This South Florida banker can teach us all about serving a dynamic market

BAI proudly serves the broader financial services space, and as Senior Editor, I welcome the chance to talk to as many practitioners in our industry as possible. When a public relations specialist asked if I wanted to interview a Florida banker on tariffs and their impact on construction lending in that state, I paused at first, thinking the angle might be too specific for my national audience.

That pause was short-lived as a I quickly realized I should ask a Floridian about trade issues and interest rates and inflation and extreme weather risks and construction trends and demographics and the record wealth transfer and really any and all of the big topics that shape financial services across all geographic markets but might impact a single week of transactions in his neck of the woods.

So I said, yes, I would appreciate some time with Miami area-based David Druey, Florida Regional President at Centennial Bank, a community bank with more than 165 branches in the Sunshine State, as well as across Arkansas, Alabama and New York.

At a minimum, David’s experience is a lesson in know-your-community. And what you don’t know, learn.

Some questions and answers have been edited for length and clarity.

BAI: You’re sitting in a valuable seat because Florida is a high-population, economically and demographically diverse, high-growth state. Not to mention its unique weather and construction considerations, so let’s talk about trade and tariffs, inflation and interest rates, to start, and go from there…

Druey: Inflation, of course, is top of mind still in this current interest-rate and spending picture and for the construction outlook. I think U.S. tariffs on Chinese steel specifically is going to have an impact in driving up construction costs, which is very important to us in South Florida and Texas, where Centennial also has a large presence. Now, we have priced in this contingency in our construction loan portfolio for some time, across our footprint.

BAI: And are we talking about a couple-year window, five years out? What is the lead time for your planning?

Druey: If a project is within two years of being done, we may have a stabilization period, and so not as much impact. For a project starting today, as a banker, I need to adjust for anywhere between 10% and 50% more in materials prices as a contingency. And listen, we’re not trying to add super contingencies onto every line item. We want projects. That’s our goal.

BAI: And not to mention, and of course real estate very much a hyper-regional market, but real estate prices are underpinned by a housing shortage in this country, most would argue…

Druey: Certainly, there’s a difference between the way we might bank in Texas or Northern Florida, where in some markets if an available lot or property hits an issue for one reason or another, a builder might widen their loop. Much different dynamic in South Florida and its density, and a lot more intricacies. More of a redevelopment focus.

BAI: Obviously the Federal Reserve is as aware of the underpinning of construction cost issues, tariff-driven or otherwise, as much as all the other inflationary factors at work, but it strikes me as that’s part of the challenge… how to tinker with a tool like the Fed Funds rate to create near-term economic change. Which economic issues are temporary? Which issues are near term, longer term, etc.? Sort of a tweezers or hammer dilemma, too?

Druey: We’ve been saying for the last three years that higher-for-longer [on the benchmark Fed Funds rate] makes more sense to us. It makes more sense when you’re looking at the data and that’s what we’ve been underwriting based on. And I base much of that on the long runway of people spending up to credit card limits. There was a lot of belt-tightening during the pandemic and a lot of cash accumulation, so it made sense that when the economy got better, spending picked up. But that spending has continued, only now it is more “paper” spending. The result is the Fed, when it does move, can’t afford to be surgical.

BAI: Couple of questions back on Florida. And I know you’re a banker, not an insurance broker, but because of the complexities with property and casualty insurance in the state, and if I may, sort of notorious headlines on litigation, do you find yourself having to take greater insurance factors into consideration in the loan process? Are insurance costs one of your loan contingencies?

Druey:  We’re having issues with some homeowners getting coverage and as you may know with condo associations, some of whom have had issues and are really rethinking rules. So, and I’m broadly speaking, our insurance costs have gone up roughly 20% across the state of Florida, on average, over the last two years. In some instances, a home with a roof that’s over 20 years won’t be insured before replacement.

Am I exploring insurance considerations more than ever before? Yes. We look at delinquencies. We get our chart out and we will look at maturing loans. We really have to educate consumers on replacement costs and changing rates. What were they paying for insurance last year and what do we think it’s going to be this year and next year?  Big differences.

What’s interesting is we have some clients that intentionally don’t pursue insurance or show proof of insurance to kick in force-placed mortgage insurance, which only covers paying for the debt. They do this because at least that process is more straight forward than trying to navigate how complex the retail insurance market has gotten in the state.

I mean, I had clients who needed wind insurance that last year was $10,000 and this year, same essential policy, priced at $50,000.

BAI: Speaking of wind, how does a Florida banker keep on top of hurricane season?

Druey: Before each season, which typically is June to November for the peak, we do a “scrub” of the portfolio. Is the insurance solid? No lapses? And we like to do hurricane preparedness communication with our clients. Of course here in South Florida, we have Gulf of Mexico and Atlantic considerations.

But with the Miami code that came out a few years back and all the new construction post-Wilma, it’s been a good feeling for the bank.

BAI: Okay, last question. And we’ve talked about some challenges, but there’s very little detracting retirees, corporate headquarter relocations, entrepreneurial and startup growth, multicultural neighborhoods, and multigenerational families. Growth can be both fast, and limited, I’m sure. I could go on. What’s your message to bankers nationwide about doing business in such a dynamic place?

Druey: I’m from Arkansas. I grew up in Mississippi. To me, I think this is the best place on Earth. A melting pot. I embrace it. And that’s true of any market, personally and professionally. Embrace the differences. Listen to the stories. Prepare to be humbled. Here, I’m the minority. For one thing, I only speak one language.

People say this all the time. But maybe in a market like this, it’s really tested. Banking is a relationship. I’m giving people money. And technically, everybody has money to give. It’s not really that a customer wants my money in particular. They want a relationship with someone who’s trying to understand them and their business and help them get to that next level. And that’s all I’m doing.

David Druey is Florida Regional President at Home BancShares Centennial Bank.

Rachel Koning Beals is Senior Editor at BAI.