The private-equity firm Castle Creek Capital LLC is on track to do the same thing in Florida that it has done in California and Texas - roll up a number of community banks and sell the resulting company for what it hopes is a nice profit.
On Jan. 5 the Rancho Santa Fe, Calif., firm, headed by the noted bank investor John Eggemeyer, bought The BANKshares Inc., a $184 million-asset company in Melbourne, Fla., for $43 million.
Two weeks later it announced it was buying the $334 million-asset BankFirst Bancorp Inc. in Winter Park, Fla., for $81 million in cash.
More acquisitions in Florida are likely, said Mark Merlo, a senior vice president at Castle Creek and the chairman and chief executive of its new Florida holding company, The BANKShares. He said Castle Creek's goal is for The BANKshares to have at least $1 billion of assets along the Interstate 4 corridor, from the Atlantic Ocean to Tampa on the Gulf Coast, within three years.
"Florida is one of the fastest-growing states in the country, and this region in particular has a lot of small and medium-sized entrepreneurs," he said. Such customers not only want loans, they bring in a good amount of low-cost core deposits - Castle Creek's ideal model for profitability, he said.
The BANKshares' Bank Brevard subsidiary and BankFirst are keeping their names, charters, management, and boards but would have the same holding company.
Mr. Merlo stressed that in the near term, Castle Creek will focus on increasing The BANKshares' assets and optimizing performance. Ultimately, though, its plan is to sell the Florida company, as it has done with other banking companies it has built, he said.
In the 1990s, Castle Creek rolled six Southern California banks into Western Bancorp in Los Angeles, and sold it in 1999 to U.S. Bancorp of Minneapolis for $958 million, 4.4 times book value.
Last month the $1.6 billion-asset State National Bancshares Inc. in Fort Worth, another company that Castle Creek and its co-investors had controlled, sold itself to Banco Bilbao Vizcaya Argentaria SA in Madrid for $480 million, or 2.14 times book.
Castle Creek has controlling stakes in five banking companies in California, Colorado, Illinois, Georgia, and now Florida. The largest, the $5.6 billion-asset First Community Bancorp in Rancho Santa Fe, has had double-digit earnings growth every year since its inception six years ago. Its net interest margin is one of the industry's highest.
(Mr. Eggemeyer, Castle Creek's CEO, was named one of American Banker's three Community Bankers of the Year for 2006 for building successful community banking companies. Castle Creek and its co-investors have bought stakes in 49 banks during the past 14 years.)
Analysts expect Castle Creek to do well in Florida.
"A million people continue to move to Florida every three years, so the demographics are great - even if the real estate markets do slow down in the near term," said Mark Muth of First Horizon National Corp.'s FTN Midwest Securities Corp. in Nashville.
There are also plenty of small banks in the state that Castle Creek could buy, but it would have to pay a hefty premium because many others are eyeing them. In the BankFirst deal, which is expected to close next quarter, Castle Creek is paying 4.4 times book.
Still, the California firm could make a decent return when it sells its Florida franchise, because large out-of-state banks are also willing to pay up to acquire a banking company with sizable market share in Florida, said Jennifer Thompson, an analyst with Oppenheimer & Co. Inc. in New York.
On Jan. 23 the $22 billion-asset Colonial BancGroup Inc. in Montgomery, Ala., announced it had agreed to buy the $1 billion-asset Commercial Bankshares Inc. in Miami for $317 million, or 3.32 times book.
"It's a ripe market for" Castle Creek's "kind of model," Ms. Thompson said.
