Playing a happier tune

Buried deep in a footnote to a recent securities filing, IberiaBank detailed how it paid for Florida Gulf Bank, one of the survivors of the real estate crash.

The July 31 transaction would have been just another one in a string of bank deals forced by the economic downturn if it hadn't been for the price that Louisiana-based IberiaBank paid for the small Fort Myers bank: $45.3 million, or 1.4 times the bank's book value.
Since the beginning of the downturn, community banks on the Gulf Coast have traded well below book value, or they've been simply shut down by regulators, their assets parceled out to vulture investors or much larger institutions like Iberia with $13 billion in assets.

Some observers wondered if the price IberiaBank paid set a new bar for community banks that are slowly nursing themselves back to profitability. So far, the answer seems to be no — but it could be just a matter of time before another deal sets a new price.

Behind the scenes, community bank investors and directors are biding their time, betting that their franchises will show rising profits in the future and they too can get a price close to what Florida Gulf Bank shareholders received. Or maybe if the economy grows stronger they might attract capital of their own to make acquisitions or even combine with other similar-sized banks to bulk up.

Indeed, the banking landscape in the region that stretches from Pasco to Collier counties on the Gulf Coast appears to be improving, according to FDIC data tabulated by the Business Observer. Total assets such as loans for the 47 banks headquartered in the region rose 12% to $24.8 billion in 2012 compared with the previous year, FDIC data shows. More impressive, total net income rose 189% to $240 million in that same one-year period.

M&A takes a breather
The better-than-book IberiaBank acquisition of Florida Gulf Bank in Fort Myers may have been an isolated transaction, at least for now. “I don't think we have a trend,” says Tramm Hudson, a retired Sarasota banker who consults with community banks and their customers in the region.

The mergers-and-acquisitions activity has slowed in the last six months as regulators stopped closing failing banks and most existing community banks have swung back to profitability.

According to a recent securities filing, IberiaBank paid $45.3 million for Florida Gulf, which had $357 million in assets and eight branches in the Fort Myers area. That payment was mostly in IberiaBank stock, but it also included a cash portion of $4.6 million.

“It's a good franchise,” says James Gburek, IberiaBank's executive vice president and regional president for Florida in Naples. “We like their customer base and their management. A cultural fit is really important.”

In its filing, IberiaBank says the fair value of Florida Gulf's net and intangible assets totaled $12.9 million. The remaining $32.4 million of the purchase price was classified as goodwill. IberiaBank cited Florida Gulf's experienced management, expanded presence in Fort Myers and the cost savings it would achieve by eliminating redundant operations as the reasons for the recognition of goodwill.

IberiaBank acquired Naples-based Orion Bank and Sarasota-based Century Bank after regulators shut them down in 2009. By buying Florida Gulf, led by veteran Lee County banker William Valenti, IberiaBank filled the market between Sarasota and Naples. “If we were going to have a meaningful presence in Fort Myers, we needed to be bigger there,” Gburek says.

IberiaBank is exploring other opportunities on the Gulf Coast, too. “Tampa is a market we're interested in,” Gburek says.

“I give Bill Valenti a big pat on the back because he got an outstanding price from Iberia,” says Gary Tice, chairman and CEO of First National Bank of the Gulf Coast in Naples.

Tice acknowledges that the values are different today than they were during the real estate boom. In 2005, Fifth Third Bancorp paid more than five times book value for Tice's previous bank, First National Bank.

Tice, whose own bank-holding company, TGR Financial, is scouting acquisitions, says bank valuations can vary widely depending on the value of its own currency and whether the acquisition shows promise of future earnings. “That premium has to be based on the ability to grow that franchise,” he says.

For now, many community banks are focused on improving their profitability and seeking to grow their assets. “You've got a limited number of potential buyers,” says Joseph Caballero, president and CEO of Gulfshore Bank in Tampa. “People are still waiting to see a more positive signal and a turn in the market.”

The government continues to loom large over the industry. “There continues to be a lot of regulatory uncertainty,” says Joseph Chillura, CEO of USAmeribank in Largo. “That makes acquirers more nervous taking on more than they have on their plate.”

But Chillura and others say community bank directors will have to map out a growth strategy because stricter government regulations will raise compliance costs that will force consolidation. “Smaller banks, those under $500 million in assets, will combine to be efficient and to handle regulatory burdens and scale their business,” Chillura says. USAmeribank's total assets totaled $2.6 billion at the end of the year.

“Once people have gotten their banks up to par again, you're going to see more mergers,” says Kerry Westbrook, senior vice president and chief financial officer with First National Bank of Pasco in Dade City. “We want to get into a position where we're an acquirer.”

Besides First National, banks on the Gulf Coast such as C1 Bank in St. Petersburg, Gulfshore Bank in Tampa and Sabal Palm Bank in Sarasota have been successful at raising capital from investors lately. As other banks become more profitable, they too are likely to attract investor interest.

Improving economy, healthier banks
Whatever the market for acquisitions, many bankers say the worst of the recession has passed and they're making loans. “There have been a lot of businesses that have been reluctant to expand or grow with the uncertainty in the economy,” says Chillura. But, he adds, “They're opening their purse strings.”

Chillura says the recovery in lending he's seeing is broad-based. That includes business owners borrowing to buy commercial real estate to house their existing companies and entrepreneurs seeking money for new ventures.

“We are seeing the core of the city show some growth again, which is very positive,” says Caballero, whose bank focuses on small- to mid-sized businesses in Tampa. “We had large increases in loans and new-client relationships last year.”

In Naples, Tice says existing firms whose loans are coming due dominate the commercial-lending business. “Because of the regulatory environment, it's difficult to lend to a startup,” he says. First National has seen a surge in business in residential loans, particularly larger so-called “jumbo” loans.

In Charlotte County, bankers say the recovery started in 2010 with residential real estate. “We've had stability in median home prices for about three years, and appreciation has now begun to emerge for the past nine months,” says Maryann Mize, senior vice president and senior credit officer with Charlotte State Bank & Trust.

“It's interesting to see classic fundamentals play out in my home town,” says Mize. “The numbers are indicative of the recovery that's in process.”