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Business Observer Friday, Oct. 9, 2009 10 years ago

Make it Klich

Branch Banking & Trust is betting big on Florida's future with the acquisition of Colonial Bank. Longtime Florida banker William Klich is the man charged with making it work.

Branch Banking & Trust is betting big on Florida's future with the acquisition of Colonial Bank. Longtime Florida banker William Klich is the man charged with making it work.

William Klich's small office is as understated as his management style.

But despite his small perch atop the Branch Banking & Trust building in St. Petersburg, Klich's impact on the Florida banking landscape will loom large if he can successfully guide the North Carolina-based bank's recent acquisition of Colonial Bank, its biggest ever.

Klich, 65, delayed his retirement as Florida state president of BB&T for a year to oversee the integration of Colonial. A native of Coral Gables, Klich knows Florida banking as few others do. He has managed banks in almost every market of Florida since 1972.

Klich, who is currently serving as the chairman of the Florida Bankers Association, is known for his skill at restructuring financial institutions. He oversaw the transition of Coast Bank from a thrift to a commercial bank before
SunTrust acquired it in 1993. After a seven-year stint as chairman and chief executive officer of SunTrust Bank Gulf Coast in Sarasota, he turned around Republic Bank in St. Petersburg from 2000 and engineered the sale to BB&T in April 2004.

Although Colonial was based in Alabama, 65% of its assets were in Florida. “It's basically a Florida acquisition,” Klich says. In a deal considered too good to pass up, federal regulators shut down Colonial in August and handed the keys to BB&T for a small premium on deposits and a promise to cover many losses for as long as a decade.

But the big payoff in Florida may be years away because of the uncertain economic outlook and the time it might take to work through Colonial's bad loans. Klich doesn't see any immediate catalyst for a recovery in Florida after a downturn he calls “the most confounding” of his nearly 40-year career.

Although BB&T is in better financial shape than many of its competitors, its shareholders suffered through two rounds of dilutive common-stock issues and a 68% cut to its once-sacred dividend. The bank used some of that money to remove the $3.1 billion government yolk that was foisted onto BB&T by the U.S. Treasury under the Troubled Asset Relief Program (TARP).

BB&T's entry into Florida in 2004 with the acquisition of Republic was late compared with most rivals. That probably saved the bank from getting into as much trouble as its rivals, but until now it has been a relatively minor player in the state.

That has changed. BB&T is more than doubling down on its Florida bet. The Colonial acquisition vaults BB&T to the list of top five banks in the state by deposits with 3.8% market share. BB&T joins Wachovia Bank, Bank of America, SunTrust Bank and Regions Bank on the big-bank list in Florida.

The logic behind the move: If you want to be a Southeast regional bank, you must have a big presence in Florida where future growth is virtually assured. And when the regulators offer Colonial's 198 Florida branches with $10 billion in deposits for a tiny premium, it's impossible to say no even in a lousy economy.

Even better, the FDIC will reimburse BB&T for many of the losses on $14.3 billion worth of troubled Colonial assets such as single-family residential mortgages and commercial real estate loans. Depending on the kind of loan, the loss-sharing agreement ranges from five to 10 years.

By then, Klich says, Florida's economy will have turned around and BB&T will be in a position to defend its territory from future new competitors.

Sweet home Florida
Most observers agree BB&T got a sweet deal for Colonial.

BB&T acquired $20.1 billion of customer deposits at a 2.77% premium. And of the $21.8 billion in assets it acquired, the FDIC will cover most of the losses on $14.3 billion worth of troubled real estate loans.

Many of Colonial's distressed loans are in Florida. For example, Colonial had $2 billion worth of construction loans and $3 billion of commercial real estate loans in Florida, about 44% and 59.5% of total loans in those categories, respectively. Of course, not every Florida loan was bad. “There are a lot of good clients in there,” Klich says.

Under the terms of the loss-sharing agreement, the FDIC will reimburse BB&T for 80% of the losses of up to $5 billion and 95% of losses in excess of that amount. For residential mortgage loans, the loss-sharing agreement will be in effect for 10 years. For commercial loans, it's five years.

Plus, BB&T acquired Colonial's network of 198 well-established branches from Tampa and Orlando as well as a new foothold in the Miami area that Klich hopes to use to target the growing Hispanic market. Building that many branches would have taken years and millions of dollars. In fact, Klich shelved BB&T's own plans to build 70 branches in Florida 18 months ago because it was too expensive and it would have taken as long as three years for each branch to become profitable.

Klich says he isn't worried about being business partners with the FDIC. He brushes off concerns that regulators will be looking over his bankers' shoulders while they sort out the Colonial loans. “It's not the government, it's the FDIC,” he says. “Who funds the FDIC? The banks.”

Although he's BB&T's Florida president, Klich won't have to clean up Colonial's messy loans. That will be up to Sandra Jansky, who will oversee the “bad bank” separately with a staff of 1,000 people. Jansky was president and chief operating officer of Old Southern Bank in Orlando before she became senior executive vice president and chief credit and risk officer at Colonial in December.

Some Colonial assets were too tainted even with a loss-sharing agreement. BB&T didn't buy assets tied to mortgage broker Taylor, Bean and Whitaker in Ocala. Colonial was Taylor Bean's biggest creditor and the operation is under federal investigation.

And size brings efficiency. BB&T estimates it can squeeze out 30% of Colonial's expenses by consolidating back-office operations. Klich says branch employees and others who bring business won't be affected. “If you're a performer, you're going to have a job,” he says.

Prepare for the rebound
After buying Republic in 2004, BB&T remained relatively conservative and didn't make bigger bets on Florida. It was the 17th largest bank in the state last year with barely 1% of deposits. Klich outlines the strategy over the last few years: “We're going to build from within and bide our time.”

While it has its own bad-loan challenges in Florida, BB&T doesn't have a huge concentration of real estate loans in the state. For example, its Florida commercial real estate loans only account for 7.1% of the total loans in that category. Its residential mortgage exposure in Florida is somewhat higher at 15.4% of the total in the category, but not overwhelming.

Klich says problem loans haven't gotten much worse. “We've pretty much leveled out in Florida,” he says.

His immediate challenge is to integrate the management teams of Colonial and BB&T. Recent appointments include Mike Oster, who will oversee BB&T's operations from Tampa to Naples and will serve as the president of the new South Florida region. Scott Greer will be regional president for the area that stretches from Sarasota to Naples.

Eventually, Florida's economy will recover, though Klich is refreshingly candid when he says he's not sure whether it will take two or five years. So far, the fear of a commercial real estate collapse hasn't occurred and no one really knows if it will materialize. “You ask 10 different bankers and you get 10 different answers,” Klich says.

Klich is not sure what will lead Florida out of the recession, but it may come from an unexpected source. “There are things we don't think about,” he says. For example, if Venezuelan dictator Hugo Chavez becomes bolder, South Americans may flee to Florida with their money. Klich says BB&T's new foothold in the Miami area would benefit.

What's more, Florida hasn't lost the attributes that make it desirable: the weather, retirement and plenty of land for development. But the recovery won't happen everywhere at once. “It's a wave,” Klich says. “It doesn't hit everyone in the same way.”

And perhaps areas that have been hit hardest will be among the strongest when the economy recovers. For example, real estate prices in the Cape Coral-Fort Myers area have fallen so much that it might rebound faster than anyone expects. “Why wouldn't that be a great opportunity three to five years from now?” Klich wonders aloud.

Here are the things Klich is worried about: inflation, higher tax rates and government intervention. If any one of these worsens, that will delay the recovery.

Who is Klich?

William Klich (his last name is pronounced “click”) has the Rolodex of a man who has been in Florida banking since 1972.

A graduate of The Citadel with an MBA from Georgia State University, the Coral Gables native has managed banks for nearly four decades in almost every market of the state including Miami, Sarasota and St. Petersburg.

Those who know Klich, 65, say he is as comfortable dining with Florida powerbrokers as he is sparring with regulators in Washington D.C. and chatting up tellers and customers in branches.

“I have not been out to a lunch or an event where we didn't see somebody who knew Bill Klich,” says Scott Greer, the recently appointed president of the Southwest Florida region of BB&T in Sarasota. “In a state of 18 million people, that's pretty impressive.”

Klich is not a micromanager and he is quick to give credit where it's due, bank executives say. “If you did something that was great, he made sure you got credit for it,” says Susan Maurer, BB&T's area executive for Collier County. “Everyone has a feel-good story about Bill Klich.”

Executives at BB&T say Klich adheres to a culture of what they call “servant leadership.” Says Greer: “He's there to help you.”

At a glance

Company: BB&T Corp.
Headquarters: Winston-Salem, N.C.
Chief executive: Kelly King
Stock symbol: BBT
Market capitalization: $17.6 billion
Recent stock price: $27
52-week high/low: $12.90/$40
Price-earnings ratio: 14.8
Dividend (yield): $0.15 (2.21%)

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