From his conversations with Florida bankers, longtime banking analyst Ben Bishop does see some signs that conditions in the industry are improving.
For a couple of years, bankers were afraid to come into work in the morning because they’d be greeted with a 9:10 a.m. phone call from a customer who couldn’t make his or her loan payments anymore, he said.
“They’re not getting those calls anymore,” at least not as frequently, said Bishop, chairman of Allen C. Ewing & Co. in Jacksonville.
“They’re still getting some, but that used to be a daily occurrence.”
The third-quarter financial results of Jacksonville area banks do show there has been some improvement this year.
In 2010, only three of the 12 commercial and savings banks headquartered in the Jacksonville metropolitan area were profitable. So far this year, six of the 12 have been profitable, according to their Sept. 30 financial reports filed with the Federal Deposit Insurance Corp.
“The worst is behind us,” Bishop said. He said it may take two to three years for the banking industry to fully recover from the recent recession.
Florida banks in general, and Jacksonville banks in particular, were hit hard by the real estate market swoon, causing millions of dollars in loans to go bad.
According to FDIC data, the ratio of non-current loans to total loans among all U.S. banks was 2.24 percent at the end of the third quarter. Only two Jacksonville banks had non-current loan ratios below that.
A non-current loan is defined as a loan in which the borrower is at least 90 days overdue in payments or is not paying at all.
Among all Florida banks, the non-current loan ratio was 5.18 percent, according to the FDIC data. Seven of the 12 Jacksonville banks have ratios higher than that.
By far the highest level of bad loans was at First Guaranty Bank & Trust Co., where nearly a third of all loans – 31.57 percent – were classified as non-current on Sept. 30.
The bank last week announced a deal to sell seven of its eight branches to South Carolina-based CertusBank N.A. to raise much- needed capital.
First Guaranty CEO Jay Fant said last week that the deal will give the bank time and capital to work through its bad loans. He is optimistic that conditions in the banking industry are improving, particularly in the commercial real estate loan sector.
“Yes, we do see signs of it turning around,” he said.
Price Schwenck, CEO of The Jacksonville Bank, is more pessimistic about the real estate market. His bank has been profitable this year and he said there are signs of improvement in the local economy, but not in real estate.
“I do not think we are in a recovery as it relates to real estate values,” Schwenck said. And, “I don’t see any reason to get optimistic that things will get better next year.”
The high levels of bad loans at local banks have caused losses in the past few years that eroded their capital, forcing a number of banks to seek new funding sources.
In addition to First Guaranty, four other Jacksonville area banks have been mandated by federal regulators to increase their capital levels in the past two years: Atlantic Coast Bank, Florida Capital Bank, Heritage Bank of North Florida and Prosperity Bank.
Three other banks that also were required to raise capital were merged into other institutions in 2010. Oceanside Bank merged into The Jacksonville Bank and the other two, Haven Trust Bank of Florida and First Bank of Jacksonville, were shut down by regulators and sold to out-of-state banks.
Bishop said it’s difficult for community banks to find new capital. Their shares of stock generally are not publicly traded, and they rely on selling shares to local investors in the community. But those investors don’t have as much money to invest as they used to.
“The average net worth of the people who used to invest in community banks has shrunk by 30 percent,” Bishop said.
If banks can’t find local investors, they generally have to rely on the big private equity firms that have capital to invest. The downside to that is those equity firms usually want control of the bank if they make the investment, Bishop said.
“It’s better than selling your bank to the FDIC, but not much,” he said.
Despite the real estate loan woes of the past few years, Bishop said Jacksonville remains an attractive banking market for those firms.
Last week’s First Guaranty deal is proof of that. CertusBank was formed last year by a group of equity funds that raised money to invest in distressed banks.
CertusBank already had acquired one Jacksonville bank office when it bought Macon, Ga.-based Atlantic Southern Bank in an FDIC-assisted deal.
The bank said it was interested in buying the branches from First Guaranty because it wants to expand its presence in the Jacksonville market.
“We still have the allure to the out-of-staters,” said Bishop.
Although Schwenck still is concerned about short-term trends in the real estate market, he is optimistic about the long-term prospects for Jacksonville community banks.
“All of the banks in this area are having to deal with the same issues,” he said.
“It’s going to take time for us to get the banks back where they were three years ago. But I’ve got no doubt that it’s going to happen,” he said.
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