Florida’s shrinking pool of lenders has cooled local bank M&A from pre-pandemic highs and driven sale valuations in the state to the highest since the global financial crisis.
Reported pricing for whole-bank deals in Florida has jumped in 2021 to a median of 180.5% of tangible common equity, from 174.9% in 2019 and 139.06% in 2020, according to S&P Global Market Intelligence data. That compares with a ratio of 152.8% nationwide through August.
Deal valuations have risen in the state in part because of a post-COVID-19 rebound in M&A activity, and in part because a longer-term wave of consolidation that reduced the number of banks headquartered in Florida to 98 from 285 in 2010.
"In Florida, there's not going to be a lot of targets left," said Russ Hunt, CEO of Skyway Capital Markets, an investment banking firm that advised FAIRWINDS CU on its deal to acquire Citizens Bank of Florida.
Some of the most active acquirers among Florida banks also have sold in recent years, and the count of bank deals in the state sits at eight so far this year, from 12 in the full year 2018 and 14 in 2019.
Pricing predicament
With many banks suffering from weak share-price multiples, "it's hard to find buyers willing and able to pay the prices that most sellers in Florida are wanting to sell for right now" Sean Enright, a director with the investment banking firm Hovde Group, said in an interview.
One exception amid the dearth of well-positioned buyers is Seacoast Banking Corp. of Florida, which traded at 1.80x tangible book value as of the close on Sept. 8, a substantially higher multiple than the median of 1.28x for Florida-based banks overall.
Given its cost of capital advantage, Seacoast, the buyer of five of the last 20 whole-bank deals announced in Florida, could almost be considered "the only true in-state bank buyer, who can actually afford to buy, more or less, the banks of their choice," Enright said.
Seacoast announced its acquisition of Legacy Bank of Florida, which had $533.3 million in total assets as of the most recent quarter-end prior to announcement, in March. Shortly after closing the Legacy Bank of Florida deal, Seacoast announced two acquisitions at once on Aug. 23. The company's acquisitions of Sabal Palm Bancorp Inc. and Business Bank of Florida Corp. will add more than $600 million in total assets and push the bank over $10 billion in total assets.
The company is still on the hunt for more deals, President and CEO Chuck Shaffer said on a conference call to discuss the transactions.
"There's over 85 banks remaining in Florida. So there's plenty of opportunities for us to continue our balanced growth strategy," Shaffer said. "It's possible that we can announce another deal by the end of the year."
Besides Seacoast, few buyers remain for banks under roughly $500 million in assets aside from credit unions or out-of-state players, which may be reluctant to move into a new state for a relatively small deal, Enright said.
The only out-of-state bank to announce an acquisition of a Florida-based bank this year involved a target with $2.27 billion in total assets: First Foundation Inc.'s pending acquisition of Naples, Fla.-based TGR Financial, Inc.
Credit unions step up
The reduced population of banks seeking acquisitions is contributing to the influx of credit unions acquiring banks in the state, deal advisers said.
"Credit unions have the upper hand on some of the smaller deals now," Enright said, because unlike many banks they are able to pay an attractive multiple that sellers smaller than $500 million in total assets are expecting.
Among the two Florida-based banks targeted by credit unions this year, Citizens Bank of Florida had $491.7 million in total assets as of the most recent quarter-end before deal announcement, while Pilot Bancshares Inc. had $656.0 million. Banks between $100 million and $500 million in total assets are a "sweet spot" for credit unions, Hunt said.
"We're seeing this across the country," he said, "where a smaller bank might not have an alternative or they could have an alternative, but they get a better price from a credit union."
