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banking on Service

In 1952, John W. Sapanski came within hours of being shipped off to combat in Korea.

But the morning his unit was scheduled to leave for the front line, Sapanski was pulled from the group of soldiers. He would stay in Yokohama, Japan, to run the grocery store, bowling alley and nightclub at the U.S. Army base there. While other soldiers were dodging bullets, Sapanski introduced swing bands and magicians at the club.

Now age 65, Sapanski still cites that early detour as proof that landing in "the right time and place are everything."

These days, Sapanski has found his right place as chairman and chief executive officer of Republic Bank in St. Petersburg. When many of his peers are retiring, Sapanski and his partner _ St. Petersburg financier William R. Hough _ are building a community bank that focuses on personal service in an era of electronic coldness in banking.

So far, it seems to be working. With $820-million in assets, Republic has more than quadrupled in size in just three years. Some competitors and bank analysts say Sapanski and Hough are building a big base of customers and branches _ at the expense of current earnings _ to make the bank an attractive takeover target for an out-of-state company like Ohio's Banc One Corp. or California's BankAmerica Corp.

But Sapanski says he is in for the long term. "I have not one iota of a thought about selling this bank," he says.

Bank analyst Richard Bove of Raymond James Financial Inc. in St. Petersburg agrees that Republic is taking the sorts of steps that could make it a long-term player in local banking.

"Sapanski has fostered a culture that's highly service-oriented," Bove says. "When you walk into a branch, someone greets you immediately."

Florida has plenty of retirees and low-income people _ two groups that typically prefer to bank in person, not by telephone, personal computer or automated teller machine. "So you can get away in Florida with banking the old-fashioned way a lot longer," Bove says.

This old-fashioned approach to banking is what attracted Craig Tone of Clearwater to the bank. Tone, a savings and loan executive turned mortgage banker, wanted the same "sense of being at home" that he found at thrifts in his native Ohio. "At Republic, everybody is very accessible to me," he says.

Other customers are equally impressed. "They treat you like you're a king," says Henry Reiss, a Clearwater private investigator. "All the tellers, all the (branch) management, they know my name."

Other banks have offices closer to Reiss' house. But he picked Republic when he learned its branches stay open during the week until 6:30 p.m. and on Saturdays from 9 a.m. to 1 p.m.

Deborah Beylus, a bank analyst with J.W. Charles Securities Inc. in Boca Raton, says Republic should be able to preserve a high level of service even as it continues to grow. "It's very small in the relative scheme," she says.

subhed: The cost of growth

Sapanski got an early start in banking, working as a gofer for Dime Savings Bank of New York in 1949. The son of a Brooklyn machinist, he worked at Dime for 38 years and rose to the post of president and chief operating officer, second only to the chairman. While there, he earned a reputation as a waste hawk and even wrote his graduate school thesis at City College of New York on cost-cutting at thrifts.

By 1988, he was ready to run his own operation and was recruited to take the top job at Florida Federal Savings & Loan in St. Petersburg.

When he arrived, the S&L was awash with problems. Sapanski won kudos from regulators for his efforts to straighten out the mess, but they seized the thrift anyway in 1990, when its capital dropped below the federally mandated minimum.

Florida Federal's worst sin _ fraud in its student-loan department _ began in the mid-'80s when the department fell behind in processing loan claims. Executives in the department instructed employees to falsify loan documents. That led to the prosecution and conviction of three of the thrift's executives.

"For me, it underlined the need for control and communications," Sapanski says. "The prior CEO should have been aware that the manager wasn't getting the claims processed."

"The most difficult problem a CEO faces is getting the bad news," he says. "A CEO can always get good news."

The 1991 sale of Florida Federal to First Union Corp. of Charlotte, N.C., left Sapanski, then 61, looking for work. Plenty of people would have retired, but Sapanski _ who swims 50 laps several times a week _ wasn't ready.

That's when he paired up with Hough, who also owns the St. Petersburg investment company that bears his name _ William R. Hough & Co.

The two share interests beyond financial matters. While Sapanski kayaks at sunrise on the bayou behind his house, Hough, 69, competes regularly in the St. Anthony's Triathlon in St. Petersburg. He has finished near the top of his age group several times. Hough also has sailed competitively and is commodore of the St. Petersburg Yacht Club.

Hough has ceded many of the day-to-day duties at the investment company to his son, Robb, but the elder Hough has spearheaded the firm's recent expansion into stock brokerage after decades of underwriting and selling municipal bonds. Bank stocks are one of the specialties Hough chose.

For his personal portfolio, Hough has invested in banks for nearly 40 years. But he never took a majority stake until he and Sapanski bought Republic in 1993. The partners have since sold stock in the bank to the public. Today, Hough owns about half the shares, Sapanski 10 percent.

"There was no grand plan," Hough says. "I'm an opportunist and take advantage of investment opportunities when they present themselves."

Over the last year, their investment's performance has lacked luster. Republic's stock price reached its 52-week high of $15.75 a share in September 1995. Thursday, it hit a 52-week low of $11.87{, before improving Friday to close at $12.37{.

Other Florida banks also have performed poorly lately. Their prices had been buoyed by expectations that out-of-state banks might acquire them. But that hasn't happened, and their stock prices have drifted.

Like its stock price, Republic's earnings have fluctuated. They rose from $1.1-million in 1993 to $6.9-million in 1994, then dropped again to $5.8-million in 1995. The big jump between 1993 and 1994 was partly caused by a onetime gain stemming from accounting adjustments.

The bank grew substantially in 1993 by acquiring the Florida assets of CrossLand Savings Bank in Brooklyn, N.Y. And it has continued to expand by scooping up the healthy loans of banks seized by regulators and buying branches closed when big banks have swallowed smaller competitors.

As a result, the bank has swelled from seven branches to 33, creating a network stretching from Venice to Port Richey. Sapanski says it will open offices in Hernando and Hillsborough counties within the next year and a half. Chances are, it will keep expanding after that.

"The bank's not that far from $1-billion, and I'd certainly like to see it reach that level," Hough says. "And the idea of having a major statewide institution is attractive."

But beefing up Republic as quickly as Sapanski and Hough have appears to have hurt the bank's profitability.

One key measure of bank profitability is return on assets, a ratio calculated by dividing a bank's net income by its total assets. It shows how efficiently assets are deployed. A higher ROA means a more profitable bank.

At the end of last year, Republic's ROA was 0.77 percent, compared with an average of 1.17 percent for Florida community banks. By that measure, Republic lags other community banks in Florida, says St. Petersburg bank analyst Gerald Stogniew.

That lower-than-average profitability comes at a time when many banks are reporting record earnings, thanks to a growing economy.

A key reason for Republic's lagging profitability is its large number of non-performing assets.

At the end of last year, Republic's non-performing assets were 3.36 percent of total assets, compared with 0.77 percent for the average Florida community bank.

When Sapanski and Hough bought Republic, its bad assets were even higher, at 7.55 percent. But since then, Sapanski has gradually reduced the problem assets, and he expects to cut them to less than 2 percent within the next year and a half.

He plans to do that by following principles that have guided him through nearly five decades in banking: careful attention to costs, decisive action when opportunities arise and open communication with his management team.

Communication in action

A visit to the bank's weekly meeting to review its loans, investments and deposits shows how Sapanski puts into practice his commitment to communication.

It's 9:30 in the morning. Coffee mugs and soda cans are within reach of the 15 executives around the table. Nearly everyone, including the boss, is in shirt sleeves. But their demeanor is reserved.

The group zeros in on the rates that other community banks are charging on loans, making sure Republic's rates are among the lowest in the Tampa Bay area.

They assess deposit rates, too, but here they're not as concerned about how the bank stacks up to competitors. Gabriel Villada, the treasurer, points out that market rates have been rising, and loan demand has softened. The bank, therefore, doesn't need to bring in additional deposits to fund loans. The group decides its deposit rates are sufficient.

Sapanski offers occasional words of encouragement to members of the team but makes no effort to dominate the meeting. "When I was younger I did, but I want people to grow here," he says.

"There will be a time in the future when I feel the bank has momentum and can devote less time to it," he says. "So we have assembled a team of executives that's competent and experienced."

Fred Hemmer, who worked for Republic before Sapanski and Hough bought it, oversees lending. Bill Falzone, from Florida Federal, is the chief financial officer. John Fischer, another Florida Federal alum, heads retail banking. And Richard Gleitsman, from CrossLand, is the chief administrative officer.

Sapanski won't say which one is his likely successor, but Hemmer appears to have an edge. His title is senior executive vice president, while the rest of the group are merely executive vice presidents.

"I'm confident that if I'm not around we have good leadership to run the bank," Sapanski says.

Bay area big shots

The biggest financial institutions based in the Tampa Bay area, based on assets.

Suncoast Schools Federal Credit Union $1.4-billion

Republic Bank $820-million

GTE Federal Credit Union $504-million

MacDill Federal Credit Union $431-million

The Bank of Tampa $216-million

+ Based on assets

Source: Times research

AT A GLANCE

Republic Bank

Headquarters: St. Petersburg.

Assets: $820-million.

1995 net income: $5.8-million.

Employees: 432.

Branches: 33.

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