Northwest Florida banker Buzz Ritchie sees a lot of good things happening in Pensacola, the key city in the two-county market served by his Gulf Coast Community Bank. A major area employer, the Navy Federal Credit Union, is hiring 1,500. Housing market indicators are good. Even commercial real estate "is coming back, but not as measureable or strong as residential," says Ritchie, a former state legislator and now CEO at Gulf Coast.

Thanks to a real estate revival, things are looking up for many Florida banks. "There's no other state in the country where the banks are so dependent on real estate and the housing market," says Ken Thomas, an independent bank consultant and economist in Miami. "We're seeing very good numbers in every market. This is all good news for the banks."

In a sign of improving times, Miami-based U.S. Century, one of Florida's largest troubled banks, saw an acquisition by St. Petersburg-based C1 fall through in December but then got a better deal just a month later through a recapitalization by a local Miami investor group.

Meanwhile, south Florida banks — unlike those in states like Georgia or Illinois with plenty of troubled institutions — have benefited from an influx of foreign capital into the economy. Thomas notes that Florida is the fourth-largest retail banking market in the nation and that about about 40% of that market is in south Florida, a comfortable market for international institutions and investors.

Elsewhere in the state, not all banks are out of the woods, but many at least can see the edge of the forest.

Ritchie's bank is among those banks that as of the first quarter reporting date had a troubling level of problem loans and foreclosed real estate relative to equity capital and loan-loss reserves, according to calculations by RMPI Consulting, a consulting firm to community banks with an office in Tampa. That ratio, called the Texas ratio, is considered bad if it's over 100% ["Credit Troubles"].

Gulf Coast's ratio stood at 329% as of the March 31 reporting date, down from 536% three months earlier. "We know where we are. We know how bad that it looks, but at least there's improvement," Ritchie says. An improving economy helps commercial real estate values, allowing banks to sell property, at favorable prices, that they took back from delinquent borrowers.

Lamar Roberts, president of Fidelity Bank of Florida in Merritt Island, saw his bank's Texas ratio finally drop below 100% for the June 30 period. "It's coming down nicely — doesn't come down easy," Roberts says.

The same is true in Florida. RMPI reports the Texas ratio for Florida banks is down 9 basis points from a year ago. Other performance indicators have improved as well, says David Brown, an RMPI partner. Return on assets has risen, driven by improvement in the bottom half of the state's banks as judged by return on assets. "Credit quality is still a big focus," Brown says, but, while credit quality is below norms, it has improved.

The intricacies of accounting are helping bank financials. As the bulk of problem loan losses recedes, banks have to reserve less based on their recent loss experience. Less reserves equals more income. The positive trends all mean there's more room for troubled banks and regulators to maneuver without having to shut down an institution. Through the first eight months of 2013, only three banks failed in Florida.

Some, however, haven't been buoyed by an economic rebound. At Bank of Jackson County in Graceville in northwest Florida, the Texas ratio stood at 266% on March 31. "It is what it is," says President Kathy Leibold. "The economy in this area has not improved. It's not good."

Looking ahead, banks, especially small ones, worry over the cost of increasing federal regulation. Just a year ago, those mounting costs seemed almost certain to be too heavy a burden in personnel, software and infrastructure for small banks to absorb and argued for a dwindling number of Florida-based banks. Now, however, small institutions think lobbying for exemptions for small banks and cost-sharing with peers will allow them to continue. "There is some hope that we don't have to all grow up to be a billion-dollar bank to survive," Ritchie says. "Small banks like us serve a valuable purpose."

Ritchie says his bank likely will raise more capital through a private placement this year.

With the dynamic of too-small-to-thrive in doubt, so is the future pace of consolidation among banks here. The number of Florida banks, which stood at 307 in 2008, fell to 221 last year and now is down to 203. That number will fall with July's announcement that Weston-based consolidator Florida Community Bank, a unit of a private equity firm, will buy $1 billion-in-assets Great Florida Bank based in Miami Lakes. Florida Community, which acquired eight banks previously, agreed to pay $3.24 per share for the troubled bank, a premium over Great Florida's pink-sheet trading price of 32 cents per share but still at a 15% discount to book value.

The level of consolidation going forward depends on how would-be buyers and sellers resolve conflicting calculations about the wisdom of deals.

Executives and shareholders at institutions that scraped through aren't eager to give up their independence. And "banks that are healthy want to get bigger, but they're not eager to jump into someone else's problems," says Brown. "You're going to have more consolidation. I'm still not convinced you will see a large wholesale consolidation."

Credit Troubles

The "Texas ratio" is a measure of a bank's credit troubles — the higher the ratio, the more severe the troubles. The term was coined by analysts who found a correlation between it and Texas banks that failed in the 1980s. (After 2008, it just as easily could have been called the Georgia or Florida ratio.) The statistic, which tends to overpredict bank failures, is calculated by dividing the value of the lender's non-performing assets (non-performing loans plus real estate owned) by the sum of its tangible common equity capital and loan-loss reserves. The ratio is considered unhealthy if it's over 100%. Here are the Florida banks whose Texas ratios were the highest in Florida at the end of the first quarter.

Bank	Location	Assets (millions, except where noted)	Texas Ratio
Anchor Commercial Bank	Juno Beach	$106.47	343.93%
Bank of Commerce	Sarasota	224.15	215.64
Bank of Jackson County	Graceville	26.22	266.22
Beach Community Bank	Fort Walton Beach	587.16	468.39
Chipola Community Bank*	Marianna	37.47	340.07
Everbank	Jacksonville	18.31 B	126.67
Fidelity Bank of Florida, National Association	Merritt Island	299.60	107.73
First City Bank of Florida	Fort Walton Beach	256.33	518.47
First Community Bank of Southwest Florida*	Fort Myers	265.74	417.65
First National Bank of Crestview	Crestview	97.25	299.48
Friends Bank	New Smyrna Beach	109.71	153.28
Great Florida Bank	Coral Gables	1.14 B	211.07
Gulf Coast Community Bank	Pensacola	178.07	329.52
Heritage Bank of North Florida*	Orange Park	103.96	1,064.76
Highlands Independent Bank	Sebring	253.68	101.75
Home Federal Bank of Hollywood	Hallandale Beach	59.44	148.96
Independent Bankers Bank of Florida	Lake Mary	229.45	205.46
Legacy Bank of Florida	Boca Raton	254.65	137.01
Optimum Bank	Plantation	135.71	211.48
Pinnacle Bank	Orange City	169.64	138.17
Southern Commerce Bank, National Association	Tampa	79.98	101.84
TransCapital Bank	Sunrise	198.82	182.05
U.S. Century Bank	Doral	950.67	150.66