Capital City Bank Group Inc. in Florida is eager to buy banks, but it's picky.
The $2.4 billion-asset Tallahassee company is looking for banks that have assets of $100 million to $400 million and are on the outskirts of major Georgia, Florida, and Alabama markets.
"We prefer buying over building and won't be quite as patient as we have been with our buying," said William G. Smith Jr., Capital City's president and chief executive, at the Southeast Super Community Banking Conference in Atlanta last week.
Capital City's preference for smaller, slow-growth markets is reflected in its last three deals.
The $127 million-asset Quincy State Bank, which it acquired in March 2004, is in a small town on the Florida Panhandle. The $390 million-asset Farmers and Merchant Bank, which it acquired in October, is in Dublin, Ga., which has a population of 16,000. And its latest deal, announced Feb. 4, is for the $229 million-asset First Alachua Banking Corp., in a small suburb of Gainesville, Fla.
"We are in predictable markets with very steady growth that are not that exciting," Mr. Smith said. "If you've been to any of our Florida markets, you were probably not on vacation, but lost."
Capital City likes these markets because they provide consistent growth, which is slowly mounting as development creeps into northwest Florida, Mr. Smith said at the conference. (The conference was hosted by Margolin & Associates Inc., an investor relations firm in Beachwood, Ohio.)
Also, as the dominant bank in a small market, Capital City is able to set the rates and the service standards.
"We like to be the leader in the markets we are in," Mr. Smith said. "There is no point in being the 17th horse in a three-horse race."
In the Tallahassee metropolitan area Capital City has the No. 1 market share, with nearly 20% of the deposits. And in Levy County on Florida's northwest coast, it is No. 2, with 34%.
David Honold, an analyst with Keefe, Bruyette & Woods Inc. in New York, applauded Capital City's contrarian strategy, noting that most banks target faster-growing areas for expansion. Because it is a leader in its markets, he said, it does not face much competition in pricing deposits or loans.
"In the larger metropolitan areas they operate around, what they give up in volume they more than make up for in terms of profitability," Mr. Honold said.
Despite merger costs, the company's earnings rose 17% last year, to a record $29.4 million.
A year ago Capital City told shareholders it planned to double earnings to $50 million in six years. Though Project 2010 has focused on acquisitions so far, Mr. Smith said Capital City wants to gain a little more than half of its profit growth organically.
He said that he expects income from its existing branches to increase 7% to 9% a year, and that Capital City will build a few new branches in markets it enters through acquisitions.
Gary Tenner, an analyst with SunTrust Robinson Humphrey in Atlanta, said Capital City's goal of $50 million of earnings by 2010 is attainable. But he said the company must be a cautious acquirer - not do deals for the sake of growth.
"I think what they have to keep an eye on is being disciplined," Mr. Tenner said. "They are doing a pretty consistent stream of deals, and they have to make sure pricing does not become an issue."
