Florida Trend | Florida's Business Authority

Florida-based banks are ripe for mergers

Recent months have seen the acquisition of at least three more Florida-based banks by larger regional players, underscoring both the attractiveness of Florida banks to outsiders — and the difficulty of growing a Florida-headquartered institution into one of those regional or national players.

Florida counted 308 banks based here in 2007 as the Great Recession hit. There are now 125. “For banks, it was a depression, especially for community banks,” says Benjamin C. Bishop Jr., chairman of Allen C. Ewing & Co. in Jacksonville. The days of regular Florida bank failures are over, but Florida still is averaging 15 to 20 mergers a year.

The industry says the costs of complying with new regulations are driving the acquisitions. Those administrative costs, bankers say, are onerous for smaller institutions that lack the economies of scale enjoyed by regional and national banks. Meanwhile, lending by the smaller banks is crimped because compliance costs divert money they could otherwise use as reserves to underwrite loans. “For every $100,000 we spend on compliance, that’s $1 million less that we can lend in the community,” says Alex Sanchez, CEO of the Florida Bankers Association.

Bottom line: Banks with less than $500 million or under $1 billion in assets — depending on whom you talk to — find it too difficult to make money.

A rollback by the Trump administration and Congress of some of the regulatory burden has helped keep small banks profitable, but often not profitable enough to fund new growth. “The small banks have been kind of stuck. They can’t grow,” Bishop says.

Another factor motivating small-bank stockholders to sell: They haven’t seen any return on their investment in the 11 years since the recession, Bishop says. They’ve gone without dividends, and, because shares in the small banks often aren’t listed on public exchanges, they haven’t been able to cash out.

Some acquisitions have been intrastate: Stuart-based Seacoast Banking acquired First Green Bank this year, and City National in Miami acquired Total- Bank. But plenty of out-of-state suitors also are looking to boost their market shares in one of the nation’s largest and fastest-growing economies. “Everybody wants to be here,” Sanchez says.

For example, Mississippi-based First Bancshares acquired Monticello-based Farmers & Merchants and Tallahasseebased Sunshine Community this year. New Jersey’s Valley National acquired Clearwater-based USAmeriBank this year.

Says Bishop, “The Florida economy is still extremely attractive from a banking point of view to banks that can take advantage of it. The out-of-state banks have been pouring into Florida in the last five or six years. The banks that have decided to sell and have decent market share can sell at a nice profit.”
— Mike Vogel

Tapped Out?

Seacoast is running out of Central Florida competitors to buy.

Four years ago, Seacoast Banking, the Treasure Coast-based holding company for Seacoast National Bank, launched a “land and expand” strategy in Orlando by acquiring BankFirst of Winter Park.

The nearly $80-million deal came with 12 branches around metro Orlando — a beachhead from which Seacoast has rapidly built a mini empire.

Seacoast followed the BankFirst deal by acquiring Floridian Bank, which had 10 branches in Orlando and Daytona Beach. Then came the purchase of the Orlando banking operations of BMO Harris Bank, with 14 branches in the region. In June, Seacoast announced a deal to acquire First Green Bank, which has six branches in Central Florida (plus a seventh in Fort Lauderdale).

“The Orlando market was coming back nicely, and we felt it had a real growth opportunity,” says Seacoast Chairman and CEO Dennis Hudson. “It has been a priority market for us.”

Since the start of 2014, Seacoast has moved from having virtually no presence in Orlando to becoming the region’s largest Florida-based bank — and among the 10 largest overall. Even before the First Green deal, Orlando represented 29% of Seacoast’s business as measured by deposits.

Combined, Seacoast and First Green have 26 locations across metro Orlando, with more than $1.4 billion in area deposits and 3% of the market share. The next largest community bank in the region is CenterState, which has 14 branches, about $950 million in area deposits and 2% share, according to the FDIC.

The growth spurt has made Seacoast an increasingly important employer for Central Florida. In the last few years, the company has moved about half of its loan operations team and a call center to Orlando. Altogether, it has about 260 employees in the market — roughly 30% of its total workforce.

Seacoast says it targeted Orlando because it is the third-largest metro area in Florida and the 23rd in the country, with a population that has grown more than three times as fast as the nation as a whole over the past eight years, and it is expected to grow more than twice as fast over the next five years. The area also has been the top-ranking large region in the country for job growth.

Seacoast may be bumping up against a ceiling on how much it can continue to expand in Orlando, however — at least through acquisitions. To keep expanding, the bank will have to grow organically.

“We’d never rule out another acquisition in the market, if it was value-creating,” Hudson says. “But, as you probably know, there’s not a lot left in that market.”
— Jason Garcia

Digital Cash

From Miami, Visa is giving Latin America a technology boost.

In Latin America, cash is used in at least 80% of consumer transactions — more than twice the rate of cash transactions in the U.S., according to some estimates. But efforts to digitize cash and financial services are increasing in the region, thanks to a surge in smartphone use and a push by banks and fintech startups.

Visa is helping spur that collaboration at its Miami Innovation Center, which brings together Visa’s Latin American clients, such as banks and key retailers, with its own specialists and cutting-edge fintech firms. In May, Visa made its first direct investment in a Latin America-focused fintech firm when it led a $12.5-million funding round for regional mobile-payments pioneer Yellow Pepper, which was founded in Mexico and now is based in Miami.

“If you look at the fintech ecosystem in Latin America, a few years back, it was developing very slowly compared to other regions,” says Vanesa Meyer, an Argentina-born executive who leads innovation and strategic partnerships for Visa’s Latin American and Caribbean region out of Miami. “But last year, over 100 fintech deals closed in the region, double 2016, and in the first part of 2018, the pace accelerated.”

Analyst Lindsay Lehr, a director at Miami-based Americas Market Intelligence, says only a global heavyweight like Visa has the clout to bring together both large and small players to speed the rollout of new financial services technology in Latin America.

Even traditional banks in the region recognize the need to innovate, as fully digital banks have started to emerge in their markets. “Banks and others are looking to Visa to help them become more agile,” says Lehr.

Among Visa’s partners in the fintech push: Miami-based NovoPayment, whose technology, says CEO Anabel Perez, serves as “connective tissue” among technologies, so banks and others can leverage existing assets without having to build apps and interfaces. NovoPayment now handles more than $350 million in transactions yearly, works in six Latin American nations and employs 300 people.

“By collaborating, you augment your capacity, increase efficiency, reduce R&D expenses and help others boost their capacity,” Perez says. “And in Miami, we’re just an Uber ride away from Visa.”
— Doreen Hemlock

Making Adjustments

Technology is driving change in the accounting profession.

W.G. Spoor is a partner at St. Petersburg’s Spoor Bunch Franz, a 63-employee accounting firm that merged with Spence Marston Bunch & Morris in 2016 and acquired Strawn Marshall Cunningham Condon & Sweat earlier this year. Spoor spoke with FLORIDA TREND about issues facing the accounting profession.

Tech effect

“I think the biggest issue that’s affecting us and probably everybody else is technology — the rate of change. Technology is already impacting our profession. I’m talking about artificial intelligence. It’s impacting auditing, accounting, tax returns, everything You’ve got H&R Block using Watson, (an IBM computing system). You’ve got some of the big four accounting firms using artificial intelligence to do audits. What used to take people weeks, they can do in hours. To not be ready for it, to not understand the rate of change that’s happening right now, that would be doing a disservice to ourselves and our clients.

“There are things like optical character recognition readers where items get scanned and sorted automatically. Before, if you had a stack of papers, you used to have to sort it yourself. I think we’re heading toward a Siri-like world” in which clients might be able to interact with a computer to answer accounting questions and gain access to their accounting data.

Staying relevant

“As long as we provide client service and give advice to people, they’re still going to need that. How we do it, how we deliver it, all of that will change. But I think we’ll always have a place, especially when it comes to interpreting data and making decisions. I don’t think people will rely on computers as much for that, but they will rely on computers to gather the information, but we’ll be there to interpret what it all means.”

Knowledge transfer

“If you look around, most people sitting in my chair are Baby Boomers. There’s a lot of CPAs that, especially sole practitioners at smaller firms, are in their late 60s, 70s, and they’re going to be getting out of the business. That’s going to impact things not only from a turnover as far as ownership of those firms and clients moving, but also knowledge. I mean, you’ve got a ton of people who have been in the profession for 40-plus years who have a lot of knowledge that’s going out. We’ve probably got at least 10 or 12 people who fit that description here who we’ve bought out previously, but they’re still here. They still come in. Some of them just work three months a year. But what we do is we want to transition their knowledge base to our younger staff. These people have 40 years of experience, and they understand what to do and how to do it. Transitioning that knowledge base is very important.”
— Art Levy

Tax Changes

Last December, President Trump signed into law Congress’ tax change package. Most notably, the law includes lower income tax rates, a higher standard deduction and new limits on many itemized deductions. Whether taxpayers benefit from the changes largely depends on where they live, what type of income they earn and other factors such as how much mortgage debt they have. In fact, the big winners from the 500-plus-page tax package could be tax planners and financial strategists who help taxpayers navigate the changes.

What’s New ...

  • The top personal income tax rate, which now applies to singles making more than $500,000 or married couples making more than $600,000, has dropped from 39.6% to 37%.
  • The new standard deduction is $12,000 for single filers and $24,000 for joint filers, almost double the levels in 2017.
  • Federal deductions for state and local taxes are no longer unlimited. Now, only the first $10,000 paid in state and local property, income and sales taxes is deductible.
  • Estates worth up to $11 million per person ($22 million for married couples) are now exempt from the estate tax, also known as the death tax. The exemption previously stopped at $5.5 million.
  • New homeowners may deduct interest paid on up to $750,000 worth of mortgage debt, down from $1 million under the old tax code. Interest paid on a home equity loan is still deductible, but deductibility now applies only to borrowing for home improvements.
  • The limit on charitable deductions has been increased from 50% to 60% of adjusted gross income for people who itemize.
  • Families can now use 529 college savings plans to pay for private K-12 schools. The new rules allow families to withdraw up $10,000 a year, per student, tax-free to pay for public, private or religious elementary or secondary school costs.
  • The new child tax credit is worth up to $2,000 per child, twice as much as before, and is refundable up to $1,400 even if taxpayers end up not owing taxes. The credit starts to phase out at an adjusted gross income of $200,000 for individuals (vs. $75,000 before) and at $400,000 for married couples (vs. $110,000).
  • Fewer households will face the alternative minimum tax, an alternative method of calculating tax liability that’s designed to prevent wealthy taxpayers from benefiting too much from itemized deductions. The new law raises the exemption amount from $84,500 to $109,400 for joint filers and from $54,300 to $70,300 for single filers. Also, the exemption doesn’t begin to phase out until $1 million of income for joint filers (vs. $160,900 under the old rules) and $500,000 for other filers (vs. $120,700).
  • The top corporate tax rate has dropped from 35% to 21% on taxable income over $10 million, and the corporate alternative minimum tax has been eliminated.
  • Owners of pass-through entities such as sole proprietorships, partnerships and S corporations — the vast majority of small businesses — could be eligible for a new tax deduction. Individuals who have taxable income of less than $157,500 (for single filers) or $315,000 (joint filers) generally may deduct 20% of their pass-through income. The deduction disappears entirely for taxpayers with income of more than $207,000 (for single filers) or $415,000 (joint filers). Owners of engineering and architectural businesses get the full 20% deduction even if their income exceeds those thresholds.


— Amy Martinez

Leading Role

FBA’s new chairman cheers tax changes but fears cyberthreats.

Emory Mayfield is the Tallahassee market president for Hancock Whitney Bank and the new chairman of the Florida Bankers Association. He spoke recently with FLORIDA TREND about the current status of Florida banks and his goals as FBA chairman.

What’s driving higher bank profits in Florida:

“The 2017 Tax Reform Act that cut corporate taxes from 35% to 21% is certainly a big factor. The businesses we bank are also experiencing lower taxes, and this has increased their confidence to invest. We’re also seeing consumer confidence and spending increase. Moreover, the credit quality of Florida banks is strong. Across the state, non-performing loans represent just 0.54% of total bank assets as of March 31. At the peak of the Great Recession that number was eight to 10 times higher.”

Competition with credit unions:

“Until this playing field with credit unions is leveled, banks will always be playing with one arm tied behind our backs. While we advocated for the credit union income tax exemption to be eliminated in the Tax Reform Act, it wasn’t. So our work continues. I would just add that a hardworking family of four is paying more income tax than any one of these ‘non-profit’ multi-billiondollar credit unions.”

The decline of community banks in Florida:

“It’s one of the biggest issues the FBA faces right now. A decade ago, Florida had 308 community banks. Today, that number has fallen (to 125), while only two new banks have been chartered in the state since 2009. Community banks are the lifeblood of the state’s smaller communities and provide more than 70% of agricultural loans and 50% of all small-business loans.”

Cybersecurity challenges:

“If you ask what keeps us up at night, a large majority of bankers would say cybersecurity. We are, however, investing a great deal of time and money to protect our customers. I would also add that the FBA strongly believes it is time for Congress to update the Bank Secrecy Act and the Anti Money Laundering Act. BSA and AML reform are very big issues, particularly with South Florida banks. We don’t want corrupt money coming into our banks. Those laws were written back in the 1970s, and updating them is the Florida Bankers Association’s biggest priority for the upcoming year.”


— Carlton Proctor

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