Solutions Range from Merging to Going High Tech to Combat Low Interest Rates, Online Competition and Now, the Coronavirus
Abel Iglesias (pictured above) has seen plenty of change during his 40 years in banking in Miami-Dade County. But this year may top them all for the president of Coral Gables-based Professional Bank.
In just the first quarter, he’s helmed a stock sale on Wall Street, led a merger with a neighboring bank, and started to tackle the latest financial wild card: Coronavirus. Plus, he’s busy working with his digital team, trying to stave off growing online rivals that range from Quicken Loans and Venmo to Apple Pay.
Banking is far more complex business nowadays than just a decade ago. Compliance costs have soared since the 2008 financial crisis. Technology needs are spiking. And years of historically low interest rates have squeezed profit margins, making it more important than ever to operate efficiently.
“The biggest challenge is probably the low-interest environment,” says Iglesias. “It’s very difficult to navigate.”
That complexity helps explain why the number of banks based in Coral Gables has been slipping: Down from seven in 2015 to five last year, and with this spring’s merger of Professional and Marquis banks, heading to just four. (See chart from Bauer Financial). Many smaller, local banks are merging – or agreeing to be purchased – in order to spread their back-office costs across a larger network and boost economies of scale. What’s more, few new banks are opening nowadays because of the tougher rules, tech challenges and profit squeeze, analysts say.
|Bank||Year Founded||2015 Assets||2019 Assets|
|BAC Florida Bank||1973||$1.8 million||$2.2 billion|
|Banesco USA||2006||$1 billion||$1.7 billion|
|Capital Bank Corporation||2010||$7.5 billion||Acquired|
|Gibraltar Private Bank & Trust||1984||$1.6 billion||Acquired|
|Marquis Bank||2007||$346 million||$646 million|
|Mercantil Commerbank N.A.||1979||$8.1 billion||$8 billion (now Amerant)|
|Professional Bank||2008||$301 million||$1 billion|
The consolidation comes even as banking flourishes in affluent and centrally-located Coral Gables. The city hosts dozens of branches from banks based elsewhere, and last year, became home to the executive offices for a major Miami bank.
Professional Bank: Fast Growth and Consolidation
Iglesias’ Professional Bank illustrates the trend. A group of local investors, led by physician Larry Schimmel, started the bank in 2008 before the financial crisis, aiming to offer loans to area professionals including doctors and lawyers with a high level of customer care. Professional sought to draw customers dismayed by bureaucracy at large corporate banking chains.
“Our clients want to know that they can pick up the phone and call us, that they can get us on the line, and if there’s a problem, we’re going to take care of it immediately,” says Iglesias, who spends much of his time directly with customers.
By 2020, Professional’s business had boomed, with assets topping $1 billion and offices located in Miami-Dade, Broward and Palm Beach counties.
To fuel growth, the bank raised $17 million from investors in 2017 and another $20 million in 2018. It recruited digital banking experts in Ohio to drive innovation online. And this year, it completed an Initial Public Offering on the Nasdaq exchange on Wall Street, taking in nearly $60 million more.
Now, Professional is merging with Coral Gables-based Marquis Bank in a non-cash deal, trading shares for shares. Iglesias says his team opted to join with Marquis (founded in 2007, assets: Roughly $600 million), because both share a similar culture. Marquis also targets professional and business clients with personal care, providing mostly real estate loans. “And Marquis also has a very talented group of bankers, led by Javier Holtz and Miriam Lopez,” says Iglesias, calling deep relationships with bank clients the key to success in the industry.
South American Banks Expanding, Diversifying
Some banks based in Coral Gables also are changing hands, with new owners eager to tap the well-heeled market in the City Beautiful and beyond.
Last year, Brazil’s financial giant Bradesco agreed to buy veteran BAC Florida, offering some $500 million in a share-purchase agreement. The deal has yet to close. BAC Florida was founded in 1973, is part of Nicaragua’s Grupo Pellas and has grown local assets to top $2 billion. It’s known for offering real estate loans, private banking and other services mainly to Latin American clients.
Analysts say Brazil’s banks have been expanding in South Florida to serve both Brazilian clients moving to the area and to diversify from their homeland by obtaining deposits from U.S. residents and other Latin American customers.
Also changing ownership and pushing for more U.S. deposits is Amerant, the Coral Gables-based bank with the most assets: Nearly $8 billion. In 2018, the bank – formerly known as Mercantil Commercebank – spun off from Venezuela’s Mercantil financial group, changed its name and sold shares for the first time on Wall Street, partly to branch out from its longtime base of Venezuelan customers.
Venezuela’s Mercantil became active in Coral Gables in 1987, when it bought a North Miami Beach-based bank that had $53 million in assets and a local branch. Business mushroomed, including the 2006 purchase of Florida Savings Bank, and after the tumult of the 2008 financial crisis, through growth in Texas.
Today, Amerant boasts some two dozen banking centers in Florida,Texas and New York and calls itself the largest community bank based in Florida. CEO Millar Wilson sees room for expansion. “We continue to focus on growing domestic loans, improving profitability and efficiency, and navigating a low interest rate environment and strong competition,” Wilson told analysts recently after reporting profits of $51 million last year, up 12 percent.
Some Downside to Consolidation
To be sure, consolidation is not limited to Coral Gables. The 2008 financial crisis changed America’s landscape, as some banks stumbled and authorities tightened rules.
Nationwide, the tally of banks has fallen nearly 40 percent since 2008, to roughly 5,310 federally-insured deposit institutions today, government data shows.
Banking analyst Ken Thomas sees some downside to the consolidations. He says smaller, locally-based banks tend to be more responsive to their community – more apt to buy uniforms for the neighborhood Little League and more likely to lend for affordable housing and other community needs. That’s partly because executives who live in the area run into their customers and neighbors and hear community plans, complaints and other feedback firsthand.
“You can see the president of a local bank at Publix or the Coconut Grove Art Fair,” says Thomas, president of Miami-based Community Development Fund Advisors. “You’re never going to get to the top people of banks based elsewhere.” Still, Thomas says some non-local banks have become more responsive after mergers or purchases, leaving in place local managers and “keeping good local people.”
Sunstate: In Talks For Another Acquisition
In any case, there’s no end in sight to consolidations. As low interest rates squeeze, even U.S. banking giants are joining forces: BB&T (assets: $237 billion) and SunTrust (assets: $227 billion) recently united to form Truist, the sixth largest U.S. bank. Thomas estimates that community banks need close to $1 billion in assets to achieve real economies of scale and compete effectively in today’s environment.
Little wonder then that SunState Bank, based near Coral Gables in Palmetto Bay, is on the acquisition trail. In 2018, SunState bought InterContinental Bank of West Miami for $28 million, boosting its assets beyond $400 million. Now, it’s working to buy another area bank, says Lloyd DeVaux, president and CEO, declining to specify the name. “We’re in the final throes of negotiations,” he says.
SunState began in 1999 as Sofisa Bank of Florida, owned by a Brazilian family that also owns Sofisa Bank in its home country. The Florida bank has attracted Brazilians familiar with Sofisa among its customers. Like other small local banks, it counts real estate loans as the biggest part of its lending portfolio, says DeVaux. Business has been “phenomenal” in the past few years, but now faces uncertainty from the global coronavirus pandemic.
“Coronavirus is a wild card out there,” says DeVaux. “There is a real possibility that it will push us into a recession.”The pandemic has already sent U.S. interest rates down near zero.
Competition Rising From Non-Banks Online
Banks also must prepare for non-bank rivals expanding online. DeVaux says payment apps like Starbucks or PayPal “take away deposits from banks.” And Quicken Loans and other fintech firms are garnering “more of the lending business,” making banks focus on their own tech offerings, says DeVaux.
At Professional, Iglesias recruited digital banking expert Ryan Gorney (formerly of accounting firm E&Y) and his team to lead online innovation from their Cleveland base, customizing off-the-shelf software and creating new products as well.
City National Relocates its Top Executives from Miami
Regardless of the challenges ahead, there’s no denying Coral Gables’ allure for banking. Ask Jorge Gonzalez, president of Miami-based City National Bank, which has grown assets to $16 billion since its 2015 purchase by Chile’s Banco de Credito e Inversiones (Bci). Last year, Gonzalez moved City National’s top executives and client-facing divisions to a hub in Coral Gables, leaving such back office functions as tech and human resources at the bank’s Miami base. Among other services, the first floor at new 2855 Le Jeune Road offices offers private banking for clients.
Why the move? Coral Gables beckons with a central location near Downtown Miami and the international airport, and away from the traffic woes of Miami’s Brickell financial district. “It’s more user-friendly,” says analyst Thomas. “You can save at least a half hour off your commute, you have many nice places to eat and walk around, and restaurants that are often less expensive than Brickell.”
Iglesias, a longtime Coral Gables resident, knows the city’s pull. When Professional outgrew its first headquarters, executives considered relocating to another town, but decided to stay put. But even a strong location doesn’t make banking easy. With coronavirus closing many local businesses, Iglesias now is finding ways to keep in touch with staff and clients online, or sometimes, in-person – but with “social distancing.”