by Mike Seemuth
Research on commercial banks in Florida shows that some of the youngest performed the best last year, evidence that those started since the height of the housing boom in the middle of the last decade had good timing on their side.
Bank consulting firm Financial Management Consulting (FMC) reports that six of Florida’s top 10 commercial banks in overall financial performance last year were under seven years old. FMC also reported that 13 of the top 30 performers were commercial banks younger than seven years of age.
Stonegate Bank in Fort Lauderdale, which will turn seven years old on March 7, ranked first in overall performance among 203 Florida commercial banks that FMC surveyed. Three other young banks in South Florida ranging in age from three years to six years also ranked among the top 10 statewide: Broward Bank of Commerce in Fort Lauderdale (sixth), Palm Beach Community Bank in West Palm Beach (eighth), and Banesco USA in Coral Gables (tenth).
FMC, which is based in Russell Springs, Kentucky, calculates a bank’s overall performance by averaging eight different measurements of revenue, operating efficiency, asset quality and return on equity. Timothy Finn, who heads FMC, said the firm’s score for overall bank performance is better gauge of “strategic progress” than any individual measurement that it embodies.
For example, “if somebody is really good at generating revenue, but they’re really lousy with overhead and efficiency, they’re going to get some points for revenue, but they’re going to lose the points in efficiency,” Finn said. The same type of offset will happen “if somebody’s got some real good earnings, but they’ve got a boatload of bad loans.”
Newer banks started since 2005 have avoided some of the mortgage-loan problems that many older banks have accumulated. Newer banks also have gained market share by taking borrowers away from established banks that have insufficient capital or provide unacceptable service.
David Seleski, president and chief executive officer of Stonegate, said the bank has grown largely by taking small and medium-size businesses away from large banks that refocused on bigger commercial customers: “That’s where we get probably 80, 85 percent of our business, the big regional banks … the Bank of Americas, the Wells Fargos.”
Stonegate was anxious to book loans immediately after its 2005 launch, but “in the middle of 2006, we started pulling back,” Seleski said. “I wish we had pulled back even more, to be honest with you.”
Business conditions for Stonegate have improved since then.
“We’re seeing a significant uptick in the economy, and we’re very busy,” Seleski said. Net loans and leases grew 43 percent last year to $586 million, and net income jumped to $11.5 million last year, more than three times what the bank earned in 2010.
Broward Bank of Commerce in Fort Lauderdale, a 3-year-old bank with one office, has charged off none of its loans as losses since opening in January 2009. The bank expanded its loan portfolio 38 percent last year to $83 million. Net income rose to $4.6 million last year, up 55 percent from 2010.
Banks started in 2007, 2008 and 2009 generally are “pretty clean,” said Keith Costello, president and CEO of Broward Bank. “Maybe they’ve got a few problem loans, but not many.”
Broward Bank has lured many of its borrowers from rival banks that lacked sufficient capital to serve them, Costello said.
“In 2009, there weren’t a lot of banks out there lending. We were picking up loans that we would never have had an opportunity to do otherwise,” he said. Now, however, “it’s getting a lot more competitive.”
‘I Sleep Very Well’
Palm Beach Community Bank also has a squeaky-clean loan portfolio with no charge-offs for losses in the last two years. “I sleep very well,” said founder, chairman and CEO Calvin Cearley, a veteran bank executive in South Florida. “We have been around here for a long time and have a good following … We know who to do business with and who not to do business with.”
Palm Beach Community Bank had $140 million of net loans and leases at the end of last year, up 20 percent from a year earlier. Net income was $2.08 million last year, almost unchanged from the year before.
“We’re picking up good customers from other banks that are just trying to shrink,” Cearley said. “A lot of the loan requests we get are from our competitors: They have a good customer, and they don’t want to renew the guy, even though he’s paying. … We’re picking up a lot of business that way.”
Newer banks also are growing by taking over branch offices from older banks that need to downsize. Banesco USA, started in 2006, plans to expand by purchasing a Weston branch from Great Florida Bank, started in 2004.
Miami Lakes-based Great Florida ranked 190th in overall performance among the 203 Florida banks that FMC surveyed.
Rafael Saldana, president and CEO of Banesco, said Great Florida has negotiated to sell its Weston branch because it is “trying to divest a little bit, to deleverage and reduce their size a little bit, so they can operate better.”
Coral Gables-based Banesco, which has a branch office and operations center in Doral and an offshore branch in San Juan, Puerto Rico, is growing at a robust pace. Net income soared to $3.8 million last year, up 86 percent from 2010. Saldana said Banesco has prospered despite the deep economic recession and the slow recovery because “we kept lending all those years.”
Net loans and leases increased to $291 million, a 47 percent increase from a year earlier, following double-digit increases in prior years as well. “The year before, in 2010, it was 40 percent. The year before that, it was 20 percent,” Saldana said. “When you practice prudent banking, you don’t go out of the market or go in aggressively.”