First to Sell

First to Sell

BANKING by Mark Gordon | Managing Editor

To the banking community, the sale of Sarasota-based SunCoast Bank to a Mississippi holding company last month was a blip in the daily barrage of financial news.

But in the banking community of Sarasota and Bradenton, the sale marked the first time a start-up community bank of the class of 1999 and 2000 sold out to a bigger player. The deal, which still must go through final regulatory approval, is for Starkville, Miss.-based NBC Capital Corp. to buy SunCoast for $34.8 million based on a purchase price of $20.50 per share of SunCoast stock, of which 45% will be paid in cash and 55% in NBC stock. The price is 2.34 times book value; according to SNL Financial, a Charlottesville, Va.-based research firm, the average price to book value for 20 bank deals in Florida in 2005 was about 2.7

Executives on both sides of the deal sum it up as one where no one was actively seeking a partner, but in the end, it was too good to pass up.

"We weren't necessarily looking," SunCoast President and Chief Executive Officer John Stafford says, "but it did come at a time while we are looking to expand" and the infusion of capital will provide a boost. SunCoast opened its third branch and first Manatee County office earlier this year and could open another branch in about two years, Stafford says.

NBC, parent company of Cadence Bank, is also looking to grow with the purchase. Richard Haston, NBC's chief financial officer, says the bank, which has about $1.4 billion in assets, had been looking to get into Florida, and specifically, the Gulf Coast market. "That area is a bright spot in a bright state," Haston says, speaking in an interview from his Starkville office.

What does the deal mean for the now six- and seven-year-old independent banks in Greater Sarasota, a list that includes Coast Bank of Florida, Flagship National Bank, Horizon Bank, LandMark Bank of Florida, People's Community Bank of the West Coast and The Bank of Commerce?

In the eyes of many bankers and board members in the Sarasota community, the answer is not too much. Those who spoke with the Review downplayed any trend developing where other national or regional banks would swoop in and buy an independent community bank based in the area. The bankers instead cite specifics of the SunCoast purchase as an isolated situation that helps both sides reach growth goals.

Still, the numbers of each of the other start-ups launched around the same time as SunCoast show that NBC likely would have paid considerably more if it bought any of the other banks in the class. SunCoast is a step behind the other banks in terms of total assets, net income, return on assets and return on equity over the other banks in recent years. The bank's assest growth and level of profitability has regularly been one of the lowest and slowest of its class (see chart).

Haston backs that up. He says SunCoast caught NBC's attention because it had grown to a point where it was prime for more expansion, yet still wasn't so big where a purchase would become too costly. Haston says the bank looked at other options in Florida before making the SunCoast offer; he declined to name the banks.

Stafford and Haston both declined to comment in detail on the history of what led to the purchase, citing the "quiet period" of the regulated deal. But Haston says Stafford developed a relationship with Lewis Mallory, NBC's chairman and CEO, through banking circles. NBC Capital has banks in Mississippi, Alabama and Tennessee. The banks began learning about each other after the first meeting in December 2005, Stafford says, leading to an offer early this year.

SunCoast was established in 1999 by banking veterans Stafford and William Gnerre. The initial board included H.R. "Ron" Foxworthy, a Sarasota plumbing contractor, real estate investor and FCCI Insurance Group director; Dr. Henry Black, owner of the Cardiovascular Health Institute of Sarasota; and Dr. Stanley Williams, a retired Sarasota dentist. In a Jan. 2, 2004, Review story on the bank's first five years, Gnerre acknowledged he and the bank would have liked to have been "larger, faster" but they were still on the right road for growth. The strategy included hiring experienced lenders who had books of clients that would follow them. On the subject of mergers and acquisitions, Gneree says the bank was "in no rush" to make a deal. And it wasn't.

SunCoast will change its name to Cadence Bank after the sale is closed. Stafford will retain his position with the bank, as will the senior management and local board of directors.

NBC Capital Banks on Community Feeling

Like a lot of community banks, NBC Capital Corp., the new owner of SunCoast Bank, prides itself on its attention to each customer in a friendly, down-home atmosphere.

But when NBC paints that community bank picture, it could count on some real life examples to prove it. At about 120 years old, it's one of the oldest banks in Starkville, Miss., a farming town near Mississippi State University with a population of about 20,000. And its CEO, Lewis Mallory, is a classic example of community banking: A native of Starkville, Mallory has been with the company almost 40 years.

Even with expansion to five states - pending the close of the SunCoast deal and a separate purchase in Georgia - NBC has maintained its corporate headquarters in Starkville.

"This is a big growth period for us right now," says CFO Richard Haston. "We are focusing on growth of highly sophisticated metropolitan areas."

Enter Sarasota, and specifically, SunCoast, a community bank formed in 1999 with two local bankers at the helm. Haston says the plan with SunCoast is to keep the focus on high-net worth individuals and small businesses, with the personal banking touch. The challenge, he says, will be to get a piece of the mid-size business pie, in which many small businesses owners and entrepreneurs want to be in.

NBC became a holding company for banks in 1984; it had offices in Tennessee and Alabama, in addition to its home state. In the mid '90s, Haston says, the bank went through a growth period where it bought two banks and an insurance agency. In 2004, the bank made a significant purchase in Tennessee, with the acquisition of Memphis-based Enterprise National Bank.

Since the Enterprise purchase, NBC has been converting its banks to the name Cadence Bank; it plans on doing the same thing for SunCoast. NBC trades on the AMEX market under the symbol NBY; it was trading at $22 a share earlier this week.

The Class of 1999 and 2000

Bank of

Coast Bank Flagship Horizon Landmark People's SunCoast Commerce

Year founded 2000 1999 1999 2000 1999 1999 2000

Total assets, 2004 384,457 128,805 122,847 167,189 192,727 100,834 204,678

Total assets, 2005 550,093 162,276 151,950 234,099 255,668 131,846 260,298

Net income, 2004 997 1,035 953 909 810 473 1,445

Net income, 2005 -556 1,933 1,480 2,091 2,504 948 2,141

Return on equity, 2004 3.70% 15.07% 12.73% 8.31% 5.68% 5.46% 10.81%

Return on equity, 2005 -1.63% 18.80% 15.51% 14.18% 12.42% 6.90% 13.47%

Return on assets, 2004 .30% .94% .88% .60% .48% .51% .82%

Return on assets, 2005 .12% 1.36% 1.09% 1% 1.06% .81% .91%