The Cincinnati company multiplies its Florida presence by six, but at a price that will take a long time to pay off, one analyst says.
By JEFF HARRINGTON
Published August 3, 2004
Cincinnati's Fifth Third Bancorp is buying Naples' First National Bankshares of Florida in a $1.6-billion stock deal that eliminates the largest remaining bank with headquarters on Florida's West coast.
For Fifth Third, a Midwestern powerhouse, the acquisition increases its small presence in Florida sixfold and gives it an entry into such key markets as Tampa-St. Petersburg, Orlando, Daytona Beach and Boca Raton.
"We're just following our customers down there," Fifth Third president and chief executive George Schaefer Jr. said Monday. "This franchise, we think, encompasses all the great growth markets in Florida."
First National has about $5.3-billion in total assets, including two pending acquisitions. It has 77 branches, 28 of them in Hillsborough and Pinellas counties. Once the deal is complete, Fifth Third will have more than 90 branches and more than $6-billion in assets in Florida.
First National's tenure as the Florida Gulf Coast's biggest bank was a brief one. The Naples institution was created just seven months ago as a spinoff of the Florida operations of F.N.B. Corp., a Pennsylvania bank.
Under terms of that deal, First National was prohibited for two years from selling itself without jeopardizing the tax-free status of the spinoff transaction. But First National president Kevin Hale said that prohibition applied only to selling to a bank that had approached First National before the spinoff. "There were a number of companies that expressed an interest in our company prior to the spinoff," he said. "Fifth Third, obviously, was not one of those companies."
Hale, who will become president and CEO of Fifth Third's Florida operation, said First National was not for sale when Fifth Third came knocking. He would not discuss how long the two were in talks.
Over the past 15 years, several Midwest banks have plowed into Florida only to make a hasty retreat. Most recently, both Provident Bank of Cincinnati and Huntington Bancshares of Columbus, Ohio, pulled back after soured experiments in Florida banking.
But Fifth Third's quality, aggressiveness and staying power all are more renowned than that of its predecessors.
Richard Bove, a banking analyst in St. Petersburg for Hoefer & Arnett, thinks Fifth Third will not only stay but give other area banks a run for their deposits.
"Fifth Third will be battling Washington Mutual, which will be battling BB&T. And Bank of America and Wachovia have dug in their heels," he said. "Florida consumers are going to love it. Banking in Florida is going to be very positive for the consumer but perhaps not as great for the guys going at it."
But Bove is not enamored with the deal itself because Fifth Third paid an uncharacteristically high price for First National. First National shareholders will receive about 0.5065 shares of Fifth Third stock for each of their shares. That translates to Fifth Third paying about $25 a share, or about nine times First National's tangible book value.
First National's stock soared almost 37 percent on the news to close Monday at $24.31 a share, up $6.52. Fifth Third's shares fell 20 cents to close at $49.16.
"One would have to argue that they want to get into the Florida market very badly and are willing to pay whatever the price is to get here," Bove said. "It's going to take them a long time to make a profit in this market given the price they paid."
Moreover, Bove wondered whether the deal is a sign Fifth Third's strategy hasn't worked in its base markets after the bank recently told investors in a conference call that it was not growing core deposits as expected.
Schaefer defended the cost. "This is what you have to pay for high-quality growth in a growth state like Florida," he said. "This isn't like buying a bank in a small town in North Dakota."
Fifth Third entered Florida in 1989, following its Cincinnati customers down Interstate 75 to Naples. It has gradually built the operation to $1-billion in assets with 16 branches in Colliers, Lee and Sarasota counties.
With little overlap between the two banks, mainly in Naples, Schaefer said he expects fewer than 10 branches will close after the merger.
First National's management team - including chair Gary Tice, Hale and Garrett Richter - have committed to stay to run the Florida franchise.
"They have elected to keep our management team intact. They understand why we were successful and they don't want to take that flavor away," said Tice, 57. "I'm here as long as they want me to be here."
The deal is expected to close in January with First National's signs and computer systems switched to Fifth Third's in early 2005.
HISTORY: Traces its roots to the Bank of the Ohio Valley, which opened in Cincinnati in 1858. Later bought by Third National Bank, it received its current name a century ago with the merger of Third National and Fifth National Bank.
