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The state of finance in Florida

Banking Update
Consolidation Is Hot; Deregulation Is Not

Eddy Arriola, chairman and CEO of Miami-based Apollo Bank, says the banking industry is being buffeted by two noteworthy forces right now.

“Regulatory relief is coming much slower than we hoped and anticipated, and consolidation is coming more rapidly,” says Arriola, whose bank has seven branches in south Florida and more than $500 million in assets.

Arriola says bankers and banking investors were optimistic that a White House and Congress now under Republican control would move quickly to scale back some of the regulations imposed by the Obama administration following the financial crisis. That hasn’t happened. “We were hoping for more and faster change,” Arriola says. “But nothing’s happening in Congress.”

While the banker says there were valid reasons for many of the regulations passed after the crisis, he also says regulators went too far.

“Certainly, there were a lot of bad actors both on the consumer side and in the financial institutions,” he says. “But the unintended consequences are that community banks have pulled away from a lot of business that traditionally we’ve been in, like residential real estate lending.”

While deregulation has stalled, industry consolidation is speeding along. Arriola pointed to a July deal in which New Jersey-based Valley National Bank acquired Clear water’s USAmeri Bank, which has 30 branches in Florida and Alabama. The $816-million deal signaled that Valley National is serious about expanding in Florida.

“That’s a big deal. That’s going to have other potential sellers interested,” he says.

There is a risk as more community banks disappear. “It really creates a big gap of big players vs. little players,” Arriola says. “That’s happening a lot faster than folks thought it would.”

» Next page: A Bank Breaks Through

A Bank Breaks Through

On Aug. 1, a block away from Winter Park’s tony Park Avenue shopping district, Winter Park National opened its doors for the very first time.

It was a little bank and a big moment: Winter Park National is the first nationally chartered bank to open in Florida since 2009 and the depths of the financial crisis.

Backed by a group of managers and directors with a long history of community banking — including those with Century National, which sold to Seacoast in 2005, and New Traditions, which Iberia bought in 2015 — the plans for Winter Park National were set in motion more than a year ago.

There were two driving factors, says David Dotherow, Winter Park National’s president and CEO. The first was that the FDIC decided to rescind a stringent rule it had issued after the financial crisis. The rule required new banks seeking a national charter to operate under intense federal oversight for seven years. Previously, the oversight period had only lasted for three years. The second factor was consolidation in the banking industry, which had seen the number of community banks fall sharply — from about a dozen in central Florida, for instance, to only three or four.

Community banks play an important role, Dotherow says, particularly in helping smalland medium-sized businesses.

“We’re not trying to bank Fortune 500 companies. We’re trying to bank the businesses that are in our community, and we stay within our community.”

The bank raised $40 million following its approval in April and hired about 15 people to staff its first branch and corporate offices.

» Next page: Cash Angels

Cash Angels

Two years ago, a group of Florida investors and entrepreneurs seeded the pot for a new venture capital fund aimed at Florida technology companies.

Since launching, their FAN Fund has attracted more than 40 investors — most of whom are from Florida — and raised about $10 million, says Mitchel Laskey, the fund’s managing general partner. The Orlando entrepreneur has built a number of companies, including health-care software business Dynamic Health Care Technologies that Cerner Corp. bought in 2001, and CNL Bank, which sold to Valley National in 2015 for more than $200 million.

The fund’s managers have seen about 300 companies, taken a “good look” at about 75 and invested in 10 — with a cumulative $7 million in investments so far.

The fund has invested in companies in Boca Raton, Orlando and St. Petersburg, among other locations, and aims for companies that Laskey calls “post-startups.”

“These are companies where they have a customer or two, they have the beginnings of unit economics and revenue, and now they’re ready to go the next level,” he says. “We’re the part of capital that’s right after friends and family.”

Preferred targets are companies that are in a big market with a unique product or service — and for which fund managers can identify multiple “exit paths” that could reasonably be achieved within three to five years. The primary exit path is likely to be an acquisition by a larger company.

That hasn’t happened yet for any of the FAN Fund’s investments, but Laskey says things are trending in the right direction. Five of the 10 companies it has invested in have since landed second rounds of financing.

Things are going well enough that managers are planning to launch a second fund next year.

“We think Florida is really being underserved,” he says. “Our fund really has a dual purpose: It’s about doing good and, as a result of doing good, we expect to do well.”

» Next page: The Low-Down on Sales-Tax Holidays

The Low-Down on Sales-Tax Holidays

A little more than 30 years ago, lawmakers in Ohio and Michigan enacted the first sales-tax holidays when they offered a short-time tax exemption on sales of automobiles. Nearly two decades later, in a bid to prevent border shopping, New York borrowed the concept and established a sales-tax holiday on clothing. And that kicked off a stampede as other states scrambled to copy and top one another.

This year, 16 states will have salestax holidays on clothing, school materials, emergency supplies and energy-efficient appliances, among other things.

Florida lawmakers have been especially enthusiastic supporters of sales-tax holidays, holding one or more kinds of holidays most years since 1998.

Here’s the thing: Sales-tax holidays don’t work, at least not according to a new report by the Tax Foundation, a think tank in Washington, D.C., that studies tax policies. Sales-tax holidays, the Tax Foundation says, don’t promote economic growth or significantly increase purchases; rather they merely shift the timing of purchases. Sales-tax holidays also create complications on everything from tax compliance to staffing management; they are an ineffective way to provide relief to low-income consumers; and they involve politicians arbitrarily choosing what products and industries deserve tax breaks and distorting market forces (such as exempting backpacks but not duffel bags).

The Tax Foundation noted that large retailers are often the leading supporters of sales-tax holidays — in large part because they amount to free advertising. What’s more, the report notes that other studies have found evidence that retailers raise prices during sales-tax holidays, eating into, and in some cases even eliminating, any savings that flow to consumers.

“Indeed, this seems to be a perverse effect of sales tax holidays,” Joseph Henchman, the Tax Foundation’s executive vice president, and Scott Drenkard, its director of state projects, wrote in the July 2017 report. “The more consumers that turn out, the more demand goes up, and the more prices rise.”

» Next page: Holding Green for Green; Tax Tips; Foreign Investment Hot Spot.

Holding Green for Green

First Green Bank, an Orlandobased community bank with half a dozen branches in central Florida and one in Fort Lauderdale, says it is the first bank in Florida accepting deposits and making loans to the medical marijuana industry.

The bank has already signed up as clients six of the first seven marijuana growers to be licensed by the state, including Trulieve, Modern Health Concepts, The Green Solution and Grow Healthy. The bank is also servicing other businesses around the industry, such as doctors and lawyers. Ken LaRoe, founder and chairman of First Green, estimates the bank has about $30 million in marijuanarelated deposits.

First Green launched the program in August 2016 but is only now starting to widely promote it. “We did it really lowkey because we didn’t want it to get out that we were doing it until we knew that we had our sea legs under us and the (federal) regulators weren’t going to mess with us,” LaRoe says.

Tax Tips

Businesses that employ low-to moderate-income individuals should be sure their workers are aware of the earned income tax credit — not a deduction but a refundable tax credit meant to supplement income. The amount can range from $510 to $6,318.

Those with student loans — or parents who are paying a child’s student loans — can deduct interest on those loans: $2,500 or the amount actually paid, whichever is less. Those with student loans can’t claim the deduction if they’re married and filing separately or if they or their spouses are listed as dependents on someone else’s tax return.

Some expenses related to hobbies are deductible — up to the amount of money made on the hobby. Hobby expenses, along with other miscellaneous expenses itemized on Schedule A, must exceed 2% of the taxpayer’s adjusted gross income for them to be deductible.

Those who serve as military reservists can deduct the costs of transportation, meals and lodging if they travel more than 100 miles for their reserve service.

Some fees related to managing your investments are taxdeductible, including:

  • Fees for investment counseling
  • Custodial fees you paid outside of the account
  • Software and online services you used to manage investments
  • Transportation costs to and from an investment or financial adviser’s office
  • Attorney costs you used to collect taxable income
  • Costs to replace lost security certificates

Source: Bankrate

Hot Spot

Alan Lips, a partner at south Florida accounting firm Gerson Preston, says Miami remains an international hot spot for foreign investment amid turmoil in a number of Latin American countries.

“I’m in Argentina right now and most of my conversations with my clients have been about looking for opportunities in the U.S. to buy real estate that will draw cash flow, draw income and obviously appreciate over future years — and, most importantly, keep their money out of their local currencies.”

“U.S. real estate in general is attractive. But south Florida is kind of where they start and gain their entry in the U.S. because it’s comfortable for them. They can speak Spanish in Miami. They can fit in in Miami. It’s a culture that works for them.”

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