New CEO brings new game plan to Republic

Plain-vanilla first mortgage lending is in, risky ventures are out as chief executive Bill Klich forges ahead as leader of the biggest bank based in the Tampa Bay area.

By JEFF HARRINGTON

© St. Petersburg Times, published June 18, 2000

Bill Klich doesn't like to be called a turnaround artist.

Yet, investors and customers of Republic Bank of St. Petersburg are waiting to see what he has up his sleeve to resurrect the fortunes of the biggest bank based in the Tampa Bay area.

Republic still is recovering from a disastrous experiment in selling high-risk mortgages. The bank lost $21-million in one quarter of 1998, fired hundreds and closed its Flagship Mortgage unit. The chief executive who crafted the mortgage strategy, John Sapanski, has retired.

Two months after he was hired as CEO, Klich is forging a three-year game plan for Republic using consultants he brought with him from his last job as head of SunTrust Bank's operations in Sarasota.

He is pushing plain-vanilla mortgages with low risk and examining where the bank does business branch-to-branch. He may even shrink the $2.7-billion bank, pulling back in some counties where it is overcommitted, before growing it.

"I'm not here to save it and sell it. I'm not here to take on somebody else's game plan either," he said. "I'm here to put together what I consider is a reasonably sound business plan."

As he prepares to present that plan to analysts in mid-July, Klich gave the St. Petersburg Times a glimpse of where he is coming from and where he intends to go:

Q: After a headhunter contacted you in December, why did you accept the offer from Republic's board?

A: I spent 18 years at Southeast (now part of First Union). When I went on my own (as chief executive of the former Coast Bank), it was really interesting. I really enjoyed the entrepreneurial aspect of it. You're kind of out there by yourself. You're dealing with, in that case, the shareholder (the late Hugh Culverhouse); you're dealing with the regulators. You're dealing with the board of directors; you're dealing with your employees; and most important, you're dealing with your customers. You're not looking for somebody else to give you that guidance.

At SunTrust, they took it to the next step where you could be an entrepreneur and run your own bank with a separate charter and a separate board. Basically, you were given a bottom line on an earnings number every year and how you got there was at your discretion.

Q: And when SunTrust changed its structure in January, eliminating much of that regional autonomy, you missed it?

A: Yes, there was going to be a change on the horizon, but again I wasn't planning on moving. There was this opportunity that came up and I said I'll at least investigate it. It's the opportunity . . . to be the premier, pre-eminent Florida-based bank, which is how I play; I play to be No. 1. I build teams that aspire to be that. If you look at the national economy, the South leads the nation; Florida leads the South and really the west coast of Florida and the lower east coast lead Florida. We're in those markets.

All those opportunities were looking at me. I had just turned 55. SunTrust had been extremely good to me but I think I wanted to try something like this one more time before I retired.

Q: A lot of changes were already made in repositioning Republic after Flagship. Did you approach this as a turnaround situation or are you inheriting a strategy that has already been put in place?

A: I'm doing the game plan. I wouldn't consider myself a turnaround artist. I look at myself as being successful in building winning teams. I look at 1999 for Republic as (a time) when the waves are pretty rocky and they're trying to level the lifeboats. I think Al May as interim CEO did a fabulous job of holding the franchise together, keeping a lot of key people here, believing there was light at the end of the tunnel, surviving a disastrous mortgage foray with Flagship. The board made a conscious decision after considering the option of selling the bank to make it a viable, growing, Florida-based bank. That's the only reason I'm here.

I coined a phrase (during an earlier job) that I think we can be a viable alternative to the ABC banks: the Atlanta, Birmingham (Ala.) and Charlotte (N.C.) banks. They pretty much make up 90 percent of the banking landscape if you look at it today.

The big banks obviously have more resources . . . but on the other side we can make a decision locally and implement it quicker than they can.

Q: There is a theory that the community banks and megabanks both serve a purpose and can thrive but there's no room for the middle guy. Your bank is a classic case of that in-between size. Any credence to that theory?

A: You'll probably have to ask me that question again in five years.

I look at it the other way. I think we're large enough to have the resources to compete with the regionals and super-regionals and yet small enough to make a local decision.

I think if it was a $2.7-billion bank and wanted to get to $5-billion and also wanted to get in three states, I don't think we could do that. But we'll stay strictly focused on Florida and really on the lower two-thirds of Florida.

Q: Any models you're following?

A: Well, SunTrust did it until January . . . I think Branch Bank & Trust (BB&T) did it. They're the biggest bank in the state of North Carolina now. A $50-billion bank. Most people would assume it's either Bank of America or First Union. It's not.

Q: Let's examine one key area of concern. You previously said losses in your warehouse lending unit (which provides mortgage companies with interim financing secured by loans held for sale) should not exceed $6-million. Are you still confident of that?

A: My CFO (chief financial officer) said that, but yes, we're still confident. We added about $4.4-million (to reserves) and we already had some reserves, but the game's not over yet.

We've restructured several problems within the portfolio. Let's just say arbitrarily there's 20 different clients in that portfolio. We're talking maybe two or three (problems). We've restructured all those. We took a very conservative approach which is one of the many good things I learned at SunTrust.

Q: On the mortgage side, the old Flagship Mortgage has been restarted with some of the same former Republic people behind it. Is there a problem for you that customers might equate the new Flagship with Republic?

A: If they do, I'll dispel it. But it's completely different markets. They're going after a much different segment.

We're going to go into traditional residential real estate lending. The plain-vanilla, first mortgage lending. To me, it's going to be the cornerstone product of our branch network.

Q: Wasn't that the direction the bank took after closing Flagship?

A: They have. But our (similarly-sized) bank (at SunTrust) was doing anywhere from $40- to $70-million per month in mortgage production. This bank has been averaging somewhere in the neighborhood of $2- to $3-million. It seems to me there's room for a bit more. All they've really been doing is if an existing customer is buying a home or refinancing. They have not been actively marketing it for two reasons. One, there was a taint. You had this quote "mortgage problem" and if you don't read between the lines, what was that? Secondly, in 1999 it was kind of a turnaround year. They were waiting for a new CEO in deciding what direction the bank would take. So it was kind of sitting there.

Q: What about your branches?

A: We may shrink the bank before we grow it. We may re-allocate assets. If you look across the bridge we have only two offices in Hillsborough County. I've been personally involved in Hillsborough County banking since 1983. It's a great banking market. I would venture to say you will see Republic Bank signs in Hillsborough in the next 12 to 18 months. More than two. Sarasota County is a county that I'm very familiar with. We have two offices in Sarasota and seven in Manatee. You might see a few added in both counties.

Q: And where might you shrink?

A: The reality is if there are branches that don't have the opportunity to grow to a certain size or profitability level or we have them too close together or we're in a market we don't understand, yes, we're going to relocate them. Simple. Can I tell you today the specifics? No, but that will probably come out in the third quarter.

Q: As you assemble your plan, how much are you drawing from (Republic's largest shareholder) Bill Hough or (interim CEO) Al May?

A: They're part of the board and they'll receive a draft. Obviously, I have their input and welcome their input. But they've pretty much given me (autonomy). I wouldn't have come here if they didn't.

Bill Hough is attached to this bank. He really is. He wants the bank to be something special.

Q: Did you know (former Republic CEO) John Sapanski through your Florida banking background?

A: I had never met him. I read about him in the paper. I read about him in magazines . . . I knew that he was running this bank but I had never met him. He came to town about the time I was leaving to go to Sarasota so there was no reason for our paths to cross.

He stopped by here one day about three weeks ago just to introduce himself. He was not on the board, he was not on the search committee, and he was on a cruise during the annual meeting, so I had never seen him. So we had a five-minute conversation. He said hello and offered any help to answer questions about history. I took the (approach) that what happened happened and we have to focus on what we want to do today and going forward. I really didn't have any interaction with him.

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