By the Numbers: Aided by Mergers, Start-Ups Are Turning the Corner

When Moon S. Yang opened Panasia Bank in Fort Lee, N.J., in the spring of 1993, he hoped it would become profitable within one year.

It took only 10 months, and today, the flourishing bank already has $52 million of assets and a 1.14% return on assets - more than respectable for a three-year-old institution.

"We felt very strongly that there was a community need for a new bank to serve the ethnic market," said Mr. Yang, Panasia's chief executive. "We were very confident."

Most start-ups are not as fortunate, at least not as early in their development. Experts agree that generally speaking a bank cannot expect to break even until it reaches its third year. Solid profits - reaching the thresholds of a 1.50% return on assets and 15% return on equity - should not be expected until at least the fifth year, most said.

But those benchmarks are being revised somewhat. The fact that banking has experienced some of its best years in recent memory has lured more investors into start-up efforts, and such banks are reaching profitability more quickly than was the case as recently as five years ago.

A review of the 16 banks that opened in the first half of 1993, for example, showed that all but one are now profitable. Four of them have ROAs of 1.00% or above and five have ROEs of 9.00% or higher.

Consultants attributed the quicker success, in part at least, to the consolidation wave that has swept across the country in the past two years.

"Certainly the merger environment, where a number of communities have lost their local banks, makes it easier for a new bank to start up," said Cynthia J. Stanaro, senior vice president at Danielson Associates Inc., a Rockville, Md., consulting firm that has done extensive work with start- ups. "There's an existing customer base there that prefers a local bank."

She also cited as positive factors the favorable interest rate environment and the recapitalization of the Bank Insurance Fund, which has lowered insurance premiums.

Village Bank of St. Francis, Minn., had its first quarter in the black just 14 months after opening its doors in 1993. The $21.3 million-asset bank achieved a 1.18% return on assets and a 12.33% return on equity in the first quarter of this year, the highest among the Class of 1993.

"We were figuring about 30 months for profitability," said James R. Smith, Village Bank's chief executive. "But we've identified a market we've found the big banks don't want to deal with - mainly the small and medium- size businesses."

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