Southern draw

Arkansas is quickly becoming a dominant financial center in the South as bankers from that state flock to acquire banks in Florida and other neighboring states.

In the most recent high-profile deal, Bank of the Ozarks announced last month it would acquire St. Petersburg-based C1 Financial for $403 million. But another financial institution, Home BancShares of Conway, Ark., has been busy acquiring banks on the Gulf Coast and throughout the state, too.

Because of its shale oil and natural gas deposits, Arkansas' economy benefited from the commodities boom during the downturn. Its conservatively managed banks were able to raise capital and expand into neighboring states and into Florida following the recession, snapping up failed and struggling banks.

“The banks in Arkansas were in good shape and took advantage of opportunities,” says George Gleason, chairman and CEO of Bank of the Ozarks. “It's been a very intentional, long-term strategy.”

Both Bank of the Ozarks and Home BancShares, parent of Centennial Bank, continue to scout Florida for more opportunities, buoyed by publicly traded stock that has soared in value. “We're still as busy as ever talking to banks,” says Randy Sims, president and CEO of Home BancShares.

The Arkansas banks are part of a new wave of out-of-state banks that picked up failed or struggling franchises in Florida. “Arkansas today, North Carolina yesterday, Georgia yesteryear,” quips Alex Sanchez, the longtime CEO of the Florida Bankers Association.

Out-of-state banks have always sought business in Florida because of its rich source of deposits and loan growth since restrictions were lifted on interstate banking in the mid-1990s. “You could have said the same thing about Alabama banks 15 years ago,” Sanchez says. “The reason then and the reason now is that Florida is a great market.”

Indeed, Arkansas financial institutions are paying top dollar for Florida banks. On a price-to-tangible-book, a common measure in bank valuations, Arkansas-based banks have led three of the top five richest acquisition deals in Florida since January 2014, according to data compiled by SNL Financial.

Buyer's market
Florida's real estate collapse provided healthy banks in other parts of the South with opportunities to buy failed banks with support from the Federal Deposit Insurance Corp. For example, Bank of the Ozarks acquired Horizon Bank in Bradenton after regulators shut it down in September 2010, giving the Arkansas bank a toehold in Florida.

“The economy in Florida was in pretty bad shape in 2010 and 2011, but the transactions were very profitable in and of themselves,” says Gleason. “It provided a platform for us to continue to grow.”

Home BancShares has been especially busy on the acquisition front, buying failed and struggling banks throughout Florida. It has acquired nine Florida banks in this cycle, including two on the Gulf Coast: Florida Traditions Bank in Dade City and Florida Business BancGroup, parent of Bay Cities Bank in Tampa. In 2009, it was the runner-up bidder for Naples-based Orion Bank, one of the biggest bank failures on the Gulf Coast.

Centennial also opened a branch in Naples last year when Thomas Longe, former chairman and CEO of Naples-based TIB Financial, joined Home BancShares' board of directors. “You can see how we're filling in these areas,” says Longe. “We're building with Florida bankers.”

Indeed, Centennial retained experienced longtime bankers to run its operations. At Bay Cities Bank, for example, CEO Gregory Bryant is now Centennial's regional president for the Tampa Bay area. “You need to be staffed with people with a Rolodex,” says Bryant.

The CEO of Florida Traditions Bank, Bud Stalnaker, is now Centennial's president for Central Florida. Stalnaker is the incoming chairman of the Florida Bankers Association. “They're a well-run organization,” Stalnaker says of his new Arkansas colleagues. “They're straight shooters.”

And at Bank of the Ozarks, C1 President and CEO Trevor Burgess will be chief information officer for the Arkansas bank. Burgess, who was named American Banker magazine's community banker of the year, launched C1 Labs to focus on integrating technology to make the bank more efficient.

“We're looking for things that add value, and geography is the lesser of many considerations that go into transactions,” says Gleason. “We're much more interested in the culture and character of the franchise and how it fits within our company.”

Both Bank of the Ozarks and Home BancShares continue to scout for acquisitions in Florida. “The Florida market is comprised of so many submarkets that are very positive,” says Gleason. “There are a lot of places in Florida where we'd like to be.”

Higher values
Now that bank failures are a thing of the past, Arkansas banks have been among the most aggressive in paying for Florida banks. Of the top five Florida deals, Arkansas banks paid the most on a price-to-tangible-book measure in three of those since 2014, according to SNL Financial.

For example, Bank of the Ozarks is paying just over two times tangible book value for C1 Financial. (Tangible book value is defined as common equity less intangible assets. The ratio is a common metric to value banks.)

That ratio is double what acquiring banks paid just a few years ago, but significantly less than the three to four times tangible book value many acquirers paid during the boom years of the last decade.

But industry observers note that the deals consist mostly of appreciated stock, not cash. The stock of Bank of the Ozarks (symbol: OZRK; recent price: $54) has risen 16% for the year to date through Dec. 4. The stock of Home BancShares (symbol: HOMB; recent price: $43) is up 34% over the same period.

Still, Arkansas bankers say not every Florida bank is worth two times tangible book value. “I'm not sure that's a metric that applies to all Florida banks,” says Gleason. “It would be wrong as a broader indicator of price and value of a more typical bank.”

Commenting on the C1 deal, Gleason says: “It is uniquely valuable in our book because of the aptitude and skill of their management team and staff and their strong culture for innovation and the propensity to use technology in our business in a very creative way.”

Indeed, part of the reason Arkansas banks have delivered for their shareholders has been their ability to find good deals. “This concerns us that the pricing has gotten high,” says Sims. “We're going to remain disciplined because for the long term, success is our stock and our ability to produce good financial results. That's what makes us popular.”

What's more, the promise of appreciating stock is a big draw for sellers. “If it's not accretive to everyone all the way around, it doesn't work,” says Sims.

At Bay Cities Bank, Bryant says Home BancShares' stock was a plus. “Investors wanted a good price and liquidity,” Bryant says. “They could pay more and their currency was attractive.”

The prospect of growth was appealing for Stalnaker and his board at Florida Traditions, too. “Our bank was doing well, but we had the chance to sell the bank for a premium,” he says.
“If you've held their stock you've done quite well.”