Regional banks are apt to struggle to build scale in Florida.

There are very few banks that would place on the radar screen of larger buyer. Two of those would-be sellers — BankAtlantic Bancorp Inc. and BankUnited Inc. — generated controversy when they recently tried to sell.

"There's always contention that there is a scarcity value to banks with over $1 billion of assets" in Florida, says John Corbett, an executive vice president at CenterState Banks Inc. who also runs the company's bank. Regional banks "are simply not going to burn brain cells" on smaller deals.

In recent months, the typical seller in in Florida had roughly $250 million in assets, Corbett says. The biggest bank to sell in the past decade was the $4.2 billion-asset Fidelity Bankshares Inc., which was sold to National City Corp. in January 2007.

Still, regional banks such as BB&T Corp. in Winston-Salem, N.C., PNC Financial Services Group Inc. in Pittsburgh and Toronto-Dominion Bank have distinguished themselves as interested suitors in the state. Deals have been hard to come by for those banks, with the exception of PNC's purchase last year of 19 BankAtlantic branches.

In Florida, there are only 10 bank and thrifts out of the 227 based in the state that have more than $3 billion of assets, based on Dec. 31 data from the Federal Deposit Insurance Corp. Most of those have given signals that they want to consolidate rather than sell.

Most targeted sellers "are under $1 billion in asset size so the transactional costs hardly make that worthwhile" for a regional bank, says Bowman Brown, the chairman of Shutts & Bowen LLP's executive committee and financial services group in Miami. Acquirers also have to take into consideration "questions concerning the quality of loan portfolios and franchise," he adds.

Regional banks need to buy decent-size institutions to make a deal worthwhile.

Kelly King, BB&T's chairman and chief executive, said in an interview earlier this year that the $174.6 billion-asset company is focusing on banks with $3 billion to $15 billion in assets, or roughly 2-9% of its own size. "Below $3 billion is hardly large enough to be worth the effort and there just aren't a lot of deals above $15 billion," he said.

BB&T agreed last year to buy $2.1 billion in performing loans and $3.3 billion in deposits from BankAtlantic, though a judge recently blocked the sale after holders of BankAtlantic's trust preferred securities objected.

There are only two financial institutions based in Florida with more than $10 billion in assets: EverBank in Jacksonville and BankUnited in Miami Lakes.

EverBank, a $13 billion-asset thrift, has spent the past year planning an initial public offering. The $11.2 billion-asset BankUnited sought a buyer in January but opted to remain independent when offers underwhelmed. Still, industry observers say BankUnited is more attractive due to the legal complications tied to BankAtlantic in Ft. Lauderdale.

"Absolutely, it enhances the scarcity value for BankUnited to the extent that BankAtlantic is tied up in court," says Jeff Davis, an analyst at Guggenheim Securities LLC. "It's too bad that Goldman [Sachs Group Inc., the investment bank advising BankUnited,] didn't whisper in [the company's] ear this week about testing the markets."

John Kanas, BankUnited's chief executive, declined to comment other than to say he was paying attention to developments at BankAtlantic.

Some observers say BankAtlantic's struggles should have little impact on other banks in the state.

"I don't think the [BankAtlantic] deal will interfere with any other deals," says Paul Miller, an analyst at FBR Capital Markets. He says it is still unlikely that a regional bank would meet BankUnited's lofty pricing expectations.

"A lot of people felt BB&T was an aggressive [buyer] but they've been much more constrained in pricing," Miller says. "BankUnited's price to sell was much higher than what anyone is willing to pay."

On Wednesday, BankUnited completed its acquisition of the $524 million-asset Herald National Bank in New York, along with its charter conversion to become a national bank.

While sizeable acquisitions opportunities are scarce, Corbett says that the artificially low interest rate environment has sucked some of the allure out of buying Florida banks solely based on its deposit franchise. He says multibillion-asset banks including his own have made acquisitions focused more on the asset side of the balance sheet.

For instance, the $2.3 billion-asset CenterState bought Federal Trust Corp. of Sanford, Fla., from life insurer Hartford Financial Services Group Inc., providing the Davenport, Fla., company with assets at a steep discount.

"Deposit franchises aren't very valuable right now in the current regulatory environment," Corbett says. "BankAtlantic has a good deposit franchise and a good branch network" but for now "we're just not seeing a lot of value reflected today in a franchise of size in Florida."

Still, scarcity value has some relevance in Florida over the long term, particularly when the state's economy and housing market recover. Analysts say regional banks have plenty of time to hammer out deals.

"There are only so many franchises that are available," Davis says. "Given the state of real estate in Florida and the economy there … I don't think one has to rush to build and acquire further, especially when there will be many banks that will ultimately sell or fail in the state."

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