The U.S. Treasury Department slowed a decline in bank lending to small businesses in South Florida by throwing TARP-like funds at the problem last year. But the slow pace of economic growth and lingering caution among banks and borrowers alike still weigh on small-business lending.

“It seems as though a lot of banks are shying away from the $1 million-and-under loans,” said Keith Costello, president and chief executive officer of Fort Lauderdale-based Broward Bank of Commerce, a two-office bank with a $4 million loan limit. “I’m hearing that some banks are starting to focus on larger loans.”

The Treasury Department last year spread $144 million of TARP-like funds among 17 small banks in Florida, including one in Miami-Dade County and two in Broward County, to encourage more small-business lending. But it wasn’t enough to stop an overall decline in community bank loans to South Florida’s smallest commercial borrowers.

A survey of 67 banks based in Miami-Dade, Broward and Palm Beach counties by the Daily Business Review shows that 47 of them reduced their small-business loan portfolios in the 12 months ended in September.

Total loans and other assets of the 67 FDIC-insured banks amounted to $65.1 billion on Sept. 30, up from $51.7 billion a year earlier. But the banks’ combined small-business loans dropped in the same period to $4.2 billion from $4.4 billion.

“It really has become a lot more difficult to continue to grow loans and also to have the kind of asset quality that we maintain,” Costello said, noting that none of the loans at Broward Bank of Commerce is classified as non-performing. “The competition is getting more difficult, and in addition to that, you see spreads are declining, due to the low-interest rate environment that we’re in. Things are kind of working against the small bank right now.”

The federal government last year helped Broward Bank of Commerce and two other community banks in South Florida to sustain solid growth in their lending to small businesses. The Department of Treasury paid a total of $19.3 million in the summer of 2011 to buy preferred stock in Miami-based Marquis Bank and in the parent companies of Fort Lauderdale-based Broward Bank of Commerce and Pompano Beach-based Florida Shores Bank-Southeast.

All three banks recorded double-digit percentage growth in the year ended Sept. 30 in their commercial real estate loans and commercial and industrial loans to small businesses, which were up 31 percent at both Florida Shores Bank and Marquis Bank and up 15 percent at Broward Bank of Commerce.

Each of the three banks got millions of dollars of fresh capital as a result of the federal government’s enactment of the Small Business Jobs Act of 2010. The law created the Small Business Lending Fund (SBLF) program, authorizing the Treasury Department to buy preferred stock or senior notes from banks with less than $10 billion of assets.
The SBLF program is roughly similar to the Troubled Asset Relief Program (TARP), which federal lawmakers created at the height of the global financial panic in 2008 to recapitalize domestic banks.

The Treasury Department’s cash yield on its income-bearing investments in banks though the SBLF program can adjust within a range of 1 percent to 7 percent of the amount of the investment, depending on each bank’s ongoing commitment to small business lending. The yield will rise to 9 percent for any bank that fails to repurchase the federal government’s preferred stock after 4.5 years.

“It’s a deal at 1 percent,” Costello said, referring to the current rate that Broward Bank of Commerce pays.

The holding company of Florida Shores Bank-Southeast got $12.7 million of funding under the SBLF program in July 2011. Broward Bank of Commerce’s corporate parent got $3.1 million in August 2011, and Marquis Bank received $3.5 million in September 2011. In addition, the program last year provided about $125 million of fresh capital to 14 other Florida banks with home offices outside Miami-Dade, Broward and Palm Beach counties.

 “It’s an outstanding program,” Javier J. Holtz, chairman and chief executive officer of Marquis Bank, said of the SBLF program in an interview. “It adds to our Tier 1 capital and allows us to expand our small business lending. … We focus on small business lending, so we cater to businesses that are doing less than $10 million in [annual] revenue.”

Marquis was one of only 20 community banks in South Florida that increased their lending to small businesses in the 12 months ended in September. Pacific National Bank of Miami expanded its small-business loan portfolio in the one-year period by 98.7 percent, faster than any bank in South Florida. International Finance Bank in Miami had a comparable growth rate of 93.4 percent, the second-fastest spurt in small business lending. Other leaders in this lending category included Banesco USA in Coral Gables (55.6 percent growth), 1st United Bank in Boca Raton (35.6 percent) and Apollo Bank in Miami (30.3 percent).

But the overall trend shows a sagging commitment among community banks to small-business owners. For every $100 of assets at the community banks surveyed, the portion allocated to small business loans declined in the 12 months ended in September to $6.58 from $8.58.

The Daily Business Review surveyed data on commercial real estate loans and commercial and industrial loans under $1 million that banks break out in the quarterly financial reports they file with the Federal Deposit Insurance Corp. Excluded from the survey of loans on the books of community banks in South Florida were small-business loans by such leading national banks as Wells Fargo, Bank of America and JPMorgan Chase Bank, which may be grabbing a bigger share of the small end of the area’s commercial credit market.

For example, New York-based JPMorgan Chase Bank booked $512 million of small-business loans to borrowers across Florida in the first nine months of the year, more than the $498 million the bank closed in all 12 months last year, Carlos Alzate, the bank’s Miami-Dade market manager for business banking, said in an interview.
“We’ve had economic challenges in the market,” said Steve Nivet, the South Florida area president of Regions Bank, a Birmingham, Alabama-based bank with 80 branches in the area. “However, we are having a very healthy year from the perspective of business banking within our branch network. We are seeing improvement there.”