Competition Puts Chill on Profits in Florida

Article excerpt

Few states appeal to banks as much as Florida.

This year eight of them from elsewhere have announced acquisition deals in the Sunshine State. Others, such as Trustco Bancorp of Glenville, N.Y., have laid out plans to open branches there. Since the mid-1990s dozens of banking companies from all over the country have bought or branched into Florida, lured by its influx of deposits from Latin Americans and wealthy retirees and by seemingly limitless construction-lending opportunities.

But is the market as rewarding as it's cracked up to be? In recent years, while returns on assets and equity have gone up nationwide, they have fallen steadily at banking companies based in Florida. And though it is still one of the fastest-growing states, the rate is leveling off.

"Florida is great for deposits growth, but there are a lot more folks to compete with, so there's a trade-off," said Chris Marinac, an analyst with SunTrust Robinson Humphrey in Atlanta. "The return in the state of Florida is going to be lower, and the cost of the deposits is going to be higher."

The rush began in earnest in 1997, when NationsBank (now Bank of America Corp.) acquired Florida's largest banking company, Barnett Banks Inc. Since then the landscape has changed dramatically. Out-of-state companies now control more than 75% of the deposits there, as opposed to 55% in 1996, according to the Federal Deposit Insurance Corp.

With all that competition -- from Alabama, Georgia, and even Washington State (Washington Mutual Inc. of Seattle has 141 Florida branches) -- it is harder for Florida-based institutions to make money. In the first half, banks and thrifts based in Florida had an average ROA of 1%, compared with the national average of 1.34%, and an average ROE of 10.95%, versus a national average 14.67%.

That is a noticeable shift from just six years ago, when Florida banks and thrifts had returns better than those in other states.

These numbers reflect only the performance of Florida-based banks, not those with Florida operations but headquarters elsewhere. However, Flake Oakley, the chief financial officer of $13.6 billion-asset Colonial BancGroup Inc. of Montgomery, Ala., said the competitive pressures affect all banks in doing business in Florida.

In fact, he said, his company has grown faster in Nevada and Texas than in Florida, where it has nearly half of its assets as well as 86 branches.

"The competition is extremely intense," Mr. Oakley said. "But the thing that helps to absorb all that is the high rate of population growth."

That growth is why banks continue to flock to Florida more than to any other state -- and pay top dollar to be there. Last month Colonial paid $106 million, or 2.52 times book value, for $356 million-asset Palm Beach National Holding Co.

Other large companies that have struck deals there this year include BB&T Corp. of Winston-Salem, N.C., and Royal Bank of Canada, both newcomers to Florida. In the year's eight deals involving out-of-state banks -- including two deals announced by BB&T -- the buyers are paying an average of 2.54 times book value, according to Sheshunoff Information Services Inc. of Austin. The national average is 1.82 times book.

Kenneth H. Thomas, a Miami consultant, said that larger banks are willing to pay such premiums in Florida because they need operations there -- as well as in New York, Texas, and California -- if they want to be truly national banks. …