Looking Inland

Looking Inland

BANKING by Jean Gruss | Editor/Lee-Collier

Lehigh Acres is one of the areas of the Gulf Coast hardest hit by the real estate bust. So why is a group of investors betting a new bank will succeed there?

Maybe more than any other place on the Gulf Coast, Lehigh Acres has been the most glaring example of the land boom and bust of the last few years.

So you've got to wonder: Who would start a bank in Lehigh Acres, a place that contributed so much to Lee County's dubious honor as the area with the highest rate of foreclosures in the nation?

Meet Karen Makowski, the soft-spoken chief executive officer of Panther Community Bank, which opened six months ago in this unincorporated part of Lee County. Don't underestimate Makowski; she's no banking lightweight.

Most recently, she led a team of 300 people with SunTrust Bank overseeing the implementation of the Basel II Accord, international standards that tell banks how much capital to set aside to guard against financial risk. She joined SunTrust after being a member of the Wachovia-SouthTrust merger-transition team. Prior to that, she managed Key Bank's New York state retail operations with 350 branches. At one point, she oversaw 8,500 employees at Key Bank.

"With all that big-bank experience, I was ready to get back to community banks," Makowski says. Today, Panther Community Bank has 12 employees in its new headquarters in Lehigh Acres and assets of $26 million.

"We opened the bank at a hard time," Makowski acknowledges. "The currency of this community is land."

Indeed, Lehigh Acres is an unincorporated area measuring 100 square miles in northeastern Lee County with 90,000 lots and a population estimated at about 70,000. If it ever it became a city, it would be the second-largest city by landmass after Jacksonville. Scattered lots that cost a few thousand dollars at the start of the decade rose to $50,000 at the height of the speculative boom before collapsing to their pre-boom prices recently, leaving behind a trail of foreclosures and failures.

But despite the real-estate woes of the area, Makowski says Panther has several advantages over its competitors. For one thing, it's the only bank headquartered in Lehigh Acres and that scores marketing points with local businesses and residents. Rival community bankers in Lee County privately snickered when news spread of the new bank, but Makowski believes Lehigh Acres is underserved.

In addition, starting a bank today means it's less likely to be saddled with bad real estate loans because of vigilant underwriting and low property valuations. While rivals are busy focusing on managing their soured loans, Panther is poaching their good loans. "In the best of times bankers make the worst loans," Makowski says.

Makowski and the 200 investors in the bank don't plan to stop in Lehigh Acres. Eventually, they plan to create a bank-holding company that will control four to five banks with the Panther name in high-growth inland communities. If they're successful in Lehigh Acres, Makowski says, they can replicate the model in other communities. DeSoto County might be one of those, she says.

For now, though, Makowski says the focus is squarely on Lehigh Acres and she plans to make the bank profitable after seven quarters with the caveat that good customer service will not be sacrificed for profits. "We're on track to meet our goals," she says. In the first quarter, the bank's net loss was $272,000.

Raising millions in Lehigh

Makowski joined the bank in the summer of 2006 when she was hired by a group of Ohio investors led by the late U.S. Rep. Paul Gillmor, whose family owns Old Fort Banking Co. in Ohio and often vacationed in Lee County. Originally, Gillmor and the other bank's organizers thought it would take just 90 days to raise $16 million to start the bank. "We thought it was going to be easy," Makowski recalled. Indeed, everyone seemed to be flush with cash from the real estate bonanza.

But by the time Panther's board was ready to offer shares of the privately held bank to prospective investors in early 2007, the real estate bubble was starting to burst. Investors once flush with money were reticent to invest precious cash in an illiquid investment without a return for several years.

Instead of 90 days, it took nine months for the board to raise $16 million, a relatively small sum in the scheme of startup banks. For example, organizing members of First National Bank of the Gulf Coast in Naples plan to raise $50 million to $60 million (see related story in this issue).

Nathan Stout, a certified public accountant in Lehigh Acres and board member, remembers visiting prospective investors who a few years earlier might have eagerly clamored for shares. "When the economy cools it makes it a challenge," he says. "I had to contact people personally." Still, Stout says he didn't push too hard. "If you have to sell it to them, it's not the right investment," he says.

Then, Gillmor died in late summer 2007, dealing a blow to the capital raising efforts. Still, by Sept. 30, 2007, the bank had raised the $16 million it needed to open, six months later than planned.

Starting from scratch

From the beginning, Makowski was determined to create a recognizable brand. "Creating a brand was a big thing," she says. "People think in pictures." Thus she chose the panther, which is the official state mammal.

More than that, Makowski hopes to use the image of the panther to replicate the bank's business model to other inland communities one day, where panthers really do still prowl. The idea is to create a holding company that will own four or five Panther community banks with a total of 10 to 15 branches over the next 15 years.

For now, Makowski's priority is to build Panther Community Bank in Lehigh Acres. With the residential market under duress, it's not an easy task.

If residential lending is at a standstill, where does that leave business lending? "There isn't business here - on the surface," she says. But look deeper and you'll find plenty of home-based businesses such as air-conditioner repair companies and doctors' offices. (Lehigh's infamous marijuana grow houses don't count, of course.)

The plan is to make business loans to small and medium-sized businesses with owner-occupied buildings. In the first quarter, the bank's net loans and leases totaled $3.6 million. It's not exactly a roaring start, but Makowski says that level is on track with expectations.

And Panther is in better shape than many competitors due to the fact that it just opened its doors in December. "We don't have any bad real estate loans," Makowski says. "I don't think many banks can say that."

What's more the population estimates of 70,000 means there are enough people to justify construction of stores such as Target and restaurants such as Outback Steakhouse. But Makowski acknowledges that official population data won't be available until the next census in 2010 and that Lehigh likely lost some people when construction dried up. Exact data on Lehigh Acres is hard to come by because it's unincorporated and its boundaries are loosely defined.

Still, there's evidence of a thriving community. For example, the bank has identified 134 churches and nonprofit organizations in Lehigh Acres. Panther is making a big push to help nonprofits and its lobby hosts a different Lehigh-based business every Friday (the parrot-rescue group created quite a stir recently). Meanwhile, Lee County is spending $650,000 to devise a comprehensive land-use plan that would create multiple small centers of commerce so residents don't have to drive so far for essential services, boosting opportunities for commercial growth in the mostly residential area.

One positive aspect of the economic downturn is that Panther can focus on perfecting its services without the pressure of the frantic growth that occurred during the boom years. Some of the new business development will be the responsibility of Panther's board members, six out of 10 of whom hail from Lehigh Acres. "Directors are a big source of business," Makowski says. That goes for making loans as well as gathering increasingly scarce deposits.

The bank also has allowed employees to buy stock, waiving its minimum $25,000 requirement. "We're all owners," Makowski says. That's especially important now, as the bank has to watch its expenses to become profitable. Part of that is the extensive use of technology, on which the bank has spent more than $200,000. Using new technology, Panther can offer many of the same services that its bigger rivals can, including check scanning, loan and data processing. "We're totally an outsourced organization," Makowski.

Speaking with Makowski, you get a sense she's excited about the comparatively small bank. She has no office; her desk is on the ground floor next to the branch manager's. She doesn't seem to miss the world of super-regional banks, with their fancy titles and armies of employees. "There's no ivory tower," she chuckles. "It's been fun."

PANTHER

COMMUNITY BANK

(Dollars in thousands)

ASSETS AND LIABILITIES 3/31/08

Total assets 26,307

Net loans and leases 3,595

Total liabilities 11,517

Total desposits 10,781

Equity capital 14,790

Noncurrent loans and leases 0

Average assets, year-to-date 20,893

Insider loans 0

Tier 1 (core) capital 14,110

INCOME AND EXPENSES YTD 3/31/08

Total interest income 176

Total interest expense 28

Net interest income 148

Provision for loan and lease losses 47

Total noninterest income 1

Salaries and employee benefits 324

Pre-tax net operating income ‑420

Net income ‑272

PERFORMANCE RATIOS YTD 3/31/08

Net interest margin 3.09%

Return on assets ‑5.21%

Return on equity ‑7.30%

Efficiency ratio 350%

Noncurrent assets plus other real

estate owned to assets 0%

Core capital (leverage) ratio 79.99%

Tier 1 risk-based capital ratio 167.04%

Total risk-based capital ratio 167.60%

Source: FDIC

REVIEW SUMMARY

Company. Panther Community Bank

Industry. Banking

Key. There's opportunity in underserved inland markets that have been ignored by larger banks.