When it comes to asset growth and the raising of capital and core deposits, ServisFirst Bank in Birmingham, Ala., is a standout among this decade's start-ups.
Many of these banks depended on residential construction and development lending for growth; ServisFirst capped such loans at 10% of its portfolio when it opened in 2005. Many young community banks neglected to build core deposits, relying on fickle brokered money. ServisFirst, a business bank, created a stable customer base by letting only depositors buy its shares. It also stayed away from acquisitions.
At least nine banks opened since 2000 have failed. But ServisFirst, now with $1.2 billion of assets, is thriving.
"We make no bones about it, we run a sales business," said Thomas A. Broughton 3rd, the president and chief executive officer. "I am the head of sales, and we couple that with a conservative loan culture and make it work."
ServisFirst has not been untouched by the wobbling economy. Its ratio of nonperforming assets to the total more than doubled from a year earlier, to 1.87% at Dec. 31, which is still below the industry average.
The bulk of ServisFirst's nonperformers are in residential construction, an area where Mr. Broughton said he expects to see more problems.
"I do think by the time it is all over, of the houses we financed, we'll take back half of those and resell them," he said.
Mr. Broughton also acknowledged that ServisFirst is unlikely to continue growing at the brisk pace of its early years (from 2006 to 2008, annual asset growth ranged from 40% to 60%). Still, even his tempered target of 20% annual asset growth would be exceptional in this slowing economy.
Analysts cautioned that ServisFirst will need to be extra careful with its loans from now on.
"The critical issue for me is the credit quality being put on the books, and their ability to monitor the performance of that, because I don't think we are at the bottom yet," said Geri Forehand, the director of strategic services at Brintech Inc., a subsidiary of United Community Banks Inc. in Blairsville, Ga. "Some good folks are going to be impacted that haven't been impacted yet."
Mr. Broughton said he is confident in the loan portfolio's quality because all of ServisFirst's loan officers have long-term relationships with their customers and the management team is conservative about what is put on the books. Loans bigger than $500,000 must be approved by a committee.
"Our chief credit officer came from the old SouthTrust," Mr. Broughton said. "I always thought SouthTrust did the best job of growing rapidly over a period of time and still had a conservative credit culture."
Last year ServisFirst's deposits grew 36%, to $1 billion. It has no brokered deposits. Profits climbed 35% from a year earlier, to $7 million in the fourth quarter.
Another member of the start-up class of 2005, Magnet Bank in Salt Lake City, also grew quickly, adding roughly $460 million of assets by the end of 2006. But it depended heavily on brokered deposits, and its loans soured. The bank failed last month.
"People were successful because the economy was doing well," said Dave Danielson, the president of the Vienna, Va., community bank consulting firm Danielson Capital. "The small banks didn't build up the core deposit base, and now they are finding liquidity an issue, and the asset side is having problems."
Mr. Broughton started First Commercial Bancshares Inc. in Birmingham, which was sold to Synovus Financial Corp. of Columbus, Ga., in 1992 for about $125 million in stock. He left Synovus to start ServisFirst in 2004.
"I learned a few things along the way," he said. "When I first went into business in 1985, we took capital from anybody who would give it to us. Now we only sell stock to people who agree to be customers. When they tell us how much business they can do with us, we tell them how much stock they can have." (ServisFirst also gives lenders incentives to bring in deposits from their borrowers.)
ServisFirst started with $35 million of capital. That is more than two and a half times the average for banks that opened in 2005, according to data from Carson Medlin Co.
The extra capital helped ServisFirst hire experienced loan officers and give them higher lending limits so they could land big customers.
Since then, the bank has raised another $35 million in three rounds as it hired lending teams in new markets. (It has eight branches in five Alabama markets.)
The teams have been recruited from larger area banks, many of them acquired by out-of-state institutions in recent years. Most of ServisFirst's Birmingham and Huntsville bankers came from Synovus, for example.
Lenders in Montgomery are largely from Regions Financial Corp. in Birmingham or Wachovia Corp., which bought Birmingham's SouthTrust Corp. in 2004 (and more recently was bought by Wells Fargo & Co. of San Francisco).
"We find the best banker in a market and then we expand," Mr. Broughton said.
Investors still line up when ServisFirst needs more capital, he said. Right now, the bank is doing a $10 million secondary offering, which it expects to complete soon, for customers in its Dothan, Ala., market.
Last fall, when the trust-preferred market was virtually shut down, ServisFirst found investors for a $15 million offering. Some of the securities were bought by its shareholders and some by an Alabama institutional investor that is familiar with the company.
"In this market the only people you can raise capital from are the ones that know you and like you," Mr. Broughton said.
Besides capital and seasoned bankers, the building of an infrastructure — treasury management products, lockbox, remote deposit capture — that the customers it pursues expect from their bank is responsible for ServisFirst's success, Mr. Forehand said.
"They have done their homework — researched the kind of customers they want to do business with — and when they go to call on a customer they know they can deliver what a customer needs," he said.