Notes and Trends

» The Fallen. Fifty-five banks have failed in Florida since the meltdown began in mid-2008. Florida led the nation last year in bank failures and in the total number of problem banks and banks facing regulatory enforcement actions. This year, its only rival for this dubious distinction is Georgia.

» The Lag. Florida banks in the second quarter had their best aggregate profit since December 2007. Small banks, with less than $100 million in assets, continued to lose money overall. The tiny aggregate profit posted in the early part of the year by Florida banks would have been a loss if the banks had set aside reserves against problem loans as conservatively as banks nationally do, says Miami independent bank consultant and economist Ken Thomas. Florida remains a real estate state, and its banks will flourish when the real estate business gets healthy again, he says. "We go in cycles. As goes the Florida real estate market, so goes the banking market — with a lag. We will come back. The smart money realizes that," Thomas says.

» The Rules. Tougher regulators and tougher regulatory requirements impact lending, says banking attorney Bowman Brown of Shutts & Bowen in Miami. "What's happened in bank regulation from a macro standpoint has been anti-stimulus. If the banks aren't healthy and in an expansionist mode, I don't think the economy is going to be healthy and in an expansionist mode," Brown says. Still to come is implementation of the Dodd-Frank legislation, which, Brown says, imposes a "terrifically punitive regulatory burden."

» The Turnaround. Good news: Banking fortunes mirror the economy, and bankers uniformly report economic activity is slowly picking up. "We're seeing strong growth in our businesses," says Shelley Freeman, Wells Fargo regional president of Florida community banking.

» The Evolution. In short, expect more banks to fail. Expect the large to get larger. Expect consolidation. Florida had 286 institutions in 2009. Now, it has fewer than 240. "The industry will continue to evolve," says Mike Fields, Bank of America's Florida president. "The industry I started in, in 1967, and the industry today, you could not have imagined. In the next decade the changes will be equally dramatic. It's incumbent on all of us to evolve and look to the future."

TROUBLED BANKS
Borrowed Time?

Florida is a national leader in banks with issues, most concentrated among the ranks of smaller community banks. David Brown, a partner at banking consultancy RMPI Consulting, says 34% of all Florida financial institutions are under a regulatory order. One example: In May, the FDIC filed a notice against Marine Bank & Trust, a Vero Beach bank with $145 million in assets, complaining about its levels of commercial real estate loans, capital and earnings. CEO William J. Penney says the bank has been trimming problem loans and working to raise capital. It won't get easier for small Florida community banks. Problem loans have to be worked off. Regulatory pressure is intense. Compliance costs are up and will go up more as the Dodd-Frank regulatory law is implemented. Obtaining capital to rebuild balance sheets is tough and costly. Many private equity players and new investors would rather buy banks after the FDIC takes them down.

Penney discounts some executives' beliefs that the days of smaller community banks — some define those as institutions under $500 million in assets, others as banks under $750 million — are numbered. "There always will be a place for community banks," he says. "The people who want to come in and talk with the decision-makers will come to us."

THE ACQUIRERS
Young and Hungry

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At the new First National Bank of the Gulf Coast, Gary Tice has pulled together the familiar faces that helped him build his previous bank, First National Bank of Florida, into the $5.5-billion-asset institution he sold in 2005 for $1.5 billion, avoiding the industry debacle that followed three years later.

Tice's new venture is just one of several young-gun institutions with plenty of capital and no legacy real estate problems. Run by seasoned banking executives, the young and hungry banks are on the prowl for acquisitions. In a new wrinkle in Florida, private equity firms play a prominent role backing some of the new ventures. The lead investors in a $148-million private placement for Tice's new bank, for example, were private equity firms Lightyear Capital of New York and GMT Capital of Atlanta.

Other relatively new banks include American Momentum Bank in Tampa, founded by Texan Donald Adam. In its marketing, American Momentum touts its fresh start with $100 million in capital, the largest startup equity of any financial institution in Florida history, it says. This year, American Momentum bought the assets of failed LandMark Bank in Sarasota and SouthShore Community Bank in Apollo Beach.

CEO Jorge Gonzalez plans to expand City National Bank of Florida in southeast Florida and Orlando. Caja Madrid bought the bank in 2008. [Photo: Bob Soto]

On the opposite coast, longtime Florida community banker J. Hal Roberts and his group bought the four-branch First Bank and Trust Co. of Indiantown, renamed it Harbor Community Bank and have opened new branches, added 22 employees and agreed to acquire $430 million-in-assets Grand Bank & Trust in West Palm Beach.

Tice says more mergers are ahead. "Community banking is still alive and well in the Florida market, and I think it's essential to the Florida economy," Tice says.

Meanwhile, another group of hungry banks — Spanish savings banks called cajas — continues to expand in Florida via U.S. banks they've purchased. City National Bank of Florida, founded by the Abess family and sold in 2008 to Spain's Caja Madrid, now counts itself among the largest Florida-based banks. It plans to expand in southeast Florida and Orlando, says CEO Jorge Gonzalez.

Sabadell United, born of the 2010 acquisition of Mellon United National Bank in Miami by Spain's Banco Sabadell, is also on a growth curve. Sabadell bought failed Lydian Private Bank in Palm Beach from the FDIC in August. CEO Mario Trueba wants to expand the $2.5-billion-in-assets Sabadell United in southeast Florida and is interested in Tampa and Orlando and acquisitions.

THE INTERNATIONALS
Regulatory Headaches

Leading Florida's international banking group always seems to involve fighting some new regulatory threat. Frank D. Robleto's term this year as president of the Florida International Bankers Association is no exception. Robleto, whose day job is president and CEO of BAC Florida Bank, and his group fear a proposed IRS regulation that would require them to report interest income on accounts held by non-resident aliens.

Depositors come here to avoid political and economic predation at home, he says. They'll switch to banks outside the United States rather than risk their financial information falling into the hands of their governments — and, through porous security there, potentially of criminals.

"We are concerned deposits could fly to other countries," Robleto says. At bankers' behest, all of Florida's congressional delegation signed a letter to President Obama asking him to kill the regulation, saying it "would likely result" in hundreds of billions of dollars leaving the United States.

"We are concerned deposits could fly to other countries." — Frank D. Robleto president and CEO of BAC Florida Bank

J. Thomas Cardwell, commissioner of the state Office of Financial Regulation, said earlier this year at a government hearing that the rule would cause "some real genuine damage in Florida." He said it could lead to a runoff of foreign deposits, leading to a dramatic drop in money available for local lending — a $64-billion drop if half of foreign deposits ran off — and liquidity issues for state-chartered banks with substantial non-resident alien accounts.

"Last year, 66% of the banks that we regulated were unprofitable. Sixty-five percent of them are under regulatory supervision, as I stand here today," he said in his May statement. "In other words, the banking system in Florida, and particularly in south Florida, is in a fragile state."

Supporters of the IRS regulation argue that the only depositors who shift money are tax evaders.

CONSOLIDATION
A Wave of Rebranding

Sign-makers have had business aplenty in Florida thanks to consolidation in the financial industry.

» Wells Fargo made stagecoaches a common sight in Florida for the first time since Flagler's railroad arrived as Wells Fargo rebranded 668 Wachovia Florida branches following the $15-billion acquisition of Wachovia in 2008.

» Canada's TD Bank bought Commerce Bank in 2007 for $8.5 billion and last year acquired South Financial and its Mercantile Bank for $192 million. TD also bought failed Riverside National in Fort Pierce, First Federal of North Florida in Palatka and AmericanFirst in Clermont.

» Pittsburgh-based PNC, after acquiring National City in 2008, this year bought RBC, the U.S. subsidiary of Royal Bank of Canada, for $3.45 billion and is reflagging its 83 Florida branches and 19 it bought in the Tampa market from BankAtlantic.

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Credit Availability

"SunTrust is, and will continue to be, in the business of making loans to creditworthy borrowers." — Thomas G. Kuntz CEO, SunTrust Florida [Photo: Brook Pifer]

As our CEO Sounding Board indicates, businesses still report lenders aren't lending. Talk to bankers, and they say they are. "We as bankers make money by lending money," says Craig Grant, president of PNC's Florida market. Kevin Gillen, regional president for Florida at TD Bank, says his pipeline is thick with small-business loans. "We've had an outstanding small-business year," Gillen says. Says Thomas G. Kuntz, CEO of SunTrust Florida, "SunTrust is, and will continue to be, in the business of making loans to creditworthy borrowers."

Indeed, research by the Federal Reserve Bank of New York and the National Federation of Independent Business, among others, indicates the bigger problem for most businesses is a lack of sales. But credit is an issue. Lenders that businesses dealt with in the past are struggling still and may not be lending. Regulatory and market pressures have raised underwriting standards.

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EMPLOYMENT
Bank, Thrift and Credit Union Jobs

» Big banks are hiring in Florida — Wells Fargo hired 1,500 this year, for instance — but overall the banking and credit union sector is down 10,300 jobs since peaking in November 2007 at 106,200 jobs.

» As of July, the most recent month available, the sector posted its seventh consecutive month of job losses compared to the same month in 2010.

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Credit Unions

In September, Florida's credit union industry kicked off an image-building campaign. Credit unions want to move more into banks' lending turf, pushing for federal legislation allowing credit unions to increase the percentage of assets they can put into business loans to 27.5% from the current 12.25%. They also want to be able to take deposits from county, city and school governments. The financial meltdown impacted more than the banking industry. Eastern Financial Florida in Miramar collapsed in 2009 and was merged into Space Coast Credit Union, costing the credit union insurance fund $40 million.