A capital infusion in a recession isn't an impossible dream for community bankers. One of the industry's old pros has proved it so.
Business. Community Bank of Manatee, Lakewood Ranch
Key. Bank has received nearly $20 million in investment capital since late last year.
Small business owner Glenn Phillips sat down at a recent dinner event in Bradenton preoccupied with a major thought: He needed at least a $200,000 loan to be able to buy a building in north Manatee County for his lawn care and pest control firm.
So it was a mix of divine intervention and holy anxiety when Phillips discovered the guest next to him was Bill Sedgeman, founder and chairman of Community Bank of Manatee. Phillips and his wife had done some family banking at Community Bank, a $250-million asset institution with branches in Manatee and Hillsborough counties, so he was well aware of the institution.
What Phillips might not have been aware of, however, is that Lakewood Ranch-based Community Bank is in a relatively exclusive club for community banks — on the Gulf Coast and all of Florida.
Indeed, the bank raised nearly $20 million in the last nine months while it simultaneously operated under a regulatory order to improve its non-performing loan portfolio and other issues. Sedgeman says the bank is the only one in the state to have raised that much capital while under a regulatory order.
It makes sense then that the bank is in the early stages of a major marketing effort to reach out to people just like Phillips. “We've got a really good story to tell,” says Community Bank President and Chief Operating Officer Katie Pemble, who was hired in July. “We need people to know that.”
The infusion of capital, most of which has come from Brazilian entrepreneur Marcello Lima and his business partner, New York investment banker Trevor Burgess, allowed the bank to get back to one of its core missions: loaning money to businesses. For example, the bank issued $14 million in new loans in the second quarter of 2010.
The infusion also provided the bank a Tier 1 risk-based capital ratio cushion. As of June 30, for instance, the bank had a Tier 1 capital ratio of 10.73%, high enough to be considered well capitalized by regulatory standards.
Nonetheless, while Phillips nervously chatted with Sedgeman that night at dinner, Community Bank's dramatic turnaround story Pemble speaks of wasn't his priority. Instead, the small business owner says he was keenly aware that entrepreneurs like himself up and down the Gulf Coast have been battling with bankers.
The struggle has morphed into an oft-told rescission-era story: On one side are bankers, who say they are able and willing to lend money. On the other side are business owners, who bemoan the hurdles it takes to get a loan these days, when a loan is even possible.
By dessert, Phillips says he worked up the courage to be blunt with Sedgeman: He told the banker about his business, Southern Greens, and his need for a loan to buy a 10,000-square-foot building and in turn, buy a chance to grow his company.
Sedgeman, an affable community banker who graduated from Harvard College and served in the U.S. Air Force, happily chatted with Phillips about the loan opportunities through Community Bank. Sedgeman has worked in community banking in the Bradenton area since 1971.
Less than six weeks after the chat, Phillips had his loan, obtained through Community Bank and the Small Business Administration. Phillips also had his new building, which more than doubled the size of his company's old space. “The whole experience was great,” says Phillips.
Community Bank's experience of being in a position to even loan money to people like Phillips, however, wasn't as great. Instead, it was a sometimes-grueling process that ultimately came together at lunch in a Lakewood Ranch restaurant in April 2009.
Sedgeman and Burgess met each other at that lunch. Sedgeman didn't literally have his hat in his hand, but it was clear the situation at the bank was tenuous, like so many other community banks in the region.
Burgess, meanwhile, arrived at the Polo Grill at what he hoped would be the beginning of the end of a long journey. Burgess, a onetime executive with Morgan Stanley in London and New York, had been analyzing Florida community banks with Lima since early 2008.
The pair started with a list of 350 community banks in the state that had assets between $100 million and $500 million. Burgess says he and Lima, who has invested in companies in Mexico, Turkey and Russia, took the contrarian approach that a community bank in Florida was a good long-term acquisition.
“We wanted an investment we could share for a lifetime,” says Burgess. “We wanted to find the right partner.”
By April 2009 the investors had narrowed down the list to 30 banks, most on the Gulf Coast. The pair was unsuccessful in an effort to buy Cape Coral-based Riverside Bank of the Gulf Coast in late 2008. Regulators shut down Riverside soon after that transaction fell through.
Burgess and Sedgeman hit it off that afternoon.
“He was the type of banker everyone wanted,” says Burgess. “He was an old-time banker right out of the movies.”
The investor and the banker soon agreed to a capital infusion that would put $11.5 million in the bank. The deal closed a few weeks before last Christmas.
Since then, the Lima-Burgess led group have invested millions more into the bank, has have some longtime bank shareholders.
The capital investment has another perk: It allowed the bank to continue being a regional leader in SBA loans.
In fact, the bank made at least $4 million in SBA loans in the most recent fiscal year, according to SBA data. That put it in the top 15 for total SBA loans in the South Florida SBA district, which covers the Gulf Coast and most counties on the east coast, including Palm Beach and Miami-Dade.
The bank's forte with the SBA, says Sedgeman, are 7(a) loans, which provide a 75% guarantee to the bank on small business loans up to $2 million. Community Bank has offered SBA loans since the bank was founded in 1995.
“Bill was doing SBA loans long before it was cool,” says Pemble. “That's a real competitive advantage.”
Of course, considering the recession and the banking climate in the region, challenges abound for Community Bank. “I don't want to suggest that we are out of this,” says Sedgeman, speaking of both Community Bank and its peers. “The lending environment is certainly different than it has been in the past decade.”
The lending strategy at Community Bank, therefore, is decidedly anti-boom, with owner-occupied buildings replacing speculative loans. It's the same strategy utilized by some of the region's banks that were founded after the boom busted.
The bank has also shifted its marketing focus, initiatives led by the youthful Burgess, who now sits on the bank's board. The plan includes using Google AdWords and localized ads on Facebook to plug the bank to a younger crowd. The bank also recently created a Web site, www.bestfloridareodeals.com, to showcase its bank-owned properties for sale.
Community Bank has even upgraded the traditional toaster given away to new customers. It instead promises a Cuisinart Pure Indulgence frozen yogurt and ice cream maker to customers who open a new checking or savings account.
Next up for the bank is a geographical expansion, which begins next month when the bank moves into a larger office in downtown Tampa. Sedgeman says the bank would also like to open new branches in Hillsborough County and eventually it would like to expand to Pinellas County.
One final piece of good news: Executives say the bank has corrected 90% of the problems in its regulatory order, leaving only some earnings issues and non-performing loans that need to be worked out. Says Pemble: “The order doesn't limit our ability to meet our client's needs.”
Taken in total, it's enough good news to think the 69-year-old Sedgeman will look to relinquish control of the bank to Pemble, Burgess and other executives sooner than later. Sedgeman, however, dismisses retirement chatter.
For one, Sedgeman recently bought his first Blackberry, after weeks of prodding from Burgess. Sedgeman now giddily shows off the smartphone to anyone who asks him about it.
“It has been so much fun, I don't want to go anywhere,” says Sedgeman. “It's exhilarating. It's fun to come work every day.”
Bill Sedgeman has seen a lot of deals and closed a lot of deals in the 40 years he has worked the Bradenton community-banking scene.
Now Sedgeman, founder of Community Bank of Manatee, can add a new accomplishment to his list: He has hired the daughter of a onetime competitor and peer as Community Bank's president. The new hire is Katie Pemble, who was brought on in July.
Pemble's father is Richard Botthof, a well-known Naples businessman who ran community banks in Bradenton and Fort Myers in the 1970s and 1980s and is now vice chairman of the Sanibel Captiva Trust Co. In the 1980s, both Sedgeman and Botthof sold banks to First Union/Wachovia Bank and the pair met monthly in Tampa with executives at its new parent firm.
That connection was one of several reasons Pemble and Sedgeman clicked when they met a few months ago to talk about the bank and its need for a new president and chief operating officer. Pemble was previously an executive for Florida Bank Group in Tampa and Bank of America in Pinellas County.