What Slow Florida Housing Market? Local Banks See Increased Profit from Real Estate Lending

The Florida housing market has cooled? Tell that to local banks.

Real estate lending among the 21 community banks in Manatee, Sarasota and Charlotte counties actually increased to $4.3 billion during the 12-month period that ended June 30. It’s a 40 percent increase from the same span a year earlier, although it wasn’t all thanks to demand for Florida home loans.

A number of factors account for the dramatic increases, said Thomas Quale, president and chief executive of Sarasota-based LandMark Bank. Mainly, community banks focus more on commercial real estate lending than residential, Florida home mortgage lending; and the commercial real estate market has remained strong.

Rising land values and escalating construction costs have also contributed to rising amounts, Quale said. But even as community banks have increased their real estate lending, they have also increased their loan loss reserves.

As a group, the 21 Southwest Florida community banks put aside $45.7 million to cover potential loan losses by June 30. That figure is 40 percent more than the $32.7 million they set aside the year before.

“It’s just prudent to put money away before there are any problems,” said Neil McCurry, president and chief executive of Sarasota-based People’s Community Bank. “Everyone agrees that the market is slower than in years past and increasing loan loss reserves is a way for community banks to self-insure their portfolios.”

Florida home mortgage procedures at larger banks

This isn’t always the case for larger banks. Bank of America, for example, had loan loss reserves of $4.5 billion as of June 30. That’s nearly 14 percent less than the $5.2 billion the giant bank held in reserve the year before.

Larger banks often use national and/or Florida home loan loss reserves as a way to manage earnings, McCurry said. By reducing reserves they can make their profits look larger, but that may result in problems later on.

Jack McCabe, a Deerfield Beach-based real estate analyst, thinks that banks, like the real estate clients they serve, might not be reacting fast enough to the downturn in the real estate sector.

“The fact that home builders were still starting spec homes even when sales were dropping surprised me,” McCabe said. “They saw the market changing, but they were afraid that if they didn’t keep their subcontractors busy, they would lose them.

McCabe predicted that it will take years to burn through the accumulation of unsold houses. As a result, new home construction will suffer, as will construction of office buildings and shopping centers. This would be the case even if Florida mortgage loans were being applied for at a faster pace.

Bank of Commerce Chief Executive Charlie Murphy said the downturn in lending is already occurring.

“The loans you are seeing could be a remnant of loans that were put on the books six months ago and are still funding,” Murphy said. “Construction takes a while to complete. You will definitely see more of a slowdown in the numbers toward the end of the year.”

Grant Thrall, a University of Florida land economist, is encouraged, though.

“The sky is not falling in real estate in Florida,” Thrall said. “We are in a lull, but we are also within 18 months of the beginning of a rush of baby boomers to retire and that will propel Florida real estate values upward again.”