Writer: Joshua Andino
2 min read June 2023 — The banking and financial services sector has seen greater volatility over the last six months than a number of other industries. Despite the challenges however, Florida banks have managed to weather the potential downstream impacts fairly well thanks to the state’s continued and robust growth, with new residents opening accounts and businesses needing secure sources of credit to fund continued expansions. Invest: spoke to local banks across the Bay to hear their thoughts on today’s market conditions and how Florida’s finances remain secure.
How are you navigating today’s environment?
John Thompson, President & CEO, Central Bank: The most difficult challenge right now is deposits. We have no issue in loan generation. Mainstream news outlets don’t really understand the banking industry, so they make a lot of unjustified comments about the banking industry at large. Public confidence should be based on the true condition of a bank. Our bank is well capitalized, profitable and has a very low risk profile. But, if you turn on any business network or news network, you’ll hear somebody that has no banking background talking about the banking system. We operate in a constantly changing environment. We’re coming up on the presidential election year and there’s no telling where that’s going to end up, what our government will look like and how it will translate to the general business community. You need to be nimble and reassess what all that looks like. We have certainly seen a lot of unexpected change since 2000.
Dennis Murphy, President & CEO, Gulfside Bank: Higher interest rates have changed the dynamics for the consumer with regards to higher lending rates for mortgages, car loans and credit cards. It’s also changed the math for construction and other development projects in general. For instance, while construction costs and land costs have remained relatively elevated for some time now, when you add in higher borrowing costs, projects that penciled out 12-18 months ago no longer work. The combination of these factors has definitely impacted demand. Despite that situation, we are seeing a decent demand coming from folks who are entering the market as they move to Florida from other states. I am cautiously optimistic about Florida in general and Southwest Florida in particular because of all the advantages that we have here. I think that the business-friendly and tax-friendly components of Florida are moderating the negative effects of rising interest rates.
How do you assuage clients’ fears over banking instability?
Thompson: We try to do it every day. We’re a five-star bank. Bauer Financial has rated us five stars, which is the equivalent of the highest federal rating. Most of the banks in the Tampa Bay area look good but the challenge is deposits. To fund loans and maintain a certain level of liquidity, you need deposits. Our deposit levels were on a solid track until Silicon Valley Bank’s collapse slowed them down. Now though, we seem to have returned to a normal level.
Murphy: We were in a fortunate position in that it did not impact us. Our staff reached out to a large portion of our customer base to let them know that, unlike the banks that went down, we don’t have any concentrations or high-risk business lines. Gulfside Bank has a strong liquidity position and a diversified deposit base. We also cross-sell a deposit product that allows us to spread FDIC insurance to large balances when warranted. Our proactive outreach helped us continue to grow deposits which were up 13% in 1Q23 alone.
How have you seen the industry change over the years?
Thompson: What’s going on in the banking industry has been happening for years. It seems to be more embedded now that the credit unions are making inroads into what was previously a commercial banking domain, despite their favorable tax treatment. We are talking to the Senate and House of Representatives all the time. They’re aware of the issue but they don’t seem to be particularly interested in doing anything about it. There’s no justification for credit unions having a tax-free status anymore.
Murphy: Banking has certainly experienced consolidation. The number of banks that exist today is only a fraction of what it was 20 years ago. The reason is twofold. On one hand, there are some undeniable economies of scale and efficiencies that are gained by larger banks. While these banks cannot provide the same level of service or local decision-making as a local community bank can, they have operational and expense efficiencies that are hard to ignore.
On the other hand, starting a community bank such as Gulfside is much more difficult than it used to be. 10 to 15 years ago, it was possible to start a bank with $5 to $8 million in start-up capital. Nowadays, you need to raise north of $20 million to start a community bank. In the case of Gulfside Bank, we raised just under $24 million in 2018 to launch the bank. We believe the continued growth rate of our bank is proof that community banks still add value to our clients and can be a valid business model. It also shows the resiliency of this area and the positive business trends happening in Florida.
What are your thoughts on Florida’s economic growth?
Thompson: The overriding positive factor about Florida compared to other parts of the country is that there doesn’t seem to be any negative effects other than in the residential sector, which is not as robust as it was. Florida is a very attractive place to do business and, in the past, it has floated through recessions without any difficulty. It seems the state is well positioned to avoid the worst of a national recession. That remains to be seen because I can’t say a recession has set in yet.
Murphy: We are bullish about this area. We are investing in that future and opening another branch next year in East Sarasota County. We currently have one main office in downtown Sarasota and a loan production office (LPO) in Lakewood Ranch. We expect the market to continue growing. Even if there is a small recession in 3Q23 or 4Q23, we believe the favorable demographic shifts should moderate its overall impact on Florida.
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