National City Corp. chairman and chief executive David A. Daberko told investors on Thursday not to read too much into the Cleveland company's second announcement of a Florida thrift deal in less than three weeks.
"Florida is not the headline," Mr. Daberko said on a call to announce National City's $1 billion cash and stock deal for Fidelity Bankshares Inc.
"Our M&A strategy has been and continues to be focused on MSAs where the demographic characteristics and competitive landscape offer attractive growth opportunities when we apply our proven business model," he said.
On July 11 the $141.5 billion-asset Nat City announced it was buying Harbor Florida Bancshares Inc. for $1.1 billion. That acquisition would give it its first retail banking operations in the state, and the two acquisitions would add $7 billion of assets and 92 branches on Florida's central east coast.
Mr. Daberko said that "further acquisitions in Florida are unlikely in the foreseeable future," and that after these two deals close National City plans to expand through branch building in the sellers' areas.
As for the timing of the Fidelity and Harbor deals, he said, "It is somewhat random that both transactions were able to be done, or announced, at least, in such a short period of time."
However, Mr. Daberko hasn't ruled out future acquisitions closer to home. He recently said he would like to pursue acquisitions in St. Louis and Chicago.
Some analysts say National City is paying dearly to expand into Florida, which is known for pricey bank deals.
Kevin J. St. Pierre of AllianceBernstein LP's Sanford C. Bernstein & Co. LLC wrote in a research note that Nat City would pay a "whopping" premium for Fidelity: 3.7 times its tangible book value. It agreed to pay 3.2 times Harbor Florida's tangible book value, which Mr. St. Pierre also considered high.
Nat City is offering $39.50 a share for Fidelity, a 9.4% premium to Fidelity's closing price Wednesday. Scott Siefers of Sandler O'Neill & Partners LP wrote in a research note issued Thursday that Fidelity usually trades at about $32, but the price has risen recently on merger speculation. The price of the Harbor deal was a 20% premium to the seller's July 10 closing price.
Mr. Daberko vigorously defended the Harbor deal, and said in an interview after Thursday's call that he expects a 13% internal rate of return from Fidelity, which is based in West Palm Beach.
"This company's net income has grown 30% compounded in the last five years," he said of Fidelity. "It's in one of the fastest-growing areas of the country. You pay up for that, but the price that we paid will create value for shareholders."
Nat City has 1,200 branches in seven Midwest states, though its commercial business is nationwide.
Fidelity has $4.2 billion of assets and 52 branches. Commercial loans and commercial real estate loans make up 40% of its loan portfolio. Harbor Florida, of Fort Pierce, has $3 billion of assets and 40 branches, and its loan portfolio is about 20% commercial.
The Harbor Florida deal is expected to close in the fourth quarter, and the Fidelity deal in the first quarter of 2007.
Harbor Florida ranked No. 1 in its home county of St. Lucie in deposit market share, according to data through June 30, 2005, the latest available from the Federal Deposit Insurance Corp. Fidelity was No. 3 in deposits in Palm Beach County. Both companies had been rumored to be on the block for months, though many analysts pegged Colonial BancGroup Inc. of Montgomery, Ala., as the likeliest buyer.
Nat City said it would retain both companies' senior management teams. Vince A. Elhilow, Fidelity's chairman, chief executive, and president, and Michael J. Brown Sr., Harbor Florida's chairman and CEO, would oversee their old businesses on joining National City.
Peter Raskind, a vice chairman at National City and the head of its consumer business, said during the conference call, "At some point in the future we expect to integrate our Florida operations into one unit, but in the near term we will adopt this approach to minimize the integration risk." Mr. Elhilow, 66, and Mr. Brown, 65, would report to Mr. Raskind.
Nat City said the two Florida companies have minimal branch overlap. "We think another 10 to 15 branches will fill in Fidelity's Palm Beach County presence and provide expansion opportunities along the outskirts of its footprint," Mr. Raskind said. "Combined now with 10 to 15 de novos for Harbor and we're looking at 20 to 30 new-builds over the next several years."
To help Fidelity become a banking company rather than a thrift, Nat City said it would bring its wealth management, which Fidelity outsources, in-house. Also, Nat City said it could beef up Fidelity's small-business unit.
Nat City continues to seek a buyer for its nonprime mortgage company, First Franklin Financial Corp. of San Jose. Mr. Daberko said it hopes to have a deal for First Franklin by the end of the third quarter.
