Writer: Joshua Andino
2 min read August 2023 — While the rapid increase in interest rates over the last two years led to industry-wide volatility, Florida’s growth has insulated some local banks.
The increase in interest rates over the last two years forced banks and lenders across the country to pivot – but less so in Florida. The state’s ongoing population growth has buffered banks across the state, and while there were some challenges that led other institutions to lay off mortgage teams and refinancing demand seemed to evaporate altogether, the Sunshine state saw continued growth, in-migration, rising housing prices, and continued demand for financial services
“The market has certainly been impacted by changing rates and economic impacts, however, we have not seen a dramatic change in demand at our bank,” said Paul Noris, CEO of Bank of Central Florida to Invest:. He added, “We see the opportunity in a time when many Banks do not have enough liquidity to lend, as we are in a strong cash position and are ready to serve the potential growth along the I-4 corridor.”
The Lakeland-based bank has steadily expanded across Central Florida, fueled by favorable economic tailwinds that drove it to establish a new Plant City location, enter the Tampa Bay market in 2021, and reach over $1 billion in assets. “Florida is growing and doing well, which, in turn, results in economic development across Central Florida,” said Noris.
Nevertheless, challenges across the sector remain. The increase in rates has led to industry-wide margin compression, and a potential misallocation of capital in between short and long-term assets and liabilities. The subsequent risks a mismanaged position entails can leave banks susceptible to potential shocks. When Silicon Valley Bank announced it was undergoing a capital raise to shore up its finances, the lack of clear communication and ensuing panic led to a bank run that now stands as the second-largest U.S. bank failure in history. Similarly, First Republic Bank branches in Florida are now owned and operated by J.P. Morgan.
When asked about the volatility the financial sector had seen over the last year, Noris responded he had noticed increased scrutiny in the aftermath of other banks’ failures. “Silicon Valley and First Republic were banks in a unique situation. However, we have seen an increase in scrutiny around cash position, liquidity, and access to liquidity due to the recent events of bank failures.” He added, “Although we do not know the risks that were taken, we are confident to say we are not in the same situation.”
Since then, the Federal Reserve has paused its interest rate hikes, and while it remains likely that there will be more this year, it may be reasonable to conclude that the worst has passed, with Goldman Sachs reducing its recession forecast for the next 12 months to 20%, down from 25%. Similarly, Morgan Stanley has revised its GDP projections for the first half of 2023 up to 1.9%, up from its earlier 0.5%.
Financial institutions with the foresight to plan ahead – and keep strong cash reserves – find themselves in a favorable position, providing opportunities for continued growth. Noris explained to Invest: that Vision 2025, the banks’ strategic plan, would continue to steer the organization forward, primarily thanks to their continued client focus. “If anything, our Vision 2025 plan is even more opportune for this economic climate. It’s focused on growth, excelling at client service, and developing talent which are all competitive angles a company desiring to expand need to hold. With advancements in technology, we hear many consumers still need to speak with someone to discuss their plans. On the flip side, we also see the importance of adopting certain technological tools that improve our clients’ experience.”
He added, “Our Relationship Managers are a breath of fresh air for the business owner who doesn’t need to send a question through a chat box or wait on hold for an hour, tossed between staff. Our business model speaks to the service-oriented gap that technology is missing.”
For more information, please visit:
https://www.bankofcentralflorida.com/
