See one bank

Executive Summary
Company. C1 Financial Industry. Banking Key. Focus on doing a few things very well.

Trevor Burgess knew what he was getting into when his bank acquired First Community Bank of Southwest Florida nearly two years ago.

The struggling Fort Myers-based bank failed in August 2013 after making bad loans during the boom. Burgess, the president and CEO of C1 Financial, parent of C1 Bank, says the bank continues to work through bad loans made by First Community nearly two years after it acquired it from the Federal Deposit Insurance Corp.

For example, C1 Financial took a $2.7 million expense charge in the fourth quarter to account for the lower value of many properties from the First Community acquisition despite improving market conditions. “It will take us a couple of years to work through those,” Burgess acknowledges.

But Burgess, 42, isn't dwelling on the past. “The economy is coming back very fast,” he says, noting that he's particularly enthusiastic about the Fort Myers-Naples area for loan growth.
First Community Bank was the fourth and likely last acquisition for some time. “I'm trying to create a branch footprint from Orlando south,” Burgess says. “Our entire focus is on organic growth.”

C1 Financial successfully sold shares to the public last year in an initial public offering on the New York Stock Exchange, netting the company $42.3 million on Aug. 13. None of the original investors who now control about 60% of the outstanding shares has sold. “I view this as a family-owned business with outside shareholders,” says Burgess, who was named
Community Banker of the Year in 2014 by American Banker magazine.

Building the bank
With $1.5 billion in assets as of Dec. 31, C1 Bank is the fourth-largest bank on the Gulf Coast from Tampa to Naples. C1 was the sixth-fastest growing bank by assets in the country for the five-year period ending in June 2014, according to SNL Financial.

Burgess, backed by Brazilian investors including Marcelo Faria de Lima, recapitalized the struggling Community Bank of Manatee in 2009. After renaming the bank C1, it expanded to the Tampa area with the acquisitions of First Community Bank of America in 2011 and The Palm Bank in 2012. It acquired First Community Bank of Southwest Florida in 2013, growing to Lee and Collier.

The bank, which Burgess says will remain headquartered in St. Petersburg, now has 30 offices throughout the Tampa Bay region, Orlando, Southwest Florida and Miami-Dade County.
After the IPO last year, Burgess says he plans to boost the number of branches. “There are three places in Florida that make a lot of sense to open branches, and one is in Naples,” says Burgess, who also is scouting sites in Orlando and Fort Lauderdale.

While C1 has invested in technology to help business owners avoid the trek to a branch, he says a physical presence helps with marketing. “Business owners like to know you're part of their community,” Burgess says.

If he has a specific size in mind for the bank, Burgess isn't saying. “We have no set goals for growth or speed of growth,” he says. When pressed, Burgess says C1 has enough capital currently to become a bank with $2 billion in assets.

While the company's stock has hovered in the $17 to $19 a share range, Burgess says investors haven't yet discovered it. According to SNL, the bank's stock currently trades at about 1.6 times tangible book value, in line with its peers but well below the go-go years of the last decade when banks traded at four to five times tangible book.

Part of the challenge with educating investors is that the bank benefited from accounting gains on the purchase of First Community Bank of Southwest Florida in 2013 that make comparisons difficult to 2014. For the year ending Dec. 31, 2014, C1 Financial reported net income of $6.7 million on revenues of $72 million. That compares with net income $12 million on revenues of $70.1 million in 2013. “There's a lot of noise from the acquisitions,” says Burgess, who notes that the bank doesn't intend to pay a dividend while it grows.

Loan growth
Burgess says loan growth has been strong, especially commercial real estate to business owners. “We look for strong and experienced borrowers,” says Burgess, who cruises to the bank's markets in a black Tesla.

Borrowers are still rebuilding their credit in areas such as Fort Myers that were hard-hit by the recession. “I don't think it's fully recovered in Southwest Florida,” Burgess says, though he says businesses have fared better this year than last. “It's their second good year,” he notes.

C1 is even making construction loans on residential properties and some commercial buildings such as health care as the state's population growth resumes. “For six years you've had no construction take place,” Burgess says. “The time to make a construction loan is now.”

C1 specializes in lending to businesses in a range of industries, from apartment builders to manufacturers. Although it has a presence in Miami, it won't lend to condo developers who are erecting dozens of towers for Latin Americans fleeing their homelands.

And two years ago, C1 decided not to lend money overseas (it has commercial loans outstanding to three Brazilian companies), though Burgess says he's keen to make loans to foreigners who come to the U.S. “It's something we'd like to grow,” Burgess says of lending to foreigners in Florida. “I like niche businesses.”

C1 doesn't plan to deviate from lending to entrepreneurs into other financial services such as insurance, trust services or wealth management. Because of razor-thin interest margins, many banks have diversified their operations by building ancillary businesses that provide non-interest income.

When he was an investment banker at Morgan Stanley, Burgess says his favorite IPO was the restaurant chain Chipotle because the company focused on doing a few things well. “We make good business loans and serve our customers in a first-class way,” Burgess says.

Burgess has a group of employees who make up C1 Labs to develop proprietary technology to improve productivity and relationships with clients. “The costs of running a bank are much higher than they used to be,” Burgess says.

For example, new technology can help the bank cut the amount of time to make a loan from several months to just a few weeks. “If we can do a loan in three weeks, that gives us a competitive advantage,” Burgess says.

C1's investment in technology isn't just an expense. The company recently signed an agreement with Centerstate Banks to resell a management tool C1 developed to allow commercial lenders to price loans with an iPad in the field. C1 charges $80 a user per month for the tool and splits revenues with Centerstate. “It improves productivity and impact with the client,” Burgess says.