High Quality
Open the downloaded document, and select print from the file menu (PDF reader required).
Tampa Bay Business Journal - April 16, 2007http://tampabay.bizjournals.com/tampabay/stories/2007/04/16/focus1.html
Friday, April 13, 2007
Community banks ahead in the race for profits
Kathleen Cabble
First Citrus Bank avoided noncurrent loan increases through strong underwriting, said Jack Barrett,president and CEO.
Profits at the largest community banks in the Tampa Bay area rose at nearly twicethe pace of banks throughout the United States in 2006, despite a soft housingmarket that's swelling local portfolios of problem loans.The 25 largest community banks based in the Bay area posted an average 15 percentincrease in income last year, compared to an 8.8 percent increase in earnings posted by all banks nationwide, according to the
But the Bay area banks also outpaced their counterparts nationwide in the growth of noncurrent loans, or loans that are 90 days or more past due. Among local banks,noncurrent loans increased an average 203 percent in 2006 compared to 2005, whilethe increase was 13.6 percent nationwide, FDIC numbers show.Problem loans grew as small- to mid-size homebuilders, especially those in theoutlying suburbs of the Bay area, saw sales plummet, and as buyers walked away from their deposits on condos, leaving developers unable to make payments, saidRoy Hellwege, president and CEO of Bank of Florida-Tampa Bay. With $125 millionin assets at Dec. 31, the bank was not on the list of the 25 largest community banks inthis survey; the smallest bank on the list was
, with $206.7 million inassets.
So far, the housing problems haven't ignited a psychic spiral of doom that couldspread into commercial loans, Hellwege said. Demand for office, industrial and retailremains strong, while solid employment and wage growth, combined with goodperformance in the stock market, have kept the local economy on track, he said.The key question that no one knows now, Hellwege said, is "will that hold or come toa screeching halt?"
Expansion, margins squeeze earnings
Sixteen of the 25 largest banks posted earnings gains in 2006. Among the nine banks that had drops in earnings, many were in expansion mode,spending money on building out and staffing new branches, such as
, which posted a $546,000 loss in 2006, compared to a $19,000 profit theprior year. The bank opened in December 2003, has added two offices in two yearsand has three more coming on line in 90 days, said George Najmy, president andCEO.First Priority, based in Bradenton and serving what had been one of the hottest realestate markets, also boosted its reserve for loans that could go bad by $1.4 million atthe end of 2006."We felt it was better to boost reserves than to show a small profit," Najmy said.Others that saw profits drop experienced a squeeze in their net interest margin, orthe difference between the interest collected by the banks on loans and the interestpaid on deposits. About two out of every three insured institutions in the United States saw their netinterest margins decline between the third and fourth quarter of 2006, according tothe FDIC, as average funding costs rose faster than average asset yields. It'sespecially problematic for smaller institutions because institutions with assets lessthan $1 billion obtained three-quarters of their net operating revenue from interestincome, the FDIC said.The squeeze was felt at
in St. Petersburg, whichhad $1.86 million in net income in 2006 compared to $1.9 million in 2005.Cornerstone's net interest margin dropped to 3.07 percent on Dec. 31, compared to3.17 percent at Sept. 30 and 3.63 percent on Dec. 31, 2005.One-year certificates of deposits that paid interest in the 3 percent range andmatured in 2006 had to be renewed at rates in the 5 percent range in order for the bank to keep that money, said Robert "Skip" Carr, president and CEO.
"We're paying up a little bit on deposits and trying to run a more efficient operation,"he said.Local deposit, loan growth outpaces U.S.Continued population growth in Florida and in the Bay area has kept depositspouring into banks. Deposits for the 25 largest community banks in the area were up24.6 percent on average during 2006, more than twice the deposit growth at banksnationwide.Those deposits funded an average 32 percent jump in loans at local banks, faroutpacing the 7.7 percent national loan growth during 2006.Carr said Cornerstone with its 17 percent increase in loans in 2006 has been selectiveabout the loans it makes. "Our business has been very aggressive on quality loans,and not go after what we would determine to be riskier loans for the sake of yield," hesaid.Still, there's stiff competition for loans, both from startup institutions and out-of-town-based banks that have just entered the market, said Jack Barrett, president andCEO at
in Tampa."It used to be you just had one or two other banks you were competing with for aloan or a client. Today, it's three or four or five," Barrett said.He said First Citrus doesn't try to be the low-cost leader, emphasizing instead thecommunity bank relationship it can provide to its customers.Relationships, not price, also drives the lending policy at
,said Charles Hughes Jr., president and CEO of
,aJacksonville-based bank with offices in Tampa, Tarpon Springs and Pinellas Park."We try to give as good a service as we can so we can price our loans in a reasonably high area," Hughes said. "People won't pay a lot more for service, but they will pay alittle more."
Evaluating risk
There's mixed opinion about how banks will fare in 2007.Cornerstone's Carr said he thinks there might be light at the end of tunnel withrespect to the margin squeeze."Some people think that in the third or fourth quarter, we might see a reduction inthe Fed rates," he said. "There is a belief that the economy is slowing down and theFed will have to react, but we'll wait and see."
Add a Comment
ramidicalleft a comment