With southwest Florida's battered real estate market not expected to recover until at least 2009, TIB Financial Corp. in Naples has picked a good time to expand into the wealth management business.
The $1.4 billion-asset TIB acquired the wealth manager Naples Capital Advisers in January, and this month it applied with state regulators to establish a trust department it hopes to open next quarter.
Stephen J. Gilhooly, TIB's chief financial officer, said the company had been eager to diversify into trust and wealth management even before the local economy soured and TIB's loan growth slowed, because south Florida is home to many wealthy retirees.
Though it might take a few quarters to build up a critical mass of clients, being in wealth management should make TIB less reliant on spread income, Mr. Gilhooly said. "It will generate more noninterest income … which will hopefully improve our profitability and make us less dependent upon our interest margin."
Like many south Florida banks, TIB has devoted the bulk of its resources to real estate lending in recent years. From 2002 to 2006 its real estate loans rose an average of 23% a year, according to Federal Deposit Insurance Corp. data, and it had virtually no chargeoffs.
But even Florida, among the fastest-growing states, became overbuilt and the boom times came to a halt in 2007. TIB said its real estate loans rose just 5.6% last year, and it reported a fourth-quarter loss of $6.5 million, or 51 cents a share. It blamed the loss in part on an almost fourfold year-over-year increase in its loan-loss provision, to $6.2 million.
TIB's net margin interest on Dec. 31 was 3.60%, 58 basis points less than a year earlier.
TIB's purchase of Naples Capital Advisors, which has $80 million of assets under management, continued a series of moves it has made in recent years to expand outside of its traditional base in the Florida Keys. It opened its first Naples-area branches in 2001, and it entered Sarasota County in April of last year when it bought Bank of Venice, its first-ever acquisition. In May it moved its headquarters from Key Largo to Naples.
Megan Malanga, an analyst with Stanford Group Co., said TIB's purchase of Naples Capital and its plan to start a trust company "just makes sense given the demographics of the markets they're in."
Ms. Malanga said the addition of Naples Capital will not "move the needle in the near term," because "it takes time to build these kinds of businesses." But "it's a positive in the long run," she said.
On March 11, TIB announced it had received a $10.1 million capital infusion from two prominent Florida real estate families, the Barron Gift Colliers and the Lutgerts. Each invested a little more than $5 million in the company and they now own a combined 8.57% stake.
Edward V. Lett, TIB's president and chief executive officer, called the families' investment "a tremendous plus" for TIB. Having a representative from each family on TIB's board of directors will provide helpful real estate expertise, he said.
"We've been in the marketplace for five years and they've been in this marketplace for multiple generations," he said.
In a market summary report released Tuesday, the Naples consulting firm Fishkind & Associates Inc. said Florida will continue to have much slower growth through the first quarter of 2009. But from the second quarter of 2009 into 2010, it said, population growth will pick up and excess housing inventory will start to be absorbed. The report also said Florida would likely lead the nation in population growth for the next 30 years or more.
Mr. Lett agrees with that assessment. "Florida is not over," he said. "We're just going through an adjustment."
Brad Boaz, the chief financial officer of Barron Collier Co., in Naples, said that despite the real estate market problems throughout southwest Florida, the timing was right to invest "long-term" in TIB.
Michael Rose, an analyst with Raymond James Financial Inc., wrote in a note last week that TIB has been rumored to be a acquisition target for some time, but the investment with the two families "sends a clear signal that despite recent challenges, the company is not for sale.
"We view the investment as a long-term strategic partnership given the generations-old standing of these two families in southwest Florida," Mr. Rose wrote.
Mr. Lett said TIB is not looking to sell. "We would not be adding to our product line or attracting quality investors with a long-term perspective if we weren't thinking long-term," he said.
To improve profitability, TIB has been letting some of its higher-priced certificates of deposits run off, and as a result its share has fallen slightly in some markets.
"We closely managed our deposit pricing" in 2007, Mr. Gilhooly said. "We saw some very competitive pricing in deposits during the course of the year, which we chose not to participate in."
But the company did not need to fund loans as aggressively during the year, freeing it to concentrate on long-term relationships with customers rather than market share, he said.
"We think that's a better bank to build over time," Mr. Gilhooly said.
