Careful Lending

REVIEW SUMMARY
Industry. Banking
Trend. The number of profitable banks on the Gulf Coast is rising.
Key. Healthy banks are lending.

When business owners complain that banks aren't lending, they're about half right.

Data compiled from the Federal Deposit Insurance Corp. show that about half of the 56 banks on the Gulf Coast lent more money in the first six months of this year compared to the same period in 2010. The other half shrank their loan portfolios.

The dichotomy in the market reflects a clear split between healthy and ailing banks. Banks with capital are lending; those struggling to meet increasingly stringent regulatory requirements while managing bad loans made during the boom are not.

But the reshuffling of the banking landscape muddies the picture. Several banks have been shut down and acquired, their loans sold or assumed by others. Meanwhile, some newly recapitalized and healthy banks have also shrunk their loan portfolios, getting rid of bad loans while making new ones to healthier businesses.

In some cases, it's impossible to compare some banks to their predecessors because they've been combined with other institutions. And regional or national banks often don't break down their loan portfolios by state or metro area, so it's impossible to tell whether they're lending more on the Gulf Coast.

On a purely dollar basis, though, things do look a little better. Banks headquartered from Tampa to Naples lent 3.3% more money in the first six months of this year compared with the same period a year ago. One caveat: Just because banks are headquartered in this region doesn't mean they lend to the locals.

Still, a growing number of Gulf Coast-based banks are profitable today, suggesting they're more likely to make new loans to successful entrepreneurs. Thirty of the region's 56 banks reported profitable second quarters, according to FDIC data. During the depth of the downturn, barely a dozen banks on the Gulf Coast were profitable.

“What you need are banks that are earning money and are well capitalized,” says Bill Sedgeman, chairman and CEO of Community Bank in Lakewood Ranch. Community Bank is on track to become a $1 billion-asset bank this year following a recapitalization and a string of acquisitions.

Sedgeman says his bank is making loans to companies in high-tech manufacturing, distribution and services in the Tampa Bay region. “There are customers out there who are just not being called on,” he says. “It's amazing how diverse these companies are. They don't show up in all the magazines.”

Seeking creditworthy customers
For community banks on the Gulf Coast, attracting customers from larger banks that are undergoing change has been a beneficial strategy. “A lot of our opportunities come from the regional or national banks,” says Joseph Caballero, president and CEO of Gulfshore Bank in Tampa. “We've won business from other banks either because of a turnover or a sale.”

Indeed, the downturn has reshuffled the banking landscape from Tampa to Naples. Newer players such as Iberiabank and Stonegate Bank have entered the market, acquiring failed or struggling banks.

“The banking market is still somewhat disrupted,” says Pablo Veintimilla, executive vice president and market president for Collier County with Stonegate Bank, which has acquired two failed banks in Collier, another failed bank in Tampa and one existing bank in Lee. “Six Collier banks went through the FDIC receivership process.”

Top-ranked Collier banks with $1 billion in assets or more, such as Orion Bank and Florida Community Bank, were shut down. Others, such as TIB Bank, are now part of larger regional institutions. Today, eight of the region's top 10 banks by asset size are based in Hillsborough or Pinellas counties, while during the real estate boom some of the largest banks were based further south.

“We are the beneficiaries in the change in the ownership of deposits,” says Ronald Rucker, executive vice president and chief lending officer with First National Bank of the Gulf Coast in Naples. First National recently won the commitment of $148 million from a group of investors that includes Donald Marron, the former president and CEO of Paine Webber.

In a twist, Rucker, whose 43-year banking career included the original First National Bank that was sold to Fifth Third Bank in 2005, says Orion and TIB benefited from that sale. Today, he says those same customers are returning to the newly formed First National now that Orion no longer exists and TIB is now Capital Bank, which is headed by former Bank of America executives.

Despite the tough economic conditions, bankers are finding pockets of creditworthy customers. “We do a fairly decent amount of mortgage lending to foreign nationals,” says Rucker.

Indeed, recent residential real estate transactions show signs of stabilization. “What we are seeing is certain areas of the residential market are firming up,” says Veintimilla. “Now, instead of several years of inventory, in some neighborhoods it's less than a year.”

In the professional services, bankers say doctors, lawyers and accountants have managed relatively well through the downturn. “Some entrepreneurs are willing to try to take advantage of the opportunities,” says Thomas Ray, president and CEO of Encore National Bank in Naples. “The first ones out are medical; they can own [buildings] they used to rent.”

Some banks that are shrinking their portfolios are clearing away bad loans while making new ones to better customers. “We're changing the focus of the bank,” says Hank Holmes, president and CEO of the Florida region of Superior Bank. He's reduced the Tampa-based bank's exposure to real estate and expanded the commercial lending and wealth management departments. “There's plenty of business that is, frankly, non real estate,” he says.

Because of Superior Bank's size, it has a disproportionate impact on the region's banking landscape. Now the Gulf Coast's second-largest bank with $2.7 billion in assets, Superior shrank its loan portfolio by 30% in the first six months of this year. If you include Superior's loans, then banks on the Gulf Coast made 1.6% fewer loans through June than they did in the first six months of last year.

Superior's charter will be moved later this year from Tampa to Birmingham, Ala., because its administrative headquarters is located there and two-thirds of its lending is in that state. Houston-based Community Bancorp acquired Superior in April after regulators shut it down.

More consolidation
Lingering problems in the commercial real estate sector will likely continue to force regulators to shut down more banks on the Gulf Coast and others to seek mergers to boost their capital.

In addition, stricter capital requirements will force many community banks to reevaluate whether they can make money with their current size.

“Costs are going to rise, and you're going to have to expand and have a retail presence, and I don't think you can afford to do that at the $500 million-asset level,” says Sedgeman. “Community banks will combine or go out of business,” he adds. “Those that are left won't have a viable business model.”

Sedgeman, whose Community Bank is on track to reach $1.5 billion in assets within three years, says he prefers acquisitions of existing banks rather than those that have been shut down by regulators. “It's less disruptive for clients and employees,” he says. “We want to preserve that goodwill.”

Superior Bank's Holmes, who is also looking for more opportunities, says there are two kinds of banks in Florida today: “You either have a bank that weathered it pretty well or is deep in real estate,” he says.

“A lot of banks will try to raise capital,” says Rucker, whose First National plans to grow internally and through acquisitions. “Some of them will be seeking mergers, and that's an opportunity for our bank.”