The merger deal between Fifth Third Corp. and CNB Bancshares has once again focused attention on prospects for consolidation in the heartland.
"The area is still pretty fragmented," said Lana Chan, a banking analyst at CIBC Oppenheimer in New York. "I would not be surprised to see more action spark."
She and other analysts said National City Corp. and KeyCorp, both of Cleveland, Huntington Bancshares in Columbus, Ohio, and other larger companies may want to increase their presence by buying community banks.
Memphis-based Union Planters Corp., which picked up some branches in the area through divestitures by Bank One Corp., could be mulling expanding its presence further, Ms. Chan said.
Joseph C. Duwan, of Keefe, Bruyette & Woods Inc. in New York, said the price of the Fifth Third-CNB deal will attract attention.
Fifth Third agreed to pay a 40% premium over where shares of CNB were trading on Tuesday, a premium that "may be too hard to ignore by the community banks," Mr. Duwan said.
"It's got to make banks in that area wonder if they want to partner up," said Joseph A. Stieven, a banking analyst at Stifel Nicolaus in St. Louis. And some companies may try to get deals done before pooling of interest accounting is barred next year, he added.
With the alternative method, purchase accounting, the acquirer must deduct the price paid above book value from future earnings. "A real window is closing," Mr. Stieven said.
Though he said there are "fewer and fewer buyers out there," Mr. Stieven said smaller banking companies - such as Lakeland Financial Corp. of Warsaw, Ind.; Old National Bancorp in Chicago; and First Source Bancorp in South Bend, Ind. - may be prompted to jump into the merger game.
"The key is if you've got a good operating strategy that's fine," Mr. Stieven said. "If not, maybe you had better begin looking for a partner."
Daniel Cardenas, a banking analyst at Howe Barnes Investments in Chicago, said he "wouldn't be surprised" to see more mergers, but he noted that the region is "your typical community banking environment."
"It's very hands-on, high-touch, small branches where everyone knows you name," he said, arguing that a larger banking company coming into the area must be prepared to maintain a feeling of local control rather than force its own ways.
In other action, Silicon Valley Banchares was unchanged at $22.125, after a $2 gain on Tuesday on comments by Joe Morford, a banking analyst at First Security Van Kasper.
Silicon Valley ran into difficulties with its loan portfolio this year and has been taking steps to bring it around.
Because of growing confidence in a turnaround of asset quality at Silicon Valley Bancshares, Mr. Morford set a $25 price target for shares over the next 12 months.
After a recent meeting with Silicon Valley management, Mr. Morford said he was "increasingly optimistic" that second-quarter results would show a stabilization of credit quality trends and probably some improvement in nonperforming asset levels.
He added that changes in the banking company's underwriting practices "encourage us to believe that the company is again headed in the right direction."
