Combining in-state banks is now taboo in Florida.

The latest nixed deal, between Florida Bank Group Inc. in Tampa and Anderen Financial Inc. in Palm Harbor, brought the issue to the fore when the companies said last week that regulators are hesitant to approve "expansionary" deals. Industry observers concurred.

"The regulators want to see good regulatory standing and capital," said Paula Johannsen, a managing director at Carson Medlin Co. "More often than not, they have turned down deals rather than approved them, and they're finding more reasons to say no."

Nine other proposed deals were terminated last year among Florida banks, according to data from SNL Financial, more than the seven whole bank and thrift deals that were completed. Seven were nixed in 2009.

As a result, small Florida banks are lagging banks elsewhere that are catching a widely anticipated consolidation wave. Ironically, Florida is likely the state that needs consolidation the most, many industry observers argue. The deals that are getting done often have out-of-state buyers.

An expected "robust M&A environment is not really going to be in Florida in 2011" but when deals occur "the market share will be taken" from outside the state, said Jack Greeley, a lawyer at Smith MacKinnon.

Florida Shores Bancorp Inc. in Pampano Beach had two deals flop last year. The state regulator approved one deal but Florida Shores terminated both agreements when federal regulators told it to slow down growth.

It baffled John Chaperon, the president of Florida Shores Bank Southeast, who said the parent company's strategy was to own four to five banks. "We spent a fair amount of money working on the two deals," he said. "For the regulators to go from a green light to a red light, it burned our capital."

Florida Shores Bank Southeast is well-capitalized, and Chaperon said he is looking at another deal with an unnamed Florida bank, which would add $100 million in assets. While he can only hope that federal regulators will approve it, Chaperon said he understands that they are limiting bank growth to 5%-10% per year.

For banks like Florida Shores Bank Southeast, with $100 million to $200 million in assets, limited growth means little profits. The $102.7 million-asset bank's profit plan for 2011 is based on 30% growth. The limitation "is contrary to what [regulators'] objective is; to get banks operating, profitable and self-sustaining," Chaperon said.

Anderen and Florida Bank were well-capitalized but continued losses compared to other banks likely raised concerns, analysts said. The deal, unveiled in July, would have created a bank with $1 billion in assets. Anderen's CEO declined to comment and Florida Bank did not return a phone call.

Ken Thomas, an economist and independent bank consultant in Miami, said the Federal Reserve, which regulates Florida Bank, is known for being "a bit more cautious than the other regulators" in Florida. "The state and federal regulators here have killed new bank deals, rather pushing the new organizers and their capital and management team to take over problem banks," he said.

It was the second deal to fall apart for Anderen in two years. In April 2009, FCB Florida Bancorp. in Orlando agreed to buy Anderen but it fell through by the end of the year. FCB's bank, First Commercial Bank of Florida, became the first Florida bank failure in 2011. It was bought by First Southern Bank in Boca Raton.

Analysts said that regulators will not publicly reject a deal, but often take twice as long and thoroughly vet it with questions and requests such as requiring more capital, causing banks to quit. Greeley, a lawyer involved in the proposed merger of Anderen and Florida Bank, declined to discuss the deal.

On average, there have been 25 proposed deals in the past year "where the regulatory process is taking too long" and often the banks withdraw the agreement, Johannsen said.

The Florida Office of Financial Regulation and the Fed did not respond to questions. The Federal Deposit Insurance Corp. did not return phone calls.

To regulators' credit, Greeley said they are being cautious since there is too much uncertainty in Florida real estate and asset quality, making it hard to determine if banks would be better together.

Unfortunately for most Florida banks, real estate anchored lending for years. "The regulators said the Florida banks have too much in real estate," Chaperon said. "Well, yeah, that's what Florida does."

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