Florida Banker's Caution Says a Lot About Why M&A Is Slow

Capital City Bank Group (CCBG) has sat on its hands for eight years, taking a pass on whole-bank acquisitions and loss-share deals for failed banks.

Now, Bill Smith, the chairman and chief executive of the Tallahassee, Fla. bank, is slowly warming to the idea of M&A.

"We prefer to buy than to build," Smith said on Tuesday at the Gulf South Bank Conference in New Orleans.

"There are about 400 banks in our footprint" holding between $100 million and $500 million of assets, Smith says, "some of which will be for sale later in the cycle." He clarified that "later in the cycle" means late next year or early 2015.

Some investment bankers wish prospective buyers like Smith would seek to move quicker than late 2014. The bank M&A drought has been long; there hasn't been a year since 2008 with deals totaling more than $17 billion of aggregate value, former investment banker Harvard Winters wrote in a recent BankThink column for American Banker. And there could be fewer deals this year than in 2012, he says.

The $2.6 billion-asset Capital City once was an active acquirer — it purchased 15 banks between 1995 and 2005. But Capital City hasn't made a deal since it bought the First National Bank of Alachua, Fla., in May 2005. Smith indicated he had opportunities to acquire failed banks through the Federal Deposit Insurance Corp. during the financial crisis, but declined to avoid diluting core deposits.

Capital City plans to move cautiously when it does re-enter the M&A market. It will continue to focus on its three biggest markets — its hometown of Tallahassee, Gainesville, Fla., and Macon, Ga., he said. Those markets share three important characteristics, he says; each has a large university, a big hospital and an interstate highway.

"Our strategy is straightforward — be a market leader in less-competitive secondary markets," Kim Davis, the chief financial officer, said during the Gulf South conference.

Capital City is No. 1in retail deposits in Tallahassee, with about 18% of the market, according to the FDIC. It is the 7th-largest bank in both Gainesville and Macon.

The definition of Capital City's preferred small market also won't change, Smith says. Those will typically be county seats where the most important institutions are "the First Baptist Church and high school football."