Loaned up

Executive Summary
Company. Sanibel Captiva Community Bank Industry. Banking Key. Bigger isn't necessarily better.

Bigger isn't necessarily better.

Community banks around the state continue to scramble to grow their assets as regulatory costs take an increasingly bigger bite out of profits. A commonly held view is that community banks today need at least $500 million to $1 billion in assets to overcome government burdens and be solidly profitable.

But Sanibel Captiva Community Bank defies that notion. With just $277 million in assets as of Dec. 31, the small bank has been profitable every year since it was founded in 2003 except for a small loss during the depth of the recession in 2009.

By next year, the bank expects it will have paid a total of $10 a share in dividends to its founding shareholders, the same amount they paid for the shares. Net income in 2015 rose 45% to $3.7 million compared with 2014.

In fact, the bank's executives say Sanibel Captiva Bank's 15% return on equity last year ranked it third among all Florida banks. Independent Banker magazine, the industry publication of the Independent Community Bankers Association, will recognize Sanibel Captiva Community Bank in the May issue as one of the nation's 25 best-performing banks in its asset size in the nation, the bank learned recently.

Headquartered on the island of Sanibel in Lee County, the bank has been a solid performer by sticking to the traditional lending business. Unlike other banks searching for ways to make money other than lending, executives haven't ventured into other financial businesses such as wealth management, trust services or insurance.

“We're going to stick to what we do,” says Craig Albert, the bank's president and CEO. “We know what our niches are.”

Barrier island
Bank executives consider it fortunate that they started on Sanibel and Captiva islands in 2003 because the wealthier demographics helped them weather the recession that felled so many competitors.

“We were profitable right out of the gate,” says Albert. “We were blessed that most of our loans were on the island.”

In another stroke of good fortune, an undisclosed investor who is a retired Fortune 500 CEO and lives on Sanibel purchased 37% of the shares of the bank from holding company Southwest Florida Community Bancorp. during the banking crisis. “We spun away in February 2011,” Albert says.

Southwest Florida Community Bancorp used the proceeds of the sale of its stake in Sanibel Captiva Community Bank to boost capital at another local bank, First Community Bank of Southwest Florida in Fort Myers. Unfortunately, First Community Bank failed in August 2013, and the government sold it to C1 Bank of St. Petersburg.

The undisclosed retired executive did not request a seat on the board of Sanibel Captiva Community Bank. “It's a passive investment,” says David Carleton Hall, the bank's executive vice president, chief financial officer and chief operating officer.

Location, location, location
Real estate lending has always been the bread-and-butter business of community banks in Florida and Sanibel Captiva Community Bank is no exception. Hall estimates 65% of the bank's loans are for residential real estate, another 30% for commercial real estate and the rest are consumer loans.

“Construction loans is one of our niches,” says Albert, who was named businessperson of the year last year by the Sanibel & Captiva Islands Chamber of Commerce.

For example, the bank provides construction loans for retirees building a home in Florida, financing it while they sell their primary residence up north.

Sanibel Captiva Bank specializes in real estate loans that take more time and paperwork to complete, such a bridge loan on the purchase of a condo. “We can charge a little bit more because it's a harder deal to get done,” Albert says. “We work real hard to get loans done that are not easy.”

Higher interest rates from such loans combined with lower expenses on its deposits have boosted the bank's interest margin. Over the last few years, Sanibel Captiva Community Bank has shifted away from higher-expense certificates of deposit to transaction accounts that pay less interest.

Albert says the bank has developed a good reputation with Realtors because they can arrange such loans. What's more, many Realtors have business accounts with the bank. “A lot of Realtors know we get deals done,” Albert says.

In addition, the bank keeps more of its loans on the books. “Years ago we would sell off 75% of our loans,” Hall says. Today, that percentage has dropped to 55% and the bank retains 45% on its books. (Banks frequently sell government-conforming loans to larger banks or government-backed mortgage companies, who package them and sell them as mortgage-backed securities to investors.)

But many of the loans Sanibel Captiva Community Bank makes are short-term and many of its customers are averse to debt despite low interest rates. For example, the bank made $9.5 million in loans in January but customers paid off $9 million worth of loans that month.

The bank's average loan life is a relatively short two- to two-and-a-half years. Loan growth last year rose just 2.8% and deposits fell 5%. “Our biggest challenge now is loans that pay off,” says Hall. “Twenty-five percent of our loans paid off last year.”

Still, Hall says the bank is efficient because it lends 100% of its deposits compared with industry average of 80%. “We stay loaned up,” Albert notes.

And executives say they keep a close watch on overhead expenses. “We're tight, we're frugal,” Hall says, noting you can barely fit three people in the CEO's office. “Craig doesn't have a palatial office,” Hall says.

Off-island growth
Sanibel Captiva Community Bank executives have been venturing off-island to make loans, too. “There's nowhere for us to grow out here,” says Hall on a recent visit to the bank's headquarters on Sanibel, where there is little developable land left.

The bank retained many customers who moved off the islands settled in Fort Myers near McGregor Boulevard to be closer to health care and other services. “Our McGregor office is a phenomenal office,” says Hall.

In December, the bank opened its fourth location, a branch in the Myerlee neighborhood of Fort Myers. And in February, the bank opened a fifth branch inside its operations center on College Parkway in Fort Myers.

The bank is active in South Lee County and Collier County, too, though there are no immediate plans to open branches there. Home construction loans are popular there as new residents continue to move to the area. “We do a lot of loans in Collier County,” says Albert.

Like any good business, Sanibel Captiva Community Bank attracts customers through referrals; the bank doesn't spend any money advertising in newspapers, television or radio.
Instead, it supports 85 community organizations through its involvement and charitable contributions to nonprofits. “That's where we spend our money,” Hall says.

Albert and Hall say they're not planning acquisitions and haven't had any offers to be acquired. Besides, they say regulators haven't approved the formation of new banks and shareholders are happy with the bank's dividends. “What would we do?” Hall chuckles.