Fewer bank customers are late paying their loans as the Gulf Coast economy recovers. That's good news for future bank profits.
Borrowers are paying interest on their loans on time.
In the most recent data from the Federal Deposit Insurance Corp., nearly every bank on the Gulf Coast reported a drop in the ratio of noncurrent loans to total loans. Noncurrent loans are those where the borrower is at least 90 days late or not paying at all.
“The economic recovery has a lot to do with the health of our borrowers,” says David Key, president and CEO of Patriot Bank in Trinity.
Patriot Bank was one of six banks in the region that reported zero noncurrent loans in the quarter ending March 31 (see chart on page 13). One year ago, the ratio of noncurrent loans to total loans at Patriot was 1.11%. “That's the result of primarily working with the borrower and turning around the relationship,” says Key. “We're laser focused on having a clean balance sheet.”
Key says Patriot Bank stayed out of the larger and more troublesome land development loans because the bank was started relatively late in the boom in 2004. “When you're a small startup bank, you shouldn't dip your toe in that water,” Key says.
Preferred Community Bank in Fort Myers is another bank with zero noncurrent loans. “We have had no 30-day-late loans in two-and-a-half years,” says Brenda O'Neil, chairman and CEO. “We stay on top of it.”
O'Neil says the key is to know each borrower well, a factor that works in favor of smaller community banks like Preferred. “We do everything close to home and do more homework and we're more responsive,” she says.
At Sabal Palm Bank, President and CEO Neil McCurry Jr. resolved problem loans to zero, personally helping to market the collateral land and commercial buildings for sale. “That took a lot of work,” says McCurry, who says the bank can now focus on making new loans to customers whose businesses are growing.
Meanwhile, the financial market has improved to the point where some banks have sold off their problem loans to investors. “We did sell a pool of nonperforming loans, and that helped improve our numbers,” says Andrew Samuel, the president and CEO of Sunshine Bank in Plant City. “They were primarily residential mortgage loans.”
Sunshine Bank slashed its noncurrent loans to total loan ratio from 3.16% in the first quarter of 2014 to 0.31% in the first quarter of this year. “We made a conscious decision to look at our credit quality, and we've been working closely with our clients,” Samuel says.
Central Bank is another Gulf Coast-based bank that posted zero noncurrent loans, down from more than 5% during the depths of the downturn in March 2011. “The bank did raise additional capital, and it recognized all of its problems,” says John Thompson, the president and chief operating officer of the Tampa bank.
In addition to the improving economy and financially healthier customers, banks are making new loans, and that helps lower the ratio because the total loans number is higher. “We've had a little mathematical help there,” says Dale Dreyer, regional president with CenterState Bank of Florida in Winter Haven.
CenterState nearly halved its ratio of noncurrent loans to total loans in the first quarter to 2.42% from 4.55%. “Certainly an improving economy has helped,” Dreyer says. “People want to buy real estate now and values are going up.”
But improving economic conditions aren't breeding complacency among Florida bankers. “There's another cycle that'll come — they always do,” says Patriot's Key.