Small banks: Don't forget about us

That’s a genuine grin your local community banker is wearing.

Chalk it up chiefly to the arrival of profits, regulatory rollbacks and new federal tax laws that let banks keep more of the money they make, say several area bankers who run institutions with assets below $500 million.

That $500 million threshold, for most of the recession, at least, was considered too low for long-term sustainability by most banking analysts, particularly for a bank with nonperforming assets. The reasoning: Without a larger asset base to deploy, a bank couldn’t grow its loan portfolio or expand in other areas. And without more, and bigger and better loans, profitability stalls.     

But $500 million in assets, to a handful of area bankers, is no longer the black mark it was once. 

Significantly, small community banks recently received a much-needed boost from deregulation, says Rita Lowman, president of Tampa’s Pilot Bank and chairwoman of the Florida Bankers Association. Lowman’s $329 million-asset bank has grown 28% in the past 18 months, she says. She expects further growth from the recent federal rollback of stringent reporting and capital regulations on banks of $10 billion and lower.

“This was really needed for banks of all sizes,” Lowman says. “For every $100,000 we spend for compliance specialists that is another $1 million in loans we can’t do.”

A trio of executives of banks under $500 million say they are happy in their niche and plan slow, patient growth. An exception is a Clearwater banker who plans a national acquisition — and IPO to pay for it.

Freedom Bank, St. Petersburg; assets: $261 million

Given new life through a 2012 recapitalization, Freedom Bank has had 20% growth over the past four to five years and expects to exceed the $500 million threshold by decade’s end, says President and CEO Cathy Swanson. She projects assets of the two-location St. Petersburg bank to grow to $300 million this year.

With the economy going full bore, the plan is to keep building up business lending, Freedom’s main moneymaker, and personal and consumer lending. No home mortgage lending is contemplated, though Freedom offers home-equity lines of credit.

“We’re not totally out of the consumer space,” Swanson notes.

Swanson’s loan officers grew lending revenue by 31.8% over the past three years, reaching $8.6 million in 2017, according to Federal Deposit Insurance Corp. data. Swanson says Freedom generated a lot of those loans through SBA and U.S. Department of Agriculture programs.

Getting over the $500 million mark is important, Swanson says, especially for the economies of scale it offers. A bank can prosper with the same number of employees. “You can make money when you get to the $400 to $500 million mark because you have the infrastructure,” Swanson says.

Sabal Palm Bank, Sarasota; assets $173.8 million

Life as Sarasota’s lone headquartered community bank is going just about right for the profitable three-location Sabal Palm Bank. But it wasn’t always that way.

The 12-year-old independent bank “operated in a pretty challenging environment” its first seven years, says Neil McCurry, president and CEO.

With the previous decade’s banking collapse in its rear-view mirror, Sabal Palm has shored up its capital and rebounded to growth of about 20% annually, says McCurry. The bank recently moved its headquarters from Fruitville Road, near Interstate 75, to downtown’s Sabal Palm Plaza on Ringling Boulevard.

Quarter-to-quarter growth has “been like a set of stairs,” McCurry says.

It helps that even with a 24.8% increase in lending since 2015, the CEO says “we haven’t had any bad loans for several years now.”

Loan revenue last year reached $6 million, and helped generate $288,000 in profits, FDIC reports show. That roll has continued several months into 2018.  “April was our best month ever,” he says.

"You can make money when you get to the $400 to $500 million mark because you have the infrastructure.” Cathy Swanson, Freedom Bank

McCurry says he’s doesn’t undervalue the pluses that accompany asset growth, but insists he isn’t pressured to get to the $500 million threshold. “We’re definitely comfortable in our niche,” he says, though he notes going from $100 million to nearly $200 million has brought valuable economies of scale.

On the May banking law changes, McCurry says it’s celebration-worthy that Congress did anything for community banks. The legislation, for example, halted new mortgage reporting rules that will save Sabal Palm from having to add a pair of compliance officers, he says.

The $500 million mark is there to be reached, but McCurry says for now, Sabal Palm wants to be the “best game in town” among community banks.

First Citrus Bank, Tampa; assets $368.8 million

Sometimes luck is right there with you but disguised as something else.

In 2006-2007, then 7-year-old First Citrus Bank’s loan growth slid 43% amid a white-hot real estate market. That allowed the small Tampa bank to miss the grief soon to set in on other banks.

Without that move, “we would have been out of business,” President and CEO John Barrett recalls in explaining how First Citrus dodged the misfortune that felled other community banks toward the end of the previous decade. Says Barrett: “We had no idea there was a tsunami heading toward us.”

What he did know, Barrett says, “is our competitors were lending money like drunken sailors.”

Barrett says the bank he and his partners founded in 1998 is today enjoying a rare alignment of the four variables he says comprise his prism for a successful bank: geography, (relaxed) regulation, the economy and interest rates.

There’s also the 2017 cutting of the top federal corporate tax rate to 22% from 38%, says Barrett. He calls the changes the best thing to happen to banks since interstate banking.

Keeping more of the $2.8 million the five-location First Citrus made in 2017 will boost the bank’s quest to reach $500 million in assets in 2019, Barrett says. 

Residential, commercial and consumer lending revenue reached $13.5 million last year, an increase of 15.21% since 2015. Overall revenue grew 29% from 2016 to 2017, climbing to $16 million.

Numbers like that, Barrett says, have made First Citrus the “third best performing bank stock in the Southeastern U.S. over the last five years.”

Adds Barrett: “It is great to be a banker in Tampa Bay and greater to be a community banker in Tampa Bay.”

Flagship Community Bank; assets $121.3 million

Flagship Community Bank has earned its living through small business loans and commercial lending. But management of the 12-year-old Clearwater bank believes it’s time to go big — with a potential $100 million IPO for the pending acquisition of BankMobile, the digital division of Pennsylvania-based Customers Bank, a $9.4 billion enterprise. 

Flagship would change its name to BankMobile and become a national caretaker of excess money from student loan accounts under the deal, says Frank Burke, Flagship’s president and CEO. It would gain 1.7 million student checking accounts and about $500 million of noninterest bearing deposits. The community bank will stay in Clearwater, and the digital division will be in New Haven, Conn., Burke adds.

The initial thrust of the new venture is “what they call the disbursement business,” Burke says. Lenders send the student loan money to the colleges, which hand over any leftover money to BankMobile for accounting, regulatory reporting and disbursements to students.

Bank Mobile can offer the students an opportunity to open an account that essentially provides free services such as checking and access to 55,000 ATMs nationwide. “We’ll use it as a vehicle for account acquisition,” he says.

“Hopefully, these students will stay with us for life,” he adds, in detailing a plan to give students ultra low-cost banking services after they leave college.

In addition to new sources of interchange fees, Burke says he is especially attracted to the prospect of the digital platform providing services such as transaction processing to large retailers and employers.

The other forthcoming boost: Flagship hopes to go public in July or August, says Burke, who will become co-CEO with the head of the digital division.

Founded in 2006, Flagship was just beginning to gain its footing when the recession hit, Burke recalls. Burke says Flagship’s financials have fluctuated from negative to positive in the years since. Last year fell on the positive side, with the two-location Flagship turning a profit of $1.1 million, along with loan revenue of $5.2 million.

“We got through by managing the balance sheet,” he says of the downturn. “The sun started shining and we started growing.”

(This story was updated to reflect several corrections, including: the correct percentage decrease in loan growth during the recession at First Citrus Bank; the correct amount of revenues First Citrus had in 2017; the correct amount of assets the bank had in 2016; the status of Flagship Community Bank's possible purchase of BankMobile; Flagship's number of branches and 2017 profit; Rita Lowman's correct title at Pilot Bank; and the bank's total assets.)