of World Savings Bank, has triggered new speculation over the next likely buyers and sellers.

Eighteen bank merger and acquisition deals of at least $500 million in assets have been announced so far this year, compared with just seven in the first five months of 2005.

"We expect the increased activity level to continue," said analyst Eric Grubelich of Keefe, Bruyette & Woods.

So does Pinellas Park bank analyst Richard X. Bove, who says the Wachovia-Golden West deal will accelerate the merger plans of many banks.

"An unusual situation has now developed," Bove says. "The outlook for the industry has deteriorated, and bank stocks are rising to new price levels -- as the situation gets worse, the stock prices go higher.

"The deterioration in the fundamentals is due to a rise in interest rates, a narrowing of the yield spread, a decline in mortgage activity, a slowdown in the growth of deposits and a higher cost of infrastructure," he said.

That means two things: Big banks need to buy large groups of customers that can be serviced from one platform, and small banks must either sell or face sizable declines in their earnings, growth rates and stock prices, he says.

KBW had just 10 banks on its "takeover list" in November, but it's now up to 17 likely targets. Two of the original 10 have been acquired.

The west coast of Florida is a hot market for banks because of its strong population and economic growth, Sedgeman said.

Community banks have done well by focusing on personalized service, he said, but even some bigger banks are now going after the small-business clients and smaller loan deals they used to ignore.

"That's heightened competition for markets that have been primarily the turf of locally owned community banks," he said.

Out-of-state banks have already targeted this part of Florida. Consider:

1.) Tarpon Coast Bank of Port Charlotte sold last year to First Busey Corp. of Urbana, Ill., for $35.6 million.

2.) Gold Bank, the Leawood, Kan., bank that had an 15-branch footprint on Florida's west coast, sold to Marshall & Ilsley Corp. of Milwaukee for $300 million.

3.) 1st National Bank & Trust of Bradenton just took a $115 million buyout from Whitney Holding Corp. of New Orleans for its five-office, $378 million-asset shop.

4.) SunCoast Bank of Sarasota in March decided to sell to the parent of Cadence Bank of Starkville, Miss., for stock and cash worth $34.8 million. SunCoast has three offices in Sarasota and Manatee with $135 million in assets.

Jumping in the game

Bove believes a number of large banks that do business in Florida will react to Wachovia-Golden West and jump into the buyout game.

He expects Wells Fargo, the California giant that hasn't done a major deal since 1998, will finally seek a national presence.

A likely target: SunTrust, the Atlanta-based company that operates the third-largest bank in Florida.

"It is our view that Wells will buy SunTrust because these companies have a natural business affinity with each other," he said.

Washington Mutual, like Golden West a thrift facing a shrinking market, could be a candidate for Citigroup, he says. WaMu has the fourth-largest financial institution in Florida.

Bove also thinks that AmSouth will align with either Regions Financial or Fifth Third. Any such deal would be big for Florida. AmSouth is the state's fifth-largest bank, Regions is seventh and Fifth Third ranks 10th.

"Either combination would make sense, although we favor seeing the two Alabama banks (AmSouth and Regions) linking up," he said.

KBW has one Florida bank on its takeover list: Fidelity Bankshares, the West Palm Beach parent of Fidelity Federal Bank, a $3.7 billion-asset company with 51 offices on the east coast.

Analyst Samuel Caldwell says potential buyers include BB&T, Colonial Bancgroup and The South Financial Group. All three of those out-of-staters are already in Florida.

Detroit-based Comerica, which has an office in Sarasota, may be available because it will be vulnerable to increased loan losses from the auto industry, Bove said. J.P. Morgan may be interested as a defensive move to protect its Midwest base and to get positioned on the west coast.

Record-setting profits

The speculation heats up as the U.S. banking industry comes (Page 3)
. . . another record-setting year.

The nation's 8,833 banks and savings associations earned a combined $134.2 billion in 2005, up $11.8 billion, or 9.6 percent, from 2004. It was the fifth consecutive year that industry earnings reached a new high.

Strong growth in loans and a boost in noninterest income at larger institutions -- primarily from trading and servicing business -- fueled the increase.

Not a single bank failed in 2005, and there have been none so far this year.

In fact, the last failure was in June 2004, representing the longest period without a failure since the Federal Deposit Insurance Corp. was founded in 1933.

FDIC officials credit favorable economic conditions and the efforts of bankers and regulators to manage risk.

Only two of the 20 locally based banks were in the red last year. First America Bank of Osprey is a start-up that lost $583,000, and Bradenton's Coast Bank of Florida dropped $556,000 as it cleaned up some bad loans.

But even with the bright numbers, regulators warn that bankers face some serious challenges this year.

As the real estate market softens, the volume of residential loans is slowing down. Banks' net interest margins -- the difference between the average return on interest earnings investments and the average interest expense to fund those investments -- slipped to a 14-year low by year-end.

Credit-card charge-offs also rose sharply last year as a record number of people filed for bankruptcy to beat the more stringent rules in the new law.

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for other stories describing the Strong Banks of Florida  click link below

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