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Florida economy driving deal value, but future M&A outlook mixed

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Florida economy driving deal value, but future M&A outlook mixed

Booming urban markets and hopes for a more business-friendly climate have created an influx of high-priced bank deals in the Sunshine State, experts say.

In total, there have been 28 deal announcements with Florida targets since Jan. 1, 2016, with a steady increase in median deal value to tangible book value.

As the state's population continues to swell at levels higher than the national average, bank deals seem to be following the crowds, and have not been limited to one particular location. While the economic outlook remains strong in the state, views are mixed regarding remaining consolidation opportunities.

There have been 16 deal announcements in 2017, with a median deal value to tangible book value of 170.8%, up from 12 deals with a median deal value to tangible book value of 147.1% in 2016.

Florida Bankers Association President and CEO Alex Sanchez called Florida "fertile ground" for business banking and mortgage lending.

"We have a thousand people a day moving to Florida," he said in an interview. "So whether you're selling shoes, cars, or banking products and services, this is where you want to be."

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The state's fourth-largest 2017 deal — Miami-based City National Bank of Florida's agreement to buy Miami-based TotalBank for $528 million — was announced Dec. 1.

Thomas Rudkin, a principal at DD&F Consulting Group, told S&P Global Market Intelligence the deal echoes how attractive the Miami market is for domestic and international banks, since City National Bank is a unit of Chile-based Banco de Credito e Inversiones SA and TotalBank's parent company is Spain-based Banco Santander SA.

Hattiesburg, Miss.-based First Bancshares Inc. announced Dec. 6 it will acquire Tallahassee-based Sunshine Financial Inc. in a cash and stock deal valued at $32.1 million. Vice Chairman, President and CEO Milton Cole Jr. said that Tallahassee, Florida's capital and the home of two major universities, "fits perfectly" into the company's expansion plans. He said the company is keying into the Gulf South region, which he called a "dynamic" and "growth-oriented" market.

Jack Greeley, a banking attorney at Smith Mackinnon, said over the past five years, Florida has lost roughly 10% of its community banks annually. Despite a fewer number of banks, Greeley said he expects the pace of transactions to continue — at least into 2019.

"So far, you don't see anything on the horizon that says, 'well, I guess this is all there will be in terms of bank sales for the foreseeable future,'" Greeley said in an interview.

Out of roughly 130 banks left in the state, he said about half are potential sellers.

"It kind of depends on what kind of bank you're dealing with," Greeley said, adding that family banks, S corporations and distressed institutions are not likely targets. "So you're left with about half. But some of those half either need to grow into their capital, increase their earnings, increase their size and get a meaningful liquidity event."

He also said buyer discipline is "pretty strong," meaning they are sensitive to the net tangible book value earnback period.

Greeley said the "Trump effect" has pushed pricing higher across the board. Sanchez agreed, adding that renewed hopes of tax reform and a lower level of unemployment is "going to keep the economy going."

But Sanchez said Florida's population and abundance of major cities, which are rich in Federal Deposit Insurance Corp. deposits, give the state a business advantage. "You've got 21 million people who have a chance of buying your product," Sanchez said. "That's pretty good odds."

Hurricane Maria's devastation of Puerto Rico is also shaping Florida's cities, with nearly 300,000 people expected to relocate to the state by Dec. 31, The New York Times reports.

Greeley said there is "clearly a good correlation between urban market location and pricing," pointing to areas like Jacksonville, Miami, Tampa and Orlando as major areas of interest. He also said areas along Florida's I-4 Corridor, which stretches about 133 miles from Tampa to Daytona Beach, is an area of vibrant growth.

Following their recent Florida bank forum, Raymond James analysts wrote there "remains general optimism" around the Florida economy, despite "stymied progress in D.C." The analysts wrote Trump's agenda bodes well for loan growth, but seemed to remain skeptical about the amount of sellers of size left in the state. They wrote tax reform would have a significant impact in Florida, given the state's lack of personal income tax.

Their panel with executives of the highly-acquisitive Winter Haven-based CenterState Bank Corp. and Stuart-based Seacoast Banking Corp. of Florida highlighted the scarcity value of potential targets in the area, and the appeal of a "deposit-first" acquisition strategy. The panelists generally expect fewer M&A opportunities, due to a high level of consolidation in recent years. The analysts wrote that only about 25% of remaining Florida banks have more than $500 million in assets, with most in the Miami market.

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