Community bank M&A activity has awakened from a two-year slump with a pair of recent deals in the Southeast.

Banks are reaching historically low prices, particularly in coastal markets like Florida, Georgia and California, after the real estate collapse eroded their once-lucrative loan and deposit bases.

Two northeast Florida banks planted the M&A-revival seed when Jacksonville Bancorp Inc. announced a merger with rival Atlantic BancGroup Inc. on May 10. The deal was the Southeast's first in two years without Federal Deposit Insurance Corp. assistance and with a capital infusion from outside investors.

"This is a small but meaningful example of what needs to develop" in terms of investors' supporting community banks, said Christopher Marinac, a bank analyst at FIG Partners LLC in Atlanta. "We're a little further along in the credit cycle for buyers to consider [a deal] versus a year ago; it would not have hit their radar screen."

A week later, another deal was announced — by Toronto-Dominion Bank, which agreed to buy South Financial Group Inc. in Greenville, S.C., with its 67 Florida branches in addition to 110 in the Carolinas.

Potential buyers are "getting very competitive for Florida franchises," said Ken Thomas, an economist and independent bank consultant in Miami. The bidding is also competitive in Texas and California because "that's where all the growth is and that's where all the money" will be once the economy stabilizes, he said.

Fueling investor interest is the fact that bank stocks are bargains compared with tangible book value, said Ben Bishop, chairman of Allen C. Ewing & Co., an investment banking firm in Jacksonville. "There is a lot of private-equity money interested in buying into banks on a bargain basis," he said.

Though the Jacksonville Bancorp and TD Bank deals differ in size and structure, Marinac said, the acquisition targets, Oceanside Bank and South Financial, were both in the "limp-along" category. They might not have failed, but they would have just "limped along for a long time," he said.

A bank holding company controlled by CapGen Financial Group (the investment firm founded by former Comptroller of the Currency Eugene Ludwig), along with three other private investors, would inject $30 million into Jacksonville Bancorp when it closes the Atlantic deal. The holding company, CapGen Capital Group IV LP, would then have more than a 40% ownership stake in Jacksonville Bancorp, the parent company of Jacksonville Bank.

CapGen's managing director, John Sullivan, who would become a director of Jacksonville Bancorp when the deal closes, said his firm likes the northeast Florida market for its long-term potential for job and population growth.

Bank M&A activity slowed markedly during the past two years in overbuilt markets like Florida because no one could estimate how much declining land values would erode bank values, and investors were afraid to buy before the bleeding stopped.

Non-FDIC-assisted bank and thrift deals in the Southeast dropped from 65 in 2005 to 31 in 2008 and 33 in 2009, according to SNL Financial. This year, six deals had been announced through May 27, totaling $204.8 million.

The CapGen deal "could not have happened a year ago or even six months ago. … It reflects the stability of values," Bishop said.

Though most recent private-equity investments have boosted capital, healthier companies have sought infusions to leverage bids on failed banks. This has spurred competition in the Southeast.

CapGen, for example, invested $13.5 million in Seacoast Banking Corp. of Florida in Stuart late last year. Seacoast then raised $200 million to bid on a failed bank, reportedly Riverside National Bank. But the FDIC sold Riverside, along with two others, to Toronto-Dominion in April.

Marinac said he doubts that Jacksonville Bancorp. would have tried to buy Atlantic from the FDIC had things gone that far. Atlantic BancGroup and its Oceanside Bank were each under a regulatory order to raise capital.

Gilbert J. Pomar, the president and CEO of Jacksonville Bank, said his company sought Atlantic BancGroup because it combined "all the right things at the right time," including a recent capital boost and improving market-value conditions.

Jacksonville Bank was well-capitalized, with an 11.06% total risk-based capital ratio as of March 31. It will be north of 12% the day the deal closes, which is expected late in the third quarter, Pomar said.

"Capital ratios are so important," he said. The capital is "not just to plug a hole but to give the balance sheet a super-normal capital ratio."

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