Fifth Third Bancorp has made no secret about its ambitions in the Southeast, and it unveiled a deal Monday — for First National Bankshares of Florida Inc. — that would significantly strengthen it there.
And the usually cost-conscious Cincinnati company is willing to pay top dollar to expand in one of the nation’s fastest-growing and most competitive deposit markets.
Fifth Third agreed to pay $1.58 billion for the Naples banking company, or $25 a share. That would be a 41% premium, based on the closing price for First National’s shares Friday, and a deposit premium of around 35%.
In an interview with American Banker last week, George A. Schaefer Jr., Fifth Third’s president and chief executive officer, talked about the need to expand in the Sunshine State. “Two hundred-fifty people a day leave the state of Ohio to take up residence in Florida. That’s what we are chasing down there.”
It opened its first branch in Florida 15 years ago, and its subsidiary there has since grown to $1 billion of assets and 16 branches. “If we open a branch there, it grows like crazy,” Mr. Schaefer said. “You don’t get that when you open an office in a little town in West Virginia.”
First National would have approximately $5.3 billion of assets once it closes its deals for Southern Community Bancorp in Orlando this quarter and First Bradenton Bank next quarter. Fifth Third would also gain $3.9 billion of deposits and 77 branches.
Barred from doing deals between November 2002 and April 2004 because of regulatory issues, Fifth Third has shown its back to business, though cautiously, in recent months.
In June it closed its purchase of Franklin Financial Corp. in Tennessee, a deal Fifth Third had announced before regulatory issues halted its M&A activity.
Also, it’s believed to have bid for two companies: Charter One Financial Corp. of Cleveland, which agreed in May to sell to Royal Bank of Scotland Group PLC’s Citizens Financial Group Inc. for $10.5 billion in cash; and National Commerce Financial Corp. of Memphis, which struck a $7 billion cash-and-stock deal with SunTrust Banks Inc.
Fifth Third has never disclosed whether it bid for either company, but during a telephone interview Monday, Mark Graf, its chief financial officer, reiterated its interest in the Southeast.
“We care a boatload about the Southeast, and we probably have a lot more options than Wall Street may think in terms of what we can do down there and how we can do it,” he said. “We have never been afraid around here in engaging in some heavy lifting to put things together and make them worth.”
The deal announcement Monday surprised some analysts.
First National “is not the deal everybody was waiting for,” said Gary B. Townsend, an analyst with Friedman, Billings, Ramsey & Co. Inc. of Arlington, Va.
But the deal would put Fifth Third on the map in Florida. It would enter three markets and would jump from No. 6 to No. 1 in deposit share in Naples. First National ranks third in Naples, after the Charlotte heavyweights Bank of America Corp. and Wachovia Corp., according to June 2003 data from the Federal Deposit Insurance Corp.
In all of Florida, Fifth Third would rise from No. 41 to No. 12. First National is ranked No. 18, while Bank of America is ranked first, according to the FDIC data.
By acquiring First National, Fifth Third would get a seasoned management team familiar with the local market, something Mr. Schaefer has said his company looks for when doing a deal.
Mr. Graf did not say how the management team for Fifth Third’s Florida subsidiary would change, except to say, “There are key roles for the management team” of First National.
Despite First National’s strong revenue record, Fifth Third can do better, he said. Each of Fifth Third’s branches originates around $650,000 of consumer loans a month, while First National’s originate around $100,000, and Fifth Third expects its Florida team to raise that total.
Fifth Third’s much larger menu of deposit, loan, and fee-based products offer an array of cross-selling opportunities, he said. “It is not a deposit gathering strategy to fund the Midwest. … There are some real opportunities on the deposit side and the loan side.”
The acquisition is expected to close in the first quarter, and Fifth Third said it would break even next year. Fifth Third expects to cuts costs by approximately $100 million.
Mr. Graf said his company approached First National with an offer just after July 4, but then had to fight off competing bids.
Analysts said Monday that the price tag is high but by some measures is in line with recent Florida acquisitions. The tangible book ratio is affected by First National’s own acquisitions, which have left it with a large share of goodwill on its balance sheet, analysts said.
Fifth Third said its price is 6.3 times First National’s tangible book value and 2.4 times book value, but many analysts came up with higher numbers for both ratios.
The deal “is expensive every way you look at it,” Mr. Townsend of Friedman Billings said.
Others were more upbeat. “We view this deal as strategically positive,” R. Scott Siefers of Sandler O’Neill & Partners LP wrote in a note.
Shares of Fifth Third fell 0.4% Monday.
