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TAMPA -- Mired in the muck of the subprime lending mess and confronted with sliding profit margins, two of the nation's largest lenders -- Bank of America and JPMorgan Chase -- have quietly turned up ATM fees for non-account holders.

Should national banks decide to continue offsetting losses by digging into customers' pockets, the additional service costs -- a $1 increase in teller fees by Bank of America in August and a 50 cent bump by JPMorgan Chase last month -- could herald more fees to come.

But at community banks around Tampa Bay, where the troubling mortgage losses faced by national banks have been largely avoided, top officers said there are no plans to ratchet up fees.

"Our customers are highly sensitive to any fee increases," said Ken Cherven, CEO and president of First Community Bank Corp. of America (Nasdaq: FCFL). "Every time our fees go up, they let us know about it. We aren't even close to considering changes at this time."

With thousands of locations, national banks such as Bank of America can harvest needed dollars by raising fees, but for community banks without a large-scale operation, fees provide a relatively minor boost to bottom lines, said Russ Hunt, president of Kendrick Pierce & Co.

"Community banks aren't trying to be everything to everyone," Hunt said. "For the most part, they're not interested in fees on high volume, high transaction services. Their core customer is really affected by the people there and the services provided."

Keeping costs down

Community banks know they can't offer the same nationwide access or broad investment and loan options as national lenders, so historically they've attracted customers with offers of superior service and lower costs.

Turning up fees would undercut that strategy, said John Puffer, chairman and CEO of Pilot Bank in St. Petersburg.

"Our approach, and I think it's true to say the approach of most community banks, is to make our services as friendly to customers as possible," Puffer said. "If we can keep costs down, we do it."

Community bankers said it was hard to know whether higher fees at larger banks would drive substantial business to community lenders. Robert "Skip" Carr, CEO of Cornerstone Community Bank, had doubts.

"The big boys don't worry too much about us," Carr said. "We're just a speck on the wall as far as they're concerned. Every now and there will be some runoff [from national banks], but they count on the idea that they're going to get customers simply because they're as big as they are."

Though community banks have avoided some of the deep losses of national banks invested in subprime loans, they still face challenges. The downturn in the residential real estate market is leading to closer scrutiny of loan portfolios. Costs of regulatory compliance are growing, and profits are dwindling as interest margins are squeezed.

Other methods

At national banks with more worrisome financial outlooks, fees are just one way for national lenders to buoy their bottom lines. Layoffs have come early and often in 2008.

At the end of January, Bank of America filed notices for the layoff of 224 employees in Tampa. One week earlier, Sun Trust cut 86 people.

"Our industry is experiencing some of the lowest margins in history," said Marcus Greene, executive VP of Freedom Bank of America. "When they aren't using fees to cover those losses, big banks are cutting costs, and that means layoffs."

The impact of these layoffs on the bottom line is immediate and certain, but tinkering with fees is a gambit that involves some speculation about customer reactions, Hunt said.

"They might be raising fees and then looking at whether it significantly changes behavior," said Hunt. "They could be saying, 'Let's see how far we can go before a customer decides it's too much.' There is a point where customers will just say forget it."

JACKSONVILLE — Northeast Florida community banks had among the highest averages of problem loans in the state during the third quarter of 2008, based on the latest research analyses compiled by two investment bankers.

The percentage of assets, mainly loans, that defaulted in the third quarter in the Northeast and North Florida regions averaged more than 3 percent of the banks’ total assets, slightly better than Southwest Florida and, in another report, South Florida as well.

Area bankers were surprised that the Northeast region ranked so closely to the South and Southwest regions in nonperforming assets.

“Historically, the manic effect of Florida’s economic swings haven’t been as prevalent here,” said Jay Fant, chairman and CEO of First Guaranty Bank and Trust Company of Jacksonville.

Before 2007, the percentage of these defaulting assets did not reach above 1 percent among the community banks in Florida until about the second quarter of 2007. Then it steadily increased in the first three quarters of 2008, according to one report prepared by a Tampa-based investment banker, Kendrick Pierce & Co., and sourced from SNL Financial, an industry-specific data researcher based in Charlottesville, Va.

This performance measurement is called nonperforming assets as a percentage of total assets. Nonperforming assets are primarily loans that the bank classifies as no longer accruing interest, or bank profit. The percentage is important to the industry because it represents the assets that, in the future, will be written off, acquired by the bank if it’s a tangible property that goes into foreclosure, or worked out with the borrower.

Northeast Florida had the second-highest average nonperforming assets at 3.55 percent of total assets in the third quarter, according to Kendrick Pierce & Co.’s report. The investment banker looked at community banks based in Florida and, in a separate analysis, thrifts, or savings institutions.

Among eight regions, the Southwest area had the highest average nonperforming assets at 4.73 percent of its total assets, followed by the Northeast with 3.55 percent and then the Southeast with

3.06 percent. The Panhandle had the fourth-highest average nonperforming assets at 3.02 percent.

“We all believed that South Florida and the Panhandle had more excessive speculative real estate than us,” based on other data that tracked housing developments, Fant said.

This type of speculative real estate, which is mainly raw land being financed for development, is categorized as land acquisition and development loans at banks. It typically produces a greater return for banks, but it is also riskier than other loans.

Before the housing market fallout, acquisition and development loans were very easy to get into, especially for new banks, because so much of it was available, Fant said. But as raw land and newly developed communities stopped selling, the loan volumes and payments stopped, too.

Southwest region banks had the highest percentage of nonperforming assets because that is where most of the overbuilding occurred, especially with condominiums and townhomes, said Mac Holley, president and CEO of Florida Capital Bank of Northeast Florida.

Northeast Florida banks have more single-family residential loans and less of a condominium market, he said. Holley thought the Southeast would have ranked second highest.

In another asset quality report, North Florida ranked third-highest with an average 3.18 percent of nonperforming assets to total assets among seven regions. The report was prepared by investment banker The Carson Medlin Co. in Tampa, which also sourced the data from SNL Financial. Carson Medlin looked at only community banks based in the state, excluding thrifts and restructured loans.

The Southwest also had the highest percentage in this report with 3.61 percent of its total assets as nonperforming. The South region was second with an average 3.24 percent of nonperforming assets.

Many bankers noted some discrepancies with the reports concerning the banks that were reviewed. Specifically, regional and national banks with large operations in the area were not included. But these banks typically do not break out numbers from each geographic area in their financial reports publicly.

Neither the bankers nor the investment bankers had a specific reason for why Northeast Florida ranked higher than expected, but they all agreed that problems with nonperforming loans will continue at Florida’s banks.

“In the trends we’ve seen, I don’t think it has substantially changed yet,” said Paula Johannsen, managing director at The Carson Medlin Co. “We might see more [nonperforming assets] in the fourth quarter as banks are identifying issues” in year-end reports.

Banks’ financial reports will not be publicly released until after they are submitted to regulators by the end of January.

In a healthier economy, nonperforming assets would be around or less than 0.5 percent of total assets, Fant said.

“When we see these numbers and these trends now, there’s nothing to refer back to gain wisdom from, so we’re in a new territory,” he said. “There’s a sense of reality that we’re in it for a long term.”

Since 2000, approximately 124 applications for de novo community banks were filed with the Office of Financial Regulation in Tallahassee. More than 100 have been approved with average initial investments of more than $10 million for each institution.

During this period, more than $1 billion has been invested in establishing new local banking centers designed to serve specific, discrete communities from the Panhandle to South Florida. New, state-chartered banks vary in size, health and future prospects as much as the population of Florida itself.

Unfortunately, recent economic turmoil has negatively impacted many Florida-based banks, and for more than a year banks have been challenged by the real estate meltdown.

Today, a significant number of banks are seeking additional capital to satisfy operational and regulatory needs.

At the same time, the relationships with those banks rest with a handful of investment banking firms, such as Kendrick Pierce & Co. in Tampa; Allen C. Ewing and Co. in Jacksonville; Sandler O’Neil and Partners in New York and Raymond James Financial in St. Petersburg. Most community banks seeking extra capital from investment bankers are morphing into merger and acquisition targets for healthy, well-capitalized or more mature community banks.

In some cases, banks like First Priority Bank in Bradenton have been acquired in FDIC-assisted transactions. All, however, have invested significant time, effort and capital in transferring or developing relationships within the non-money center banking sector, which presents opportunities for consolidation and growth.

We will also see an increase in combinations of unhealthy banks with healthy, stronger banks. Those mergers — while guided by a limited number of investment banks — will have at least two other common identifying characteristics.

First, the target bank will have its income statements and balance sheets reconstructed during due diligence or investigation. The restructuring will reveal the impact of the real estate downturn on future prospects of the bank, as well as depository and lending relationships. This effort will mirror the expertise that was needed during the Resolution Trust days of the 1980s.

Acquiring teams will sort through concepts of performing, non-performing and impaired loans. In addition, they will have to assess the possible salvage value of real estate owned as well as loans that are placed on non-accrual or have been charged off. The result of this effort will give the acquiring bank a better picture of healthy local market relationships, which may be worth money or stock to target shareholders.

At the same time, this method impacts all factors considered in valuing a bank. Not only loans, but also high-cost, long-term deposits, highly concentrated asset and liability activities, and similar matters. However, the real winners will not simply attempt to buy the carcass and healthy relationships at a scavenger price.

The most successful consolidators will take a creative win-win approach, knowing many impaired loans are not valueless, and many relationships that are momentarily challenged are not without ongoing value.

Several investment banks are testing the development of a mechanism by which payments may be made in the future to the acquired bank’s stockholders.

Whether this mechanism is reflected contractually or in a different type of security or stock has yet to be determined by regulators. Successful consolidators will be defined by their willingness to share a portion of the recovery value with the target bank’s shareholders.

The bottom line is: The days of three or four times book value transactions have been shelved. The next couple of years will require a “back to basics” approach.

The second common component in the process is new capital. Consolidators will need more access than ever before. Even if target shareholders are willing to accept the stock of a stronger, healthier partner, many will want some portion of their capital repaid, even if at bargain basement prices.

Also, additional capital will have to be injected to ensure the combined institution continues to meet its regulatory capital requirements and be perceived as well-capitalized by current and future depositors.

For the right deal, transaction and executive team, capital is — and will continue to be — available. The reward for diligence, patience, and win-win creativity will be valuable relationships and accelerated growth in important markets.