Bank Shot

In his first meetings with veteran bank executives and business leaders who envisioned starting a new bank in Naples, Michael McMullan quickly addressed their sincerity in creating a community bank. The response was that they had the patience and commitment to start-and stick with-building a local bank without turning around and selling it once it became a success.

"I said, 'If this is a Naples flip, I need to get back to Fort Lauderdale because I've got four kids to put through college," recalls Bancshares of Florida president and CEO McMullan, who returned to Southwest Florida from the state's east coast in 1999 to launch the bank. "From day one, we've made the statement that we're not in the business of building this bank to sell it. We've invested heavily in people and technology and our physical infrastructure in a way that can support a growing and dynamic bank for years."

De novo (new) banks are launched every year in Southwest Florida, and the state of Florida has one of the largest number of startups annually. (It flips as the leader with California, depending on the time frame.) That's partly because of the population growth-one often-quoted statistic is that approximately 1,000 people move into the state every day-and cash flow here. Since 1995, Florida has had 165 new banks start up, according to the Federal Deposit Insurance Corp.

Eleven of those opened in the Fort Myers-Cape Coral area, 13 in Naples and one in Punta Gorda. The largest spike in openings in Fort Myers-Cape Coral was in 1997, when two banks set up shop, and 1999 in Naples, with three new banks. Last year, Commerce Bank of Southwest Florida opened in September in Fort Myers at Royal Palm Square Boulevard and Summerlin Road. Preferred Community Bank filed its application in September and anticipates opening in the second quarter of 2006 in Fort Myers, says Brenda O'Neil, the bank's chief executive officer.

If the bank is eventually sold, the financial upside can be great. But those involved in bank purchases are reluctant to talk about their personal gains. Garrett Richter helped start First National Bank of Naples and build First National Bankshares of Florida into the largest bank-holding company headquartered in the state before it was sold to Grand Rapids, Mich.-based Fifth Third Bank for $1.6 billion. He declines to say how much he made in the purchase.

One of the attractions of Southwest Florida, both for banks based outside of the area and for those starting new banks, is the wealth and growth of the market, he says. When he and Gary Tice started First National Bank in 1989, FDIC-insurance deposits in Collier County totaled approximately $3 billion. Today, that number is approaching $10 billion, he says.

Acquisitions often leave a group of executives with banking expertise and community connections looking to parachute out and start anew. In just the past two years, Southwest Florida's market has seen the effects of consolidation, most notably with the sale of First National Bankshares of Florida to Fifth Third Bank in August 2004. In December, Stark Bank Group Ltd., which is the holding company for Iowa-based First American Bank, announced plans to purchase Naples-based Pelican National Bank, which has six local offices.

"From what I'm seeing, there's no slowdown in the startups yet. I think you're going to see more acquisitions in the state first. Whenever you have a lot of acquisitions, it stimulates a lot of startups," says bank analyst Richard Bove of the St. Petersburg office of Punk, Ziegel & Co. "You've got small banks fighting for the business, big banks fighting for the business."

Building in their back yard

After more than 20 years in banking and working for institutions such as First Union and Fifth Third, Chris Ferrer decided to create a community bank in his hometown of Cape Coral. After leaving a senior management position at a bank, he gave himself six months to put the business plan together and to meet with potential directors and investors as well as state regulators. "While the market could be perceived to be over-banked, I felt there were only a few community banks doing a good job," he says, giving praise to Riverside Bank of the Gulf Coast and Busey Bank.

He also recognized the potential of the Cape Coral market. Ferrer, who moved to Cape Coral in 1975 and has been working for banks since he was 17, says that through the years and economic swings, the local market seemed somewhat insulated. "Every bank I had worked for had been very successful," he says.

Not only did Cape Coral boast incredible population growth, but Ferrer also was connected with key players and up-and-coming business leaders. "It made sense to stay focused here. We chose our name and chartered on the Cape because we wanted to serve the Cape," he says. "I never thought about doing it any other place than home."

The Community Bank of Cape Coral opened in August 2004-a year after Ferrer began putting together his business plan and board. As president and CEO, he admits that early steps, such as forming the board, were challenging. "It was one appointment at a time," says Ferrer. He needed people who shared his vision and were prepared to invest their time and finances. He also had to watch out for ego issues between directors.

In meeting with state regulators, Ferrer and the board were interviewed individually and collectively about their plans. The case they made: The Community Bank of Cape Coral could add value because, with 28 to 30 branch offices in the city at that time, many of the banks, such as Fifth Third, Bank of America and SunTrust, appeal to a more regional customer.

"We were more focused on the community bank customers, the ones that are here year-round, small-business owners and professionals that had year-round needs," he says.

Gerri Moll, president of Bank of America's Southwest Florida division, the region's market share leader, says there's a place for small community banks, but Bank of America doesn't change its strategy when a new bank opens. "The banking market in Southwest Florida is very interesting. It's highly concentrated among the top handful of players," she says, "then it gets fragmented after that."

The Community Bank of Cape Coral was chartered with $8 million in capital, and at the end of 2005, it had approximately $86 million in assets and $77 million in deposits. "We definitely exceeded our expectations," Ferrer says, adding that the bank made $237,000 in 2005-its first full year in business.

Now the bank has 14 full-time employees in two temporary locations. Ferrer anticipates moving into its new 10,000-square-foot building on Hancock Bridge Parkway by the end of April, and he expects to add another 10 or so employees by the end of 2006.

Ferrer explains that the idea of flipping the bank was something he and the directors addressed early on. "We went into it very openly and said we'd like to run it for 100 years," he says.

But an exit strategy can't realistically be set when you're owned by individual investors who might not want their capital tied up for many years, he says. "I had personally worked for community banks that the strategy . at least the communication was, 'We never are going to sell, we're going to be there forever,'" he says. "I didn't want to take that approach. You really can't make that blanket statement today about something that would occur seven to 10 years down the road."

With $518 million in assets, Naples-based Bancshares of Florida is the holding company for banks in Naples, Tampa and Fort Lauderdale, as well as Bank of Florida Trust Co. This year, it plans to open an office in Boca Raton. But the path to growth hasn't been entirely smooth.

"We sold our stock here in the community. When the group was talking about getting the bank started, the stock market was booming. De novo banks were raising stock very easily," McMullan says, but that changed. "When we started selling our stock in May 1999, the market had turned. It was a different environment for selling startup bank stock. We had to work a lot harder."

McMullan, a fourth-generation banker, says that selling stock in the community provided an opportunity to get to know the shareholders that were going to be their customers. When he returned to Naples in 1999, he noticed that people were looking more at Naples as their home, and their home up North as their secondary residence. That affected the banking market. "They were looking to establish more of a deep primary banking relationship in Naples," he says. "In the early '90s, that was not the case. It was more of a secondary banking relationship."

After the bank opened in Naples, McMullan received a call a couple of years later from acquaintances in Fort Lauderdale who wanted to start a local bank. They created a business model in which the banks were part of the Bank of Florida franchise but were led by local boards and management. After selling stock locally in Fort Lauderdale, they recognized more capital was needed to build the franchise.