Immokalee Money

Immokalee Money

Banking by Jean Gruss | Editor/Lee-Collier

Diversifying and expanding to the Gulf Coast fuels Florida Community Bank's growth.

Stephen Price likes to show off Florida Community Banks' headquarters in Immokalee, but not because they're anything fancy.

No marble counters or shiny brass here. Even the company's big green logo on the side of the building is missing an "m". "We don't have country club memberships," says Price, the bank's chairman, president and chief executive officer.

That kind of thrift has helped make the bank one of the most profitable in the country. SNL Financial, which tracks the performance of financial institutions, recently ranked Florida Community Banks as the fifth most profitable public bank in the country based on its 31% return on average equity for the 12 months ended June 30. Among banks whose stock is traded over the counter, Florida Community Banks ranked second in the country in return on average equity, with 30% for the same one-year period.

The bank recently joined the small club of Southwest Florida-based banks with more than $1 billion in assets by moving away from its origins as a farmer's bank and into coastal towns from Naples to Punta Gorda. The goal is to reach $2 billion in assets and have offices that stretch from the Tampa Bay area to Marco Island. The bank plans to open at least three new branches in 2007.

But the bank's success isn't just the result of branch-building and changing its name from First Bank of Immokalee. Price says Florida Community Banks' advantages are speed, creativity and a solid strategy to manage assets and liabilities. It's the oldest bank chartered in Southwest Florida, chartered in Everglades City by the Collier family in 1923. The Price family has managed the bank since it led a group of local investors to buy it in 1963, and it's unlikely the bank will be sold any time soon.

Freeze forces diversification

When Price came to work for his father, William Price, at Florida Community Bank in 1990, it was a financial institution with $27 million in assets highly concentrated in agricultural businesses.

"On Christmas Eve of 1989 we had a killer freeze," recalls Price, who became CEO in 1990. It even snowed in Fort Myers. "The freeze virtually broke the local farmers."

The crashing agriculture economy in Immokalee threatened to take Florida Community Bank with it. Despite the fact that the bank could have foreclosed on many farmers, Price instead helped them plant a new crop and sell assets in an orderly way. In one case, a farmer owed the bank $3 million and Price continued to carry the loan past due for two years, by which time the farmer sold his property for $6 million and repaid the loan in full.

This kind of diligence in helping customers who are down and out generated tremendous loyalty and goodwill. "We don't pull the plug on people," Price says.

After that trial, Price decided the bank had to diversify away from agriculture. Price had previously been an executive with First National Bank of Fort Myers and he hired lenders he knew had contacts in that city. He built branches from Naples to Punta Gorda and became a commercial lender.

Along the way Price changed the bank's name to Florida Community Bank from First Bank of Immokalee in 1996. (Florida Community Banks is the holding company for Florida Community Bank.) The name change was a necessity if the bank was going to grow, says Price. "When you go to Fort Myers, the name Immokalee doesn't say 'Trust me with your money,'" he chuckles.

Like so many other banks in Southwest Florida, much of the loan growth in recent years has been tied to real estate and construction. Real-estate loans doubled from $382 million in 2003 to $792 million in 2005, according to the company's filings. Of total loans in 2005, 59% were construction-related and 35% were mortgages. Five percent were for commercial, financial and agricultural loans.

Despite the growth in loans tied to real estate, Price says the bank has been careful to avoid projects that invite too much speculative activity, such as condominium construction. "It's been a pretty tricky time to make loans," he concedes.

Speed and agility

Price says speed is essential to beating the competition. He wants customers to get a yes-or-no answer on a commercial loan after two visits.

For example, if a construction company can start building a few weeks sooner because Price was able to lend him money faster than another bank, then it's likely you'll win more business from that company in the future. "Once you do something for someone like that, they'll come back," he says.

What's more, Price says the bank lends to customers who need loans tailored to their particular situation. Often, these are customers whose requirements don't fit larger banks' lending formulas, which Price calls "cookie cutter." For example, Price says his bank is more flexible in helping businesses find additional collateral so they can obtain a loan.

"We make every good loan we can get at a price we can afford to fund it," Price says.

The key to strong profitability, he says, is managing assets and liabilities so that profits continue in any kind of interest-rate situation. He credits Thomas Ogletree, the bank's former chief financial officer who is now deceased, with creating the bank's asset-liability management strategy. "That was the single largest key to our profitability," Price says.

Banks make money principally by earning the difference between the interest they pay for deposits and the interest they receive on the loans they make. Rising and falling interest rates makes that job more difficult.

Every month, Price and his top managers meet to discuss the impact of interest rates on their strategy. It's a complex strategy, but it gives the bank the tools it needs to price loans and deposits depending on the direction of interest rates. For example, interest rates on local deposits don't change as fast as they do nationally. So when rates are falling, the bank will gather deposits from other parts of the country and wherever rates are lower. If rates are rising, as they have been lately, the bank will gather deposits in Southwest Florida.

The level and direction of interest rates also determine the maturity of deposits. For example, Price thinks interest rates are too high and may start to fall. So the bank markets certificates of deposits with one-year maturities more aggressively than longer-term CDs. On the lending side, Price says the bank now prefers to make fixed-rate rather than variable-rate loans.

Future sale unlikely

Price says one advantage his bank has is that it is unlikely to be sold. None of the approximately 1,000 shareholders owns a controlling interest and most are long-term investors, including him, he says. Price's total compensation in 2005 was $582,300 and he controls 3.1% of the shares, according to the most recent proxy filing.

The bank's longevity under single ownership is an advantage because the loan officers can tell prospective customers that the bank is not going to be sold in a few years. Locally, Price says, only Orion Bank and Riverside Bank are managed for the long term; all the other community banks are built for sale. Eventually, he says, customers will grow tired of seeing their bank change hands every few years.

Of course, Price says the board would have to consider a rich offer, though he says he has received none. Because Florida Community Banks is based in Immokalee, he says, buyers believe it's an agriculture bank and have overlooked it. However, Price says he's received calls from brokers in New York and Chicago since the bank's assets surpassed the $1 billion threshold recently.

Still, it would be hard for an acquiring bank to cut overhead at Florida Community Bank. The bank's efficiency ratio, a gauge of how well it manages its operating expenses, is half the industry average because its costs are much lower in Immokalee. "We don't waste money," Price says.

Slower growth ahead

Although its costs are low in Immokalee, Price acknowledges that it's a challenge to recruit executive-level management to the rural town that's now home to migrant workers. "Attracting people to what is predominantly a labor camp has been difficult," Price says.

The company plans to build a new headquarters building at Ave Maria, the new town being developed by Barron Collier Cos. in partnership with Catholic philanthropist and Domino's Pizza founder Tom Monaghan.

So far, the bank has not had to issue new stock to fund its growth. It recently sold $20 million worth of bonds and it plans to use $10 million to increase the capital of the bank and $10 million to potentially pay off a previous bond issue that is callable by investors in July 2007.

"We've funded most of the growth with retained earnings," Price says. The board has declined to issue new shares in order not to dilute the value of shareholders' holdings.

The plan is to keep growing with earnings by adding offices from Tampa Bay to Marco Island. In particular, Price says he wants to build branches in areas such as Bonita Springs, North Port and east Fort Myers before moving up the coast. Price's goal is to double the bank's assets to $2 billion in the next five years.

Although the bank's growth has been stellar the last few years, Price cautions it's not likely to continue at the same pace. "We've seen a significant slowdown," he says, adding that earnings could flatten out this year. In particular, he says residential real estate lending is the biggest drag so far. Net income in the last quarter ended June 30 was $5.2 million, an 8.9% increase over the same quarter in 2005 and much slower than the double-digit percentage quarterly increases in prior years.

Price says the key to succeeding in a slowing economy is to make good credit decisions. "If you do the fundamentals right, you'll win the ball game," he says.

At A Glance

Florida Community Banks

Headquarters: Immokalee

Chief executive: Stephen Price

Total assets: $1 billion

Number of employees: 165

Number of branches: 10

Year chartered: 1923

By the Numbers

Florida Community Bank

(Dollars in thousands)

ASSETS AND LIABILITIES 6/30/05 6/30/06 %Change

Total assets 788,415 1,016,471 29%

Net loans and leases 658,695 875,889 33%

Total liabilities 717,126 917,782 28%

Total deposits 648,796 858,495 32%

Equity capital 71,289 98,689 38%

Noncurrent loans and leases 217 8,516 3,824%

Average assets, year-to-date 724,915 971,550 34%

Insider loans 10,249 8,556 ?17%

Tier 1 (core) capital 71,289 98,689 38%

INCOME AND EXPENSES YTD 6/30/05 YTD 6/30/06 %Change

Total interest income 25,332 40,601 60%

Total interest expense 6,674 14,870 123%

Net interest income 18,658 25,731 38%

Provision for loan and lease losses 0 3,390 -

Total noninterest income 1,921 2,027 6%

Total noninterest expense 5,860 7,023 20%

Salaries and employee benefits 3,668 4,538 24%

Pre-tax net operating income 14,719 17,345 18%

Net income 9,047 10,674 18%

PERFORMANCE RATIOS YTD 6/30/05 YTD 6/30/06

Net interest margin 5.56% 5.62%

Return on assets 2.50% 2.20%

Return on equity 27.15% 24.36%

Efficiency ratio 28.48% 25.30%

Noncurrent assets plus

other real estate

owned to assets 0.31% 1.05%

Core capital (leverage) ratio 9.29% 9.75%

Tier 1 risk-based capital ratio 9.59% 9.86%

Total risk-based capital ratio 10.84% 11.11%

Source: FDIC