Group Growth

Group Growth

With a foothold already in place in St. Petersburg and Jacksonville, the Florida Bank Group is now setting its sights on Sarasota. After that, it's the rest of Florida.

banking strategies by Mark Gordon | Managing Editor

Count Mike Worthington has one of those old-time bankers who knew better a few years ago, when banks up and down the Gulf Coast were signing off on loans at shockingly fast speeds.

Take the time Worthington asked a potential client who was proposing a small retail development what exit strategy he had if, or when, things went bad. Without pause, the developer told Worthington that, quite simply, he would sell it to someone else if the market tanked.

It smelled like the Greater Fool Theory to Worthington. That is, if it didn't work out, the developer would find a fool greater than himself to take on the project, and the loan.

Not wanting to be a fool himself, Worthington, then a top executive at Sarasota-based First State Bank, turned down the loan. Another bank in Sarasota, Worthington says, provided the loan to the budding developer.

Worthington, who began his banking career in the 1970s with a trust company in Venice, is still trying to avoid foolish banking decisions, now as the president and chief executive of Florida Bank Sarasota. The bank, which opened in January after raising about $18 million in capital, is the newest division of Tampa-based Florida Bank Group, a statewide holding company with subsidiaries in St. Petersburg, Tallahassee and Jacksonville.

"We think this is a great time be in the marketplace and a great opportunity to build market share," says Worthington. "We don't have a lot of the problem assets to work through."

Business opportunities

Florida Bank Group, however, has does have some other challenges to work through, beginning with the Sarasota operation. The holding company, run by Gulf Coast banking veteran Corey Coughlin, has a business model based on building a statewide network of banks that retain local management and local boards.

Coughlin (pronounced Cog-lin) is hoping the Florida Bank Sarasota story will be so successful it can be told again in other Florida markets the holding company isn't currently in, including the Fort Myers-Naples region.

In Sarasota, the bank is hoping to use a nimble and opportunistic approach to pick up market share. And although Worthington and Coughlin wouldn't admit it outright, it helps to be a good player in a market with a few bad ones. In that regard, the bank isn't unlike Realtors who can ride out the slumping housing market while the part-timers and hobbyists in the industry fade away.

"The marginal banks are pretty much out of the picture now," says Worthington. "The ones left are well-capitalized and have good leadership."

Worthington is trying to put the standard Gulf Coast community-banking model to work with Florida Bank Sarasota. That revolves around offering an array of banking services to both individuals and businesses and using customer service to differentiate the bank from the pack.

In addition to retail customers, Worthington says he plans to target businesses with revenues of less than $50 million a year as clients. As far as location, Worthington says he's not banned from looking for business north of the Skyway Bridge just because the holding company runs a St. Petersburg subsidiary. But so far he says there's no need to go north of Manatee County, as plenty of business opportunities exist in his core markets: Sarasota and Manatee counties, as well as west DeSoto County and north Charlotte County.

Within those markets, Worthington says he hopes to reach $120 million in assets within three years. The bank, currently run out of a downtown Sarasota office, had about $30 million in assets as of June 30. The team of executives Worthington brought with him to Florida Bank Sarasota include loan officers at two of his former stomping grounds in Sarasota: First State Bank and People's Community Bank of Sarasota, now Superior Bank.

And Coughlin and Worthington have known each other for almost 20 years, going back to when Coughlin hired Worthington as a senior loan officer at First State Bank.

Underlying risk

Since Worthington is so familiar with Coughlin's take-charge attitude, he's not surprised Florida Bank Group has had some early success despite the slumping banking market.

The holding company's assets have grown 32% over the past year, for example, from $620.7 million at the end of the second quarter of 2007 to $816.4 million at the end of the most recent second quarter. Its net losses have also begun to subside, from $550,000 at the end of the 2007 second quarter to $505,000 at the end of the second quarter of 2008.

"We don't have credit quality issues," says Coughlin. "That's a delight."

Some issues that aren't as delightful for Coughlin and Florida Bank Group, however, include the costs of turning old banks and storefronts into new branches - an expense that could run as high as $3 million after factoring in land and construction costs, says Coughlin.

For example, the first Florida Bank Sarasota branch, which is scheduled to open by the end of the year, is a converted Dairy Queen on University Boulevard and Tuttle Avenue, about a mile east of the Sarasota Bradenton International Airport. Florida Bank Group paid $2.4 million for the 4,800-square-foot building late last year.

Another issue is the underlying risk of trying to grow a bank, both in retail and commercial customers, during such a big industry downturn. Coughlin, however, calls that an acceptable risk. More dicey, says Coughlin, is trying to navigate the regulatory requirements of all the holding company's entities as the bank grows.

Finally, Coughlin says while the entire bank's unusual business model isn't in doubt, he and his top executives at each location in the state are regularly monitoring the model for improvements. Having four distinct banks with separate charters and boards across Florida can be cumbersome. "But we think it works," he says.

REVIEW SUMMARY

Businesses. Florida Bank Group

Industry. Banking

Key. The bank holding company now has four subsidiaries. The latest arrival is Sarasota.

BY THE NUMBERS

Florida Bank Group (Dollars in thousands)

Note: The data that makes up these figures and ratios comes from four subsidiaries run by the Florida Bank Group: Florida Bank of Sarasota; The Bank of Tallahassee; Florida Bank of Jacksonville; and Bank of St. Petersburg.

ASSETS AND LIBILITES YTD 6/30/07 YTD 6/30/08 %change

Total assets 620,720 816,453 32%

Net loans and leases 488,140 640,435 31%

Total liabilities 536,647 704,612 31%

Equity capital 84,073 111,842 33%

Noncurrent loans and leases 300 5,102 1,600%

Average assets, year-to-date 606,313 798,981 32%

Insider loans 21,142 27,312 29%

Tier 1 (core) capital 69,088 88,791 29%

INCOME AND EXPENSES YTD 6/30/07 YTD 6/30/08 %change

Total interest income 18,140 23,054 27%

Total interest expense 10,418 13,009 25%

Net interest income 7,722 10,045 30%

Provision for loan and lease losses 685 759 11%

Total noninterest income 439 628 43%

Total noninterest expense 8,280 10,788 30%

Salaries and employee benefits 3,786 5,366 42%

Pre-tax net operating income -804,000 -874,000 N/A

Net income -555,000 -507,000 N/A

PERFORMANCE RATIOS YTD 6/30/07 YTD 6/30/08

Net interest margin 2.71% 2.76%

Return on assets -0.18% -0.13%

Return on equity -1.44% -0.94%

Efficiency ratio 100.17% 98.89%

Noncurrent assets plus other real estate owned to assets 0.05% 0.62%

Core capital (leverage) ratio 11.50% 11.49%

Tier 1 risk-based capital 13.09% 12.93%

Total risk-based capital ratio 14.20% 14.12%

Source: Federal Deposit Insurance Corp.