Insurance payoffs Fuel Mini-boom at Banks

The First National Bank of Homestead is based in south Dade County, Fla., where Hurricane Andrew recently wreaked billions of dollars in damage. But the bank is doing a booming business these days.

In the four weeks since the storm, it has gained $38 million in new deposits from insurance settlements. That's a sizable increase for an institution with $152 million in assets.

"Insurance companies are literally making settlements on the spot and getting money into people's hands," said Robert Jensen, executive vice president and marketing director at First National of Homestead.

Meanwhile, at the Miami operations of Sun Banks Inc., applications for small-business loans have increased dramatically in recent weeks. During the Labor Day weekend, for example, Sun Bank of Miami received 120 calls in 20 hours requesting short-term disaster loans.

"There's been a huge activity in small loans to get people through the initial stage," said Carl F. Mentzer, president of Sun Banks' Miami unit, which has $2.5 billion in assets.

Construction Loans

Mr. Mentzer said he expects his construction loan portfolio to expand as well, once the rebuilding is under way.

Other banks serving the hurricane-torn area also report that they are experiencing a dramatic increase in business. But the business boom is only temporary, warns John Godfrey, chief economist at Barnett Banks Inc., Jacksonville.

"South Dade County will never fully recover from the human and physical destruction that Andrew wrought," Mr. Godfrey said in a recent report.

He cited studies on the aftermath of Hurricane Hugo, which hit the South Carolina coast in 1989. In that disaster, home-owners and renters recovered only 45% of their losses through insurance and federal insurance, compared with an 80% recovery by commercial businesses.

Three Times Worse than Hugo

In the case of Hugo, "part of the construction and spending boom simply borrowed from the future," he wrote. "The property losses overwhelm any temporary benefit from the subsequent reconstruction."

Hurricane Andrew destroyed or damaged an estimated 90,000 homes, roughly three time Hugo's damage.

The two major industries in south Dade County are agriculture and the Homestead Air Force Base, which has 2,200 civilians on its payroll. President Bush has pledged to rebuild the base but is encountering oppposition in Congress.

Farmers growing row crops were fortunate in that the hurricane hit before they had started fall planting. But fruit growers lost many of their trees, which take years to grow back.

That's bad news to the smaller financial institutions in South Florida that live or die by the region's economy. There are three community banks in south Dade, including First National of Homestead, as well as several thrifts and credit unions.

Long-Term Impact Negligible

But Andrew's long-term impact on Florida's four biggest banks is likely to be negligible or slightly positive. Barnett, Sun, Charlotte-based First Union Corp., and Nations Bank Corp., all have minor exposure in south Dade.

First Union, for example, has $48 billion in assets distributed over 990 branches in five states. Loan chargeoffs from seven branches in south Dade probably won't even be noticed in First Union's next couple of quarterly reports.

"Measuring it in the context of our total operations, I don't think you'll see a material change," said John A. Mitchell 3d, president of First Union National Bank of Florida.

Larry J. Wertz, the bank's chief financial officer said First Union expects most loan delinquencies to be temporary, in any case, based on the company's experience after Hugo. As companies rebuild, their revenue streams will return, he said.

"Our expectation is that, when the day is done, though we may have some increase in chargeoffs and past-dues, the overall impact to the bank will be positive because of the overall rebuilding," Mr. Wertz said.

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