Florida Trend | Florida's Business Authority

Room for More Community Banks?

Abhijit Mahalanobis
Dennis G. Bedley, chairman and CEO of 1-year-old Legacy Bank in Boca Raton, raised $34 million from 300 shareholders in his initial offering in 2006 and a small secondary offering this year. Bedley had been president of Southern Community Bank of South Florida and Colonial Bank of South Florida. [Photo: Eileen Escarda]

After 35 years in banking, John Squires thought he was ready to retire after selling Orlando-based Southern Community Bank to Fifth Third Bank in 2004. But just three months later he was back in the game. And last year, Squires, now 61, opened Old Southern Bank in Orlando, the fourth bank startup of his career. Says Squires, “I didn’t have any problem with the traditional problems of hiring good people and raising capital.”

Indeed, Florida’s growth has made it fertile ground for experienced banking executives with entrepreneurial inclinations — many coming from Florida-based institutions such as Barnett that have been gobbled up by out-of-state banks.

While most of the new banks march into existence under the banner of providing more “service” to the community, shareholder equity is clearly never far from the founders’ minds. Most new community banks don’t last more than seven to 12 years, cashing out as soon as their banks become attractive takeover targets for bigger banks. “The large institutions are always hungry for market share,” says Bowman Brown, head of the financial services practice at Shutts & Bowen law firm in Miami.

But as the economy has slowed, so has bank formation: As of early October, only nine applications for new state charters had been filed with the Florida Office of Financial Regulation. Jack Greeley, a partner with Smith Mackinnon law firm in Orlando and one of the state’s leading bank formation advisers, says, “Probably this year you are going to see one-half to one-third of what you’ve seen in 2005-06.”

Florida’s dismal real estate market and concerns over a possible recession mean that banks can’t count on strong demand for loans from either residential or commercial markets. “Now, we’re going to face times when loan demand is lacking,” says Russ Hunt, co-founder and president of boutique investment bank Kendrick Pierce & Co.

The decline of the real estate market and Wall Street’s anxiety over subprime lending also have clouded the exit strategy for bank founders. If you want to get bought these days, you’d better be big. “If you are a $100-million bank, there’s not much interest” from out-of-state banks, says Squires. “You hit the radar screen at about $350 million.”

Greeley expects deals will be more selective, will receive more scrutiny and take longer. Dennis G. Bedley, chairman and CEO of 1-year-old Legacy Bank of Florida in Boca Raton says, “We’re definitely in the wrong part of the cycle.”


John Squires is on his fourth bank startup. He opened Old Southern Bank in Orlando last year.
[Photo: Jeffrey Camp]

Hunt concurs that the acquisition market in Florida has slowed but says the “great banks that are here still command great prices.” He cites Colonial Bank’s July deal to buy Lakeland-based Citrus and Chemical Bank for $219 million, almost 3.6 times book value.

And while 2007 may prove to be a slow point in the cycle, it’s still not too difficult to find investors for community bank startups. Bedley says he raised $34 million from 300 shareholders in his initial offering in 2006 and a small secondary offering this year. Squires raised about $32 million in increments of $50,000 to $1 million for shareholders and $500,000 to $2 million for directors. He says that one of his investors studied de novo returns over the past 10 to 15 years and found that investors never lost their principal even when they invested in banks that didn’t perform well. Investors in the top 10% of banks, meanwhile, earned a 25% annual return. “It’s a pretty good investment,” he says.

Adds former Barnett Bank and SunTrust executive Bruce May, who will open First Colony Bank in Maitland in January: “There’s always room for one more well-run bank.”

Money Market

Startups
New Banks Chartered in Florida Sales
YEAR NEW BANKS
1999 36
2000 16
2001 11
2002 6
2003 10
2004 14
2005 18
2006 21
2007 (as of September) 9
Source: FDIC, Florida Office of Financial Regulation

Startup slowdown

» Startups require more capital these days — an average of $15 million to $30 million. That’s up from $6 million to $12 million three to four years ago. Capital requirements, which are set by regulators, are up because of increases in the overall size of Florida’s banking market, competition and general economic conditions.

Mergers and acquisitions

» Over the past decade, the Federal Deposit Insurance Corp. has approved 235 bank charters, known as de novo banks, for Florida. During the same period, according to Tampa boutique investment bank Kendrick Pierce & Co., 194 Florida banks and thrifts have merged or been acquired by other institutions.

Delayed reaction

» It typically takes eight months to a year for a new bank to go through the regulatory process and open. As of early September, 14 of the 21 new banks formed in 2006 had opened.


Bank Shot

This year, nine new banks from Tallahassee to south Florida have filed applications for state charters. Bruce May, 56, is representative of the bankers going out on their own. In January, May will open First Colony Bank of Florida in Maitland.


A veteran of Florida’s banking industry, Bruce May is aiming for a January startup of First Colony Bank of Florida in Maitland, his first startup.
[Photo: Jeffrey Camp]

May spent the first 21 years of his career at Barnett Bank, where he ran the central Florida retail operation until Barnett’s acquisition by NationsBank, now Bank of America, in 1997. After 15 months with NationsBank, he moved to SunTrust, where he spent four years as state business banking manager and later moved to Mercantile Bank, where he was central Florida market president.

May decided to start his own bank last year. “For the last 10 to 12 years, I’ve kind of wanted to get back to the way banking used to be,” says May. That means a bank that focuses on personal service and limits its growth to the local area.

As of early fall, May had his six-member board of directors in place and was working on plans to recruit 30 to 35 shareholders and raise $15 million. May insists he’s not starting First Colony to cash out in a buyout. “We’re not building this bank up to sell it,” he says. There are no ifs, ands or buts from May as he talks about employees and customers who get left behind when banks sell out. Says May, “I think that reputation is everything in banking.”

Go to Links Links: For updates on Florida bank startups, check the Florida Office of Financial Regulation.
For more articles this month with extra links, go to the Links page.