The Art of Banking

The Art of Banking

Veteran Bay area banker Joseph M. Wheeler came out of retirement to work where he can truly practice his craft. He says decent earnings will come eventually at Atlantic States Bank.

By Francis X. Gilpin

Associate Editor

Atlantic States Bank is changing its name to Ironstone Bank. Cynics might choose to re-christen it something else - Atlantis, maybe.

The Fort Myers-chartered thrift is near the bottom among Gulf Coast financial institutions in almost every performance category. Atlantic States lost $574,000 in the quarter that ended June 30. Returns on assets and equity have similarly languished.

Yet its Southwest Florida president, Joseph M. Wheeler, couldn't be happier. Wheeler has found his ideal job after 30 years in the banking profession.

Wheeler, 53, abandoned a comfortable early retirement in the Tampa Bay area in 2001 and uprooted his family for unfamiliar turf 125 miles to the south. Why? "The values of this company," Wheeler replies without hesitation.

Atlantic States is a wholly owned subsidiary of closely held First Citizens BancShares Inc. At $12.4 billion in assets, First Citizens would be considered big in its native North Carolina, if it didn't have to share the Tar Heel State with a few better-known banking Goliaths.

Come next spring, Atlantic States turns into Ironstone. The name change is not an attempt to escape the latest results. First Citizens is letting its 6-year-old offspring plant flags far from the Atlantic Ocean, in markets like Austin, Denver and San Diego.

Atlantic States President Jim Pope, Wheeler's boss, adds: "The Ironstone name, we think, shows strength and stability."

Those traits are embodied in Lewis R. Holding. The First Citizens chairman, 75, leads the century-old regional financial services powerhouse with a sure grip, despite advancing years. Snow Holding, as he is known, succeeded his father in the chair after joining the board of Raleigh-based First Citizens in 1957. His 74-year-old brother, Frank B. Holding, is executive vice chairman. Frank B. Holding Jr. is president and heir apparent at 41.

Since the family owns 95% of the stock, "they aren't interested in maximizing profitability for their public shareholders," says Tony Plath, a finance professor at the University of North Carolina in Charlotte.

The Holdings don't care for publicity, either. But this much is clear: They have more in common with the Main Street banker of the mid-20th Century than the acquisitive colossus of the early 21st.

"This company is operated like a community bank, with the resources of $13 billion in a publicly traded company," says Wheeler. "But the long-term commitment (is) to the marketplace and to the customer that you can't focus on if you're a publicly traded company, typically, because you're too busy from quarter to quarter (with) earnings."

So let others fixate on the financials. "If peers look at the company, or what's publicly available, and you look at return on assets, return on equity, the kind of normal measurements that other publicly traded companies that aren't closely held are measured, then they might be confused," says Wheeler.

Snow Holding isn't. In new markets, the banking franchise is built first and damn the expense. Wheeler and other Holding underlings go cheerfully about the chore. The 105-year history of First Citizens shows profits inevitably follow.

Culture in Collier

Cultural resources officer. That's Jody Rosenbaum's title at Atlantic States Bank. Her office is right next to Wheeler's in Naples.

Since when does a money-loser that just tips the scales at $1 billion in assets put a cultural resources officer on the payroll? When the holding company chairman tells the regional president to do it.

Snow Holding gets around his expanding empire, including the growth vehicle that is Atlantic States. After visiting Naples, Holding decided support for the arts would raise the Atlantic States profile faster with its demographic target in Collier and south Lee counties than any advertising.

"Frankly, I'm a good banker but I'm not one to be able to leverage that investment," Wheeler says. "He thought that position would do a better job than I would. And he was 100% right."

Nearly two years ago, Atlantic States unveiled statutes of Spanish explorer Ponce de Leon and Seminole leader Osceola on the grounds of the main Naples office, one of 10 locations that the bank has opened in the two counties. The bronze works were the first of acclaimed London sculptor Michael Rizzello to be permanently displayed in the United States.

Such community spirit has a cost. In 2002, the ratio of non-interest expense to earning assets at Atlantic States was 4.2%, a full percent higher than peer institutions in the same asset class.

But Holding didn't blink. Neither did Pope at the thrift's operational headquarters in suburban Atlanta.

Atlantic States initially attracted retail deposits in the Fort Myers area by promoting attractive rates on certificates of deposits. Then, it sold other products to those who came through the door. Small business owners were a focus of a concurrent direct-marketing campaign.

The thrift's penetration into Wheeler's Southwest Florida region is miniscule, below 3% of deposits. "But I think that, in the arts community at least, we're getting a larger reputation than what our market share might offer," Wheeler says.

That lures the right kind of customer to Atlantic States and leads to referral business. Atlantic States cannot justify an expensive branding effort in the two counties at this stage of development.

Inside the Naples branch, Wheeler's desk is just off a tastefully furnished lobby. The sturdy building looks as if it could anchor a commercial block downtown. Instead, it merely enhances a plush stretch of the Tamiami Trail.

"I go into our competition every once in a while to just participate in their lobby. And I forget how I'm really blessed in the circumstances I have here," says Wheeler, allowing himself a rare grin. "You go to a typical holding-company bank, with what I call sled chairs and rope-a-dope."

Wheeler gestures toward his walls. "We don't have any prints in this bank. We have art," he says. "It just adds a different touch, a feel. I'm not trying to be boastful. It's just a feel and an ambiance that we're trying to create.

"The look of the building, the location of the building and ¦ the public art is a statement of our longevity, how long we're going to be here," adds Wheeler. "It's a statement of what is to be expected when you walk in the office and how you're to be treated."

The doctor is in

The people Wheeler wants to see in his lobbies are wealthy owners of small businesses, particularly physicians and dentists. Enclaves thick with them - Ponte Vedra Beach and Scottsdale, La Jolla and Naples - are where Atlantic States has gone.

"They've assessed what they're good at and they've decided that it's personalized service to highly educated, high net-worth individuals who demand that kind of attention," says Plath, the UNC-Charlotte professor and a long-time observer of First Citizens.

The bigger North Carolina-based holding companies, Bank of America and Wachovia Bank, can capture 90% of a market and make fine returns selling 10% of their services. Wheeler says Atlantic States and the competitors in his region, such as Northern Trust Bank of Florida, are glad to settle for the other 10%. These discriminating customers often end up buying 90% of their bank's products.

"The real opportunity is not gathering deposits in typical retail banking services but gathering and managing invest-able assets," says Wheeler.

The 2000 Census found per-capita income alone in Naples to be $61,141, compared to a national average of $21,857. Although Collier is nearing build-out, full development in south Lee is further off. "It's much better to find a growing market because it's hand-to-hand combat to take it from somebody," says Wheeler.

Even with the population influx, though, competition is keen in Southwest Florida. "Northern Trust does an extremely good job," says Wheeler. "They've got the incumbent share. But there's enough market for everybody."

Wheeler is going after his share with a management team that is quite familiar with southwest Florida. The four senior vice presidents - residential lender Debbie Apicerno, business lender David Tucker, along with construction lenders Frank Woodward and Terry Spurlock - have all worked in the market for the likes of B of A, Wachovia, SouthTrust Bank or their predecessors since the 1980s.

Where Atlantic States and Northern Trust may strategically diverge is at the working status of their affluent targets. While the idle rich of Marco Island might lean toward Northern Trust, Atlantic States welcomes active business owners who aren't ready to loll on a barrier beach quite yet.

For example, Atlantic States bankrolls young medical professionals new to the area. The expectation is the bank will get to invest some of the cash from the medical practice during the working years and help plan retirement later.

"We don't expect to be all things to all people, but we do real well in what we do," says Wheeler. "Doesn't mean that we're just (after a) private banking client. We'll actually offer private banking services to anybody."

His retirement can wait

Wheeler thought he had his own golden years all mapped out in Largo. By the time he retired from banking in 2000, Wheeler had worked for community institutions, a large holding company and for Barnett Banks Inc., somewhere in between.

After graduating from the University of Bridgeport in Connecticut, Wheeler came to St. Petersburg in 1973 to work at a small bank. In 1982, Wheeler joined Barnett, where he held senior management positions in corporate and private banking, among other areas. In 1996, he moved to Tallahassee to start a franchise there for SouthTrust. Three years later, he came back to the Bay area to assist his former SouthTrust boss, Charles Hughes, in setting up a community operation in Pinellas County as part of the Florida Banks Inc. network.

The return to Pinellas and the early retirement coincided nicely with the birth of his son, Scott, now 5, whom Wheeler and his wife Kathy had before 29-year-old daughter Jennifer presented them with two granddaughters in 2000 and 2001. Wheeler doted on the children while doing some charity work and professional consulting.

Former Barnett colleague Pope brought in Wheeler to advise the Atlantic States president on a possible acquisition. "From that, this opportunity was discussed and then, the next thing I know, I'm meeting with the chairman," recalls Wheeler. "I'm sure that Jim had something to do with my hiring. But I don't think it was over without the chairman's support."

Wheeler was impressed with Snow Holding. "He's open. He's frank. He's straightforward," says Wheeler. "Really, I haven't found anything that he gave me an impression on in the discussions that wasn't absolutely true.

"I didn't necessarily believe all the things that were being told to me because they were too altruistic," he says. "But they were absolutely 100% right. There was nothing that surprised me."

Holding's banking philosophy is simple. And, unlike those whose commitment ends at vacuous ad slogans, Holding sees to it that managers implement his philosophy. Develop and compensate good staffers. Teach them to nurture business customer relationships. Coach them when necessary.

"That's really the investment long-term that will lead to sizeable profitability," says Wheeler, "as opposed to managing from the bottom line up through the expense control to the top line."

Wheeler reports to Pope and Pope reports to Snow Holding. "There's not a lot of layers between me and the chairman, who owns the company," says Wheeler. Despite his age and multimillionaire status, Holding reminds Wheeler constantly of the flat organizational structure.

"He's involved on a lending basis, on a daily basis, in terms of approving loans and actively participating in the discussions of what customers are banking at the bank," says Wheeler. "Looks at the numbers regularly. I'll get a call when a number moves not that significantly."

Holding seldom presents his side to the news media. His latest press interview appears to have been in 1991, when he talked up a community foundation he was starting in North Carolina with a hometown paper.

Communication with First Citizens investors is only somewhat less sporadic - an annual letter from the chairman to an ever-shrinking roster of stockholders. If 5,000 shares change hands, that's a heavy trading day.

Many non-Holding holders are long-time employees, whose families have worked at First Citizens through generations. If employees wish to cash out, supervisors are known to get the word to Snow Holding, who buys back the stock himself.

The family control is regarded as the reason why First Citizens generally expands by new charter. The few small mergers have been typically cash transactions to avoid dilution.

"Most banks are doing all their acquisitions with stock. And it's not their stock," says Wheeler, contrasting First Citizens again with prevailing custom. "Management doesn't own but a very small percentage. So it's just currency to them. To the family that owns this bank, it's their personal family fortune."

First Citizens is nothing if not patient. "Our business model of going de novo means that it's going to take a little greater time getting the results than if you'd bought somebody else," says Pope. "But that's all right."

The Holding family sees few bargains among the going prices for Florida banks. "We don't believe there's a premium to their customer base," says Wheeler. "We believe we can open across the street and obtain the customers that we want to do business with, in time."

Different drummer

Meanwhile, First Citizens suffers for Atlantic States/Ironstone moving into position to be a niche player in national banking.

"If you look at their results," says Plath, "it was awful this year."

For the nine months that ended Sept. 30, First Citizens profit dipped 19%, with net income down $1.33 a share. Higher overhead, up almost 10%, was blamed on "the continued expansion of Atlantic States Bank's franchise and higher incentive-based compensation."

Yet where the young thrift is most established, in Florida and Georgia, Atlantic States is "exceeding expectations" in terms of asset growth, according to Pope.

"There's not been any surprises," says Pope, who foresees better earnings in the east offsetting the expense of the grand openings in the west.

"Can they deliver on that promise?" asks Plath. "The answer is yes because they are essentially private and don't have to worry about return for the stockholder. This particular family listens to a different drummer."

Atlantic States Bank

($ in 000s)Dec. 31, 2002Dec. 31, 1998Change

Total assets$1,039,237$286,214263.1%

Net loans and leases$910,666$255,628256.2%

Total liabilities$890,610$245,545262.7%

Total deposits$818,603$235,570247.5%

Net income-$1,285-$3,712

Return on equity-1.05%-8.65%

Return on assets-0.13%-2.07%

Efficiency ratio99.60%171.65%

Net interest margin3.72%3.07%

Source: FDIC