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Stretching Margins

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  • | 2:39 p.m. December 9, 2011
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Industry. Banking
Trend. Net income increased for most Gulf Coast banks.
Key. Banks are tapping new interest income sources.

Bill Valenti, president and CEO of Naples-based Florida Gulf Bank, has to spend about $60,000 on two new ATMs for the bank by the end of March to comply with the Americans with Disabilities Act.

Despite this and concerns over new regulation stemming from the Consumer Protection Act, Florida Gulf Bank, based out of Fort Myers, posted $243,000 in net income in the third quarter, a growth of 4,760% compared with the same quarter in 2010. Valenti attributes this to low wage growth, which kept the bank's expenses down. “We didn't even have to lay anyone off,” ww says.

Florida Gulf Bank is one of 40 of 55 banks on the Gulf Coast that recorded increases in net income for the third quarter, compared with the same period last year. Total revenues for all 55 banks on the Gulf Coast increased from $659.13 million through the third quarter of 2010 to $758.92 million through the third quarter of this year. In addition, net income through Sept. 30 for all banks on the Gulf Coast totaled $62.19 million, up from a $207.94 million loss during the same time last year.

Gulf Coast banks are following what the Federal Deposit Insurance Corp. notes is a positive national trend. According to a report by the FDIC, banks in the U.S. earned 48.3% more in the third quarter of this year over 2010, and the number of troubled banks in the nation experienced a second consecutive quarterly decline.

When looking at assets, Encore National Bank, based out of Port Charlotte, saw the largest growth for the first three quarters of 2011 out of all Gulf Coast banks, with a 590.6% increase over 2010. Other high-growth banks include Community Bank & Co., which is located in Lakewood Ranch, and Tampa-based NorthStar Bank. Encore Bank merged with the National Bank of Southwest Florida at the start of the fourth quarter in 2010 to form Encore National Bank.

More than half of Gulf Coast Banks experienced a decrease in assets so far this year compared with the first three quarters of 2010. The bank that saw the steepest drop was the Bank of Naples. Compared with the first three quarters of 2010, the Bank of Naples' assets have shrunk by 25.5% so far this year. The Royal Palm Bank of Florida, also located in Naples, was another one of the five banks that saw assets decrease by more than 20%. Notably, Raymond James Bank, a St. Petersburg institution holding almost $9 billion in assets, experienced a 16.9% drop for the first three quarters this year compared with the same time frame in 2010.

Here are three Gulf Coast banks' strategies to either continue the positive trend in assets or net income or become profitable again.

Mortgage momentum

USAmeriBank, based in Tampa, announced a new location in Ybor City along with 14 new hires this fall. It also reached $1 billion in assets this year. And figures on the bank's financial state for the first three quarters of 2011 are mostly positive.

With asset growth of 25.26% for the first three quarters of 2011 over the previous year, USAmeriBank ranks in the top 10 of Gulf Coast Banks for the same period.

The growth trend for USAmeriBank will likely continue into 2012 with its merger with Alabama-based Aliant Bank, which will occur Dec. 31. The merger, in which USAmeriBank increases its ownership interest in Aliant from 62% to 100%, is part of USAmeriBank's strategy for the coming year. This strategy includes a focus on signing more residential mortgages and creating a larger geographical footprint. Joe Chillura, CEO of USAmeriBank, explains that Aliant has a strong background in residential mortgages, which USAmeriBank will implement at its branches. “They bring a lot to the dance,” Chillura remarks.

One aspect of USAmeriBank that will assist in the increased focus on residential mortgage lending is that the bank was founded in 2007, so it has a relatively small amount of bad debt on its books. Only 1.12% of the bank's loans were considered non-performing in the third quarter this year, down from 1.18% over 2010 figures.

USAmeriBank's residential real estate loans increased by less than 1% for the first three quarters of 2011 over the previous year, but all real estate loans are up 30%.

The acquisition of Aliant will help diversify USAmeriBank's portfolio and its revenue stream, as well. Chillura says Aliant has a strong deposit base, giving USAmeriBank a steady flow of funds to help it compete when banks get more aggressive about raising deposits.

USAmeriBank plans to continue hiring — as long as it can nab bankers looking to stay in the long run. Says Chillura: “We build our banks around people.”

Loss aversion

Not all regional banks have fared as well in the third quarter this year. First Citrus Bank breaks from the profitability trend with net income shrinking by 47% compared with the third quarter of 2010.

John “Jack” Barrett, president and CEO of the bank, blames losses on shrinking demand for credit. He says healthy businesses are reluctant to borrow. “A lot of people lament that banks aren't lending,” Barrett says, “but the reality is that qualified businesses aren't applying for loans.”

Though this affected the bank's net income in the third quarter this year, Barrett explains that First Citrus lacks the regulatory duress that other banks may harbor, so First Citrus is fairly independent in its decision making. The bank has only 1.83% in non-performing assets and is leveraged at 9.39%, more than a point above the required level.

Despite shrinking revenues and margins, Barrett forecasts a return to profitability by early 2012. He says First Citrus saw explosive loan growth in October because of its ability to make more autonomous lending decisions. Though he declines to disclose the type of loan that made up the majority of the new assets, Barrett cites the strong month and increased management buyouts as reasons for improving margins over the next two quarters.

First Citrus is also eyeing new markets in the coming years. Barrett intends to pursue residential lending, something the institution hasn't done before. “There is little room for downward movement (in the real estate market),” Barrett says. But he also forecasts an increase in the yield on these types of loans due to Fannie Mae and Freddie Mac's shrinking influence in the market. “We've been waiting for (the residential mortgage industry) to become more market driven,” Barrett says.

“I have more confidence in residential and commercial lending,” Barrett remarks. “We embrace it. We want it. We like it.”

Growth in government

One of the largest jumps in profitability came from 1st Manatee Bank. The Parrish-based institution improved its net income by 529% in the third quarter of 2011 compared with the same period last year. Net income grew from $42,000 to $264,000 year over year.

Tom Hodgson, president and CEO of 1st Manatee Bank, says an increase in Small Business Assistance and United States Department of Agriculture loans triggered the growth. The bank closed on two FDA and two USDA loans in the month of September alone.

Dealing with the government generates new costs: Hodgson says SBA and USDA loans can take roughly four months to complete and require someone with intricate knowledge of the process. After regulators implored the bank to increase net interest income, Hodgson brought in Charlie Conoley, the former president of the failed Horizon Bank. As an associate loan officer with 1st Manatee, Conoley will focus on the government loans. “You have to have someone on board to run the gauntlet through the maze,” Hodgson says.

Hodgson says 1st Manatee Bank was one of the later banks to begin tapping government-subsidized loans, which have become more popular with many banks in the most recent quarter compared with the same time in 2010.

Though dabbling in loans will help increase profitability, Hodgson says he doesn't have big expansion plans. “I don't want to be a gang buster,” he says, “we will look to close on four to six (USDA and FDA loans) in 2012.”

Click here to download PDFs of the third quarter banking charts from the print edition.


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