Newspaper article Sarasota Herald Tribune

More Mergers-of-Equals Are Expected over Next Few Years

Newspaper article Sarasota Herald Tribune

More Mergers-of-Equals Are Expected over Next Few Years

Article excerpt

While banks in Florida continue to show improvement, they still lag behind the recovery of financial institutions in the rest of the Southeast, says investment banker Benjamin C. Bishop Jr.

Community banks will need to get bigger to remain profitable and absorb higher regulatory costs, and in Florida that will mean more sales and mergers of equals in 2014, he said.

"Florida banks have not recovered from the banking crisis as quickly as the banks of the other Southeastern states because of the higher level of building in Florida during the boom years of the early 2000s," Bishop wrote in Jacksonville-based Allen C. Ewing & Co.'s third-quarter industry update.

Despite the Federal Reserve's "easy money" policy, net interest margins at state banks remains low. But most of the banks are now profitable, he said, thanks to lower loan-loss provisions and declining legal and administrative expenses to manage real estate they took back from borrowers who defaulted.

"The Florida banks that have survived the past six years have come a long way since the banking recession began in 2007," Bishop said. "As of Jan. 1, 2007, there were 269 banks in Florida; currently there are 188, a decline of 30 percent.

"During the six years from 2007 to 2013, the primary objective of these banks has been survival, and there are still 25 banks (13 percent) with high Texas ratios in excess of 100."

Among the banks with the highest Texas ratios -- a measure of non- performing and 90-day past-due loans divided by tangible equity and loan-loss reserves -- is Sarasota's The Bank of Commerce. It reported the fourth-highest ratio in the state, primarily because of a high level of real estate it took over from soured loans.

During the recession and aftermath, banks were pressured to meet increased capital requirements imposed by regulators, Bishop said. Banks shrunk assets, reduced non-performing loans and raised new capital which, in some cases, diluted stock values for shareholders.

"Community banks now face a second challenge, which is to produce sufficient after-tax earnings to support future asset growth and dividends, and to attract new capital at reasonable prices," he wrote in the industry update. …

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