Shareholders, Fear Not

Shareholders, Fear Not

By Francis X. Gilpin

Associate Editor

Francis I. duPont III is not about to get caught up in the current feverish pace of Florida community banking. The chairman and chief executive of Bradenton-based 1st National Bank & Trust has been around too long.

Thirty-five years in banking, to be exact, with all but four of those in the Sunshine State.

"We philosophically have absolutely no interest in being the biggest bank," says duPont, who answers to the nickname of "Rip." What Rip duPont and bank President Glen W. Fausset are keen on is respecting their shareholders.

They quantify that respect by trying to return a minimum of 1% on assets and at least 12% on equity. In 2004, they did that. ROA was 1.07% at year's end while ROE was 13.15% for the First National Bancshares Inc. unit.

Reach those benchmarks every year and duPont says: "Our stockholders will be richly rewarded." Although the bank paid its only cash dividend in 1991, shareholders have benefited in other ways.

Compounded annual appreciation of the stock has exceeded 20% over the last decade, says duPont. "That's something we're pretty proud of," he says. An original investor in what was then called First National Bank of Manatee who put up $10,000 in cash would have stock worth about $125,000 today. There were 500 of them in 1986 and Fausset says: "Very few of those shareholders have gotten rid of that stock."

Many competitors in community banking appear to be growing at breakneck speed solely to sell out to a mega-bank as soon as possible. Fausset says that's not the style of 1st National Bank & Trust's board of directors.

"A sale is a one-time profit," says Fausset. "Then you have to figure out where to reinvest your money. Our shareholders don't want to sell their investment because they're doing so well here. Where are they going to reinvest their money and find that kind of a return?"

Purchasing individual shares, which presently hover around $25 each, is expensive enough.

DuPont says the holding company stock sported the highest price-to-earnings ratio of any Florida-based, publicly traded bank issue listed on an exchange last year. "I'm not saying that's good," duPont says. "But that is a fact. Investors paid the highest premium for our stock." For the most recent 12 months, the PE was almost 33.

What is undergirding the stock?

"We have a very unique market niche," says duPont. The bank is the only independent bank in the Sarasota market with a full wealth-management division. Offerings include investment-related insurance products, mutual funds and trust services.

The bank started the trust operation in 1994. It now has approximately $200 million under management.

"The board felt that was an important market that was being totally underserved here," says duPont, who joined 1st National Bank & Trust around the time of the plunge into trust services. "The large regional banks, the large brokerage firms were increasingly telling people who didn't have $5 million in disposal assets that they either didn't want them or they could talk to somebody in Atlanta, Georgia on a toll-free number type of thing."

The trust operation has been managed with little pretense from the beginning, when the whole operation was run on an $800 personal computer. "We're perfectly happy to give personalized, one-on-one service to people with $150,000," says duPont.

To enlarge the trust operation, 1st National Bank & Trust spent $2.5 million in cash and stock last March to buy the Trust Co. of Florida. Besides the assets from the Venice company, 1st National Bank & Trust picked up a trust office in south Sarasota County and another in Lake County, near the sprawling community known as The Villages.

DuPont likes where he and Fausset have positioned 1st National Bank & Trust.

The trust operation's custodial fees are a revenue stream that probably won't be disrupted by predicted higher interest rates. "It's an annuity. It just keeps pumping out the income, through thick and thin," says duPont. "The trust income has a tendency to smooth out earnings."

DuPont says he's not worried about his balance sheet, either.

At the end of 2003, 93% of 1st National Bank & Trust's loan portfolio was tied to real estate. But most of the mortgages are variable rate and can be adjusted every one to five years, according to bank officials.

The bank has been able to re-price loans an average of once every 1.7 years while the average wait to re-price deposits is nine months, says Fausset. "We have a nine-month gap," he says. "That is, we feel, a very manageable gap."

An overheating local economy is one of the few threats to 1st National Bank & Trust that Fausset can foresee. "The big challenge right now is the growth cycle," says Fausset. "Growth is a challenge and you've got to manage it. You bring in the new business, there's all kinds of opportunities to make mistakes."

Not that Fausset and duPont are afraid of prosperity. They are scouting for a seventh retail banking location in either Manatee or Sarasota counties. Plus, they want to move a Sarasota loan-processing office to what Fausset jokingly calls "less humble" quarters.

The bank executives say they are backed by a patient board, which includes Beverly Beall of the department store family, Bradenton lawyer Robert G. Blalock and Manatee Community College President Sarah H. Pappas.

"They take a very long-term perspective of this bank and are willing to make decisions where reward is a few years down the road and not two months from now," says duPont.

Quick Facts

1st National

Bank & Trust

Headquarters: Bradenton

Opened: 1986

Efficiency ratio in 2004: 61.31%

Chairman and CEO: Francis I. "Rip" duPont, 60, came to Florida from Connecticut 31 years ago and hasn't looked back. After stints with the old Southeast Bank and SouthTrust Bank, he was recruited to the Bradenton bank 11 years ago.

Basic 2003 CEO compensation: $173,200 salary; $51,600 bonus; and $9,855 in employer contributions to investment and life insurance plans. DuPont says he is not part of the clan associated with E.I. du Pont de Nemours and Co. "I got the name and none of the money," says duPont, "the ultimate curse."

CEO's ownership stake in holding company: 5.4% (March 2004)

Gulf Coast-based banks and thrifts ($ in 000s)

2004 2003 Asset 2004 2003 Deposit 2004 net 2003 net Net 2004 2004

Name City assets assets change deposits deposits change income income change ROA ROE

Raymond James Bank, FSB St. Petersburg $926,720 $856,334 8.2% $760,236 $679,792 11.8% $5,952 $5,527 7.7% 0.66 7.94

The Bank of Tampa Tampa $706,112 $629,750 12.1% $616,118 $547,107 12.6% $5,799 $5,461 6.2% 0.86 12.01

United Bank and Trust Co. St. Petersburg $540,671 $432,917 24.9% $431,884 $339,882 27.1% $1,969 $4,417 -55.4% 0.41 2.31

Century Bank, a Federal Savings Bank Sarasota $496,384 $410,015 21.1% $365,745 $295,073 24.0% $5,667 $4,122 37.5% 1.26 19.52

Coast Bank of Florida Bradenton $384,457 $263,816 45.7% $331,829 $221,558 49.8% $997 -$1,510 NM 0.3 3.7

Peoples Bank Palm Harbor $351,546 $255,563 37.6% $242,132 $207,823 16.5% $3,163 $3,166 -0.1% 0.97 4.66

1st National Bank & Trust Bradenton $317,470 $276,851 14.7% $268,782 $233,327 15.2% $3,219 $2,195 46.7% 1.07 13.15

First State Bank Sarasota $274,003 $212,128 29.2% $212,679 $184,778 15.1% $2,152 $860 150.2% 0.91 9.83

First Community Bank of America Pinellas Park $239,310 $179,079 33.6% $205,392 $139,136 47.6% $2,044 $1,482 37.9% 0.97 12.01

Platinum Bank Brandon $224,861 $187,696 19.8% $203,097 $173,204 17.3% $2,786 $1,926 44.7% 1.32 18.6

Community National Bank of Pasco County Zephyrhills $207,277 $206,258 0.5% $188,093 $189,765 -0.9% $2,593 $903 187.2% 1.29 17.4

The Bank of Commerce Sarasota $204,678 $146,058 40.1% $179,056 $129,057 38.7% $1,445 $694 108.2% 0.82 10.81

Bay Cities Bank Tampa $193,325 $152,336 26.9% $167,047 $126,632 31.9% $1,192 $973 22.5% 0.68 8.57

People's Community Bank of the West Coast Sarasota $192,727 $118,110 63.2% $159,118 $105,445 50.9% $810 $343 136.2% 0.5 5.68

Cornerstone Community Bank St. Petersburg $191,035 $140,219 36.2% $162,235 $122,655 32.3% $1,404 $1,069 31.3% 0.85 9.88

Sunshine State Federal Savings & Loan Assoc. Plant City $184,936 $178,141 3.8% $162,454 $156,918 3.5% $1,077 $1,147 -6.1% 0.59 5.16

Bank of St. Petersburg Tampa $173,433 $96,299 80.1% $135,238 $80,801 67.4% -$1,804 -$425 NM -1.37 -7.87

LandMark Bank of Florida Sarasota $167,189 $129,131 29.5% $140,078 $113,829 23.1% $909 $528 72.2% 0.6 8.31

Signature Bank St. Petersburg $164,300 $108,768 51.1% $146,889 $97,056 51.3% $848 $523 62.1% 0.63 7.87

Community Bank of Manatee Bradenton $160,979 $135,937 18.4% $141,876 $118,052 20.2% $1,028 $568 81.0% 0.69 9.87

First Commercial Bank of Tampa Bay Tampa $145,244 $111,635 30.1% $123,474 $93,980 31.4% $898 $600 49.7% 0.68 9.3

First Citrus Bank Tampa $144,024 $120,400 19.6% $124,847 $100,843 23.8% $820 $566 44.9% 0.62 5

Pilot Bank Tampa $135,860 $134,421 1.1% $113,126 $120,426 -6.1% $1,187 $957 24.0% 0.87 11.15

Valrico State Bank Valrico $133,070 $121,502 9.5% $116,207 $106,928 8.7% $1,631 $1,479 10.3% 1.28 15.12

United Bank of the Gulf Coast Sarasota $128,880 $99,883 29.0% $87,772 $79,151 10.9% $440 $403 9.2% 0.4 2.21

Flagship National Bank Bradenton $128,805 $95,101 35.4% $119,390 $86,911 37.4% $1,035 $491 110.8% 0.94 15.07

Bay Financial Savings Bank, F.S.B. Tampa $126,993 $112,842 12.5% $97,876 $85,018 15.1% $1,143 $1,431 -20.1% 0.94 5.37

TCM Bank, National Association Tampa $123,634 $90,567 36.5% $107,257 $79,052 35.7% $714 $349 104.6% 0.69 5.94

Horizon Bank Bradenton $122,847 $90,221 36.2% $108,808 $81,707 33.2% $953 $409 133.0% 0.88 12.73

Manatee River Community Bank Palmetto $117,301 $92,304 27.1% $107,279 $84,609 26.8% $756 $712 6.2% 0.72 9.88

Community National Bank of Sarasota County Venice $109,634 $91,852 19.4% $100,470 $83,637 20.1% $2,140 $1,744 22.7% 2.13 27.92

Heritage Bank of Florida Lutz $106,331 $81,818 30.0% $88,714 $73,232 21.1% $1,106 $579 91.0% 1.14 12.33

Suncoast Bank Sarasota $100,834 $82,726 21.9% $85,344 $74,747 14.2% $473 $180 162.8% 0.51 5.46

First National Bank of Pasco Dade City $91,953 $83,017 10.8% $80,187 $73,424 9.2% $1,077 $823 30.9% 1.23 15.09

Old Harbor Bank Clearwater $84,950 $30,001 183.2% $66,141 $22,957 188.1% -$236 -$641 NM -0.41 -2.4

Century Bank of Florida Tampa $81,720 $57,138 43.0% $63,289 $38,853 62.9% $628 $352 78.4% 0.89 7.47

The Palm Bank Tampa $79,944 $45,851 74.4% $65,849 $31,604 108.4% $16 -$1,470 NM 0.03 0.15

Southern Commerce Bank Tampa $72,758 $51,701 40.7% $63,092 $42,027 50.1% $143 $47 204.3% 0.23 1.53

First Home Bank Seminole $69,635 $67,014 3.9% $57,568 $55,987 2.8% $1,487 $1,216 22.3% 2.14 23.11

Hillsboro Bank Plant City $67,455 $59,137 14.1% $57,877 $50,549 14.5% $803 $629 27.7% 1.23 9.44

First Priority Bank Bradenton $63,165 $11,136 467.2% $55,735 $2,941 1795.1% -$961 -$432 NM -2.42 -12.5

GulfStream Community Bank Port Richey $51,666 $37,758 36.8% $43,063 $33,434 28.8% $237 $98 141.8% 0.51 3.82

The Bank of Venice Venice $41,803 $24,029 74.0% $34,024 $18,082 88.2% -$186 -$803 NM -0.56 -3

First National Bank Tarpon Springs $41,264 $25,699 60.6% $24,063 $22,536 6.8% -$43 $93 -146.2% -0.15 -0.74

Members Trust Co. Tampa $22,535 $9,958 126.3% $500 $500 0.0% -$1,113 -$1,419 NM -6.08 -6.37

NM = not meaningful; Source: Federal Deposit Insurance Corp.