'Best Year Ever'

'Best Year Ever'

BANKING by Janet Leiser | Senior Editor

Rising interest rates boosted income at Bank of Tampa, which had as much as 36% of its deposits in checking accounts in 2006. As for real estate loans, the bank has a lower percentage than other community banks.

Banker A. Gerald Divers heard about the banks that collapsed in the bust of the great Florida land boom of the 1920s from those who saw it firsthand.

Divers, who was just embarking on his banking career in 1961, asked his boss, the president of the Exchange Bank of Tampa, why the bank didn't make real estate loans.

"'Because that's what caused Citizens Bank to fail,'" Divers recalls the president telling him 46 years ago. "As he was talking to me, I thought, 'Oh well, that's ancient history. That's 34 years ago.'

"And now 34 years ago doesn't seem like that long ago."

Prior to its demise, Citizens Bank in Tampa was as big as all the other local banks combined, Divers says. But its portfolio included a large percentage of real estate loans so it went down with the 1927 Florida real estate market crash.

Divers, now 71 and president and CEO of the Bank of Tampa, which he co-founded in 1984, tells the 1920s story as explanation for his conservative stance in only allowing the bank to make real estate loans to accommodate existing customers, most of whom are lawyers, doctors, accountants and business owners.

"I was never oriented toward real estate," Divers says. "When I started, it was illegal to make a second mortgage. That was another reason for the bank failures in the 1920s."

The Bank of Tampa offers home equity lines of credit to its customers, but the loans aren't based solely on the property's value, he says, adding, "We underwrite our home equity loans as unsecured. We really look at the ability to repay the loan rather than the collateral value."

Of the bank's $600 million loan portfolio, about half the loans are secured by real estate, he says. And two-thirds of the real estate loans are for owner-occupied property.

"We do construction lending for the most part for folks we've known a long time," Divers says. "We have several condominium projects that aren't selling as fast as they were expected to, but we don't think any of our customers are going to lose money."

Unlike other community banks, Divers says his bank didn't seek construction loans over the past five years.

"We don't look for that type of business," he says. "If it's a strong borrower, and the borrower has the ability to repay the loan and we have collateral, too, it makes sense to them and to us."

What about community banks that have as much as 90% of their loan portfolios secured by real estate?

"Those are the easiest loans to make," he adds. "We get three or four comparisons through the year with other banks along Florida's west coast. I'm surprised at the number of deposits they have in CDs and the percentage of loans they have in real estate."

Banks that are dependent on certificates of deposit are forced to pay higher rates or lose deposits to competitors as rates rise, Divers says. That, in turn, narrows the spread between what the bank pays and what it receives in interest income.

"Their spreads have really narrowed," he says. "Ours have too, but not as much."

Higher interest rates typically result in more income for the Bank of Tampa, especially if checking account balances continue to grow.

"When interest rates are higher, we can invest that checking account money at an income that will offset the costs," he adds. "When rates are low, your income goes down but you can't push your costs down because you've still got your people."

Not to say that Bank of Tampa isn't feeling the pinch of the residential real estate slowdown. It banks lawyers and title companies, whose deposits have dropped.

"Last year was the first time in all the years we've been in business that our deposits didn't grow by at least 8% to 10%," he says. "We didn't lose any customers. It's just in the case of the many law firms that are real estate related, the big escrow accounts went away because they didn't have the transactions."

In seven of the bank's nine branches, deposits were up last year. But deposits declined about $25 million in 2006 at the downtown office, where most of the bank's legal clients are located. Still, that office had $145 million in deposits, he says.

The Armenia location saw a drop in deposits, too. That's where most of the title companies do business.

The size of checking accounts also shrunk as customers switched funds to accounts that pay higher interest, he says.

For the first time in the bank's 23-year history, deposits shrunk, by about $2 million.

So why does Divers say it was the bank's best year ever?

Look at the bottom line. Banks are in business to make money, and it was Bank of Tampa's most profitable year ever. Net income was $10.44 million for the 12 months ended Dec. 31, 2006, up nearly 23% from $8.57 million the previous year.

"We are blessed with all those transaction accounts," he says. "As rates go up, the rates on the transaction accounts don't go up as fast. If you depended on real estate loans and CDs, you'd have to stop and think about how you're going to build your bank."

Late to the party

"In the heyday of the real estate loans, we'd look around and see all the banks making all these big fees and big loans, and we'd think, 'Gee, maybe we ought to be doing that,'" Divers says. "We were just late to the party. We didn't do that much."

Now Divers looks back and is thankful.

"I hear from other bankers they're going to be struggling this year," he says. "As a matter of fact, investment bankers tell me there are a number of community banks along the west coast that are thinking about selling because it has just got so difficult for them."

Most local bankers have heard of Coast Bank's troubled real estate loans and are talking about them. Divers alluded to that bank's problem.

"We've tried to keep our exposures spread between industries, spread so that no single borrower has borrowed too much," he says. "You can have one bad loan or bad customer, and if it's too big, you could have problems."

Many local bankers are too young to remember the last big recession in 1990, Divers says, adding, "If you haven't gone through it, it's one of those things you think, 'Oh that can't happen to us.'"

Divers recalls a 1989 Tampa Chamber of Commerce meeting where officials bragged about Hillsborough County's growth: About 200 families were moving into the county weekly.

That seemed to change overnight. By the following year, more people were leaving the county than moving in.

"It was the confluence of the savings and loan debacle and kind of a normal business slowdown," Divers says. "Two or three things happened all at once."

He recalls the details well.

Seventeen of Hillsborough County's 21 banks lost money in 1990, he says, adding: "We only made $48,000 but at least we made a profit."

'Jerry's bank'

Bank of Tampa has an elegant headquarters and branch near downtown Tampa and Bayshore Drive. The granite, marble, glass and stone decor appears to be built to last, just like the bank.

Divers says that's not coincidence. That's exactly what he hoped to convey to customers through the decor.

Today's office is in stark contrast to the first office's green bamboo wallpaper and wicker chairs. Bank of Tampa, with Divers as president and James Ferman as one of the directors, started out in 1984 by buying a bank near St. Joseph's Hospital.

"We had $48 million in deposits and $36 million were in high-cost CDs," Divers says.

Clearly he takes pride in how far the bank has come. He and Ferman are the only two original directors still with the bank. But many of the employees have been with the bank for years.

"It has been like my baby, and yet we've got so many people who have been here a long time, we all feel like it's our baby," he says.

In a way, Divers does share it with the employees. He owns 8% of the privately held bank's stock. Only two directors, Ferman and G. Robert Blanchard own more stock, both with about 10%.

Employees, however, own about 28%, or about $12 million to $13 million of the bank's stock. The bank has had an Employee Stock Option Program since it was founded.

"It's more of a team effort than people sometimes think," he says. "I've heard it referred to as 'Jerry's bank.' Of course, I wish it were. But Jerry didn't do it all."

As the shareholders age, some stock has been passed onto younger generations, Divers says, adding: "But for the most part our stock is in the hands of people who bought it 20 plus years ago."

A share bought in 1984, with all the subsequent splits, cost about $4.79, he says. Today, a share is worth $77.50 share.

"To satisfy the shareholder base, we changed from a growth mode to paying more dividends," he says. "Except for last year, the earnings grew. So we are going to be a good dividend paying bank."

The bank still has less than 500 shareholders.

Eventually, though, Divers says that might change.

"I don't see how the bank can become that valuable and not go public some day," he says.

But he hopes it doesn't happen anytime soon.

In the banking world in Florida, Bank of Tampa is one of the few independent banks nearing $1 billion in deposits.

Not that there haven't been would-be suitors. It's just that Divers, the directors, employees and customers like their bank's independence.

"It's a nice position to be in," he says.

REVIEW SUMMARY

Who. A. Gerald Divers

Company. The Tampa Banking Co., parent of Bank of Tampa and Florida Investment Advisers Inc.

Key. Stick to the basics of sound business principles, even when the market is booming.

Succession Planning

When A. Gerald Divers joined the Exchange Bank of Tampa in 1961, he planned to stay there a year before he moved to California to continue his banking career.

It has been 47 years and Divers, a Clearwater native and 1957 University of Florida graduate, has yet to leave the Tampa area.

For the past 23 or so years, he has been president and chief executive officer of the Bank of Tampa, which he co-founded in 1984 with a group of businessmen, including James Ferman Jr., who has served as a director since its founding.

"When I started I was told the first rule of banking was to know your customer and the longer I've done this, the more I realize (a) it helps you keep your loan account in good shape, but (b) if you know people you can respond to what they want without having to go through all the bureaucracy that is normal in banks," Divers says.

Bank of Tampa has been profitable every year since it was founded and this past year was one of its most profitable.

At 71 years old, Divers is trying to relinquish control of the $816.6 million asset bank to younger managers.

"I'm trying to back off," he says. "It's not easy. But I'm trying."

He tries to stay away from the weekly internal loan meetings."I look at the meeting minutes and loan packages."

And at the weekly management meetings, he remains quiet until the others have had a say.

Divers, who plans to retire within a few years, has a succession plan in place and an heir designate, but he declined to say who that might be.