Joseph S. Paparrato, president and chief executive officer of Norcrown Bank in Livingston, N.J., has advice for investors organizing banks: Make sure you have enough capital for the bad times.
Formed in 1987 with only $2 million of start-up capital, Norcrown swooned when the New Jersey economy hit a lull in the late 1980s.
"With so little capital, a small pothole can quickly turn into a crater," said Mr. Paparrato, who joined the bank in 1996. "Everyone had to concentrate on not losing the bank. No one could think about growing it."
By yearend 1997 Norcrown had more than $50 million of deposits, double its total in June 1996. The bank finally made money last year, $700,000 or a 1.42% return on assets, after losing $240,000 in 1996.
Norcrown's third branch is to be opened Saturday, the second in three months.
"We have the money to spend, and we are willing to spend it to grow," said Mr. Paparrato. "We think there is a real opportunity to go after customers in the region."
Norcrown was a victim of bad timing and bad planning.
It had only $17 million of assets by 1995. That is when the Federal Deposit Insurance Corp. issued a memorandum of understanding, recommending Norcrown find capital and a new management team. In 1996 Norcrown was sold to New Jersey real estate developer Charles Kushner.
"Since the acquisition, the new management has improved the bank's performance dramatically," said Ben A. Plotkin, president of investment banking firm Ryan, Beck & Co., Livingston.
Mr. Paparrato said the FDIC gave the bank a second chance.
"This worked because the FDIC let it work," he said. "They could have closed this bank. If this had happened in 1990, they probably would have closed the bank."
The new management was able to write off the bank's bad loans and turn its focus toward marketing. Mr. Paparrato said Norcrown had done no advertising before his arrival. Now it attaches its name to activities such as Little League baseball. But the road ahead is a long one.
"We think this is a 20-year project," he said. "It is not necessarily about being real profitable right now."
The bank will continue to expand, Mr. Paparrato said, though growth could drag down Norcrown's returns. "It is expensive to open branches. But somewhere down the line, we think it will be worth it."
