Operating a community bank in foreclosure-ravaged South Florida is challenging. Starting one just before the financial crisis hit is even more so.
Stonegate Bank in Fort Lauderdale has managed to thrive during the downturn, however. The bank has logged 18 consecutive quarters of profitability, acquired three failed banks and raised $42 million of fresh capital in the past year, noteworthy for a bank that began in 2005, not exactly a stellar vintage for de novos.
"There are a lot of that 2005 class of banks that are really, really struggling, and this is clearly one that isn't," said Chip MacDonald, a partner at the law firm Jones Day in Atlanta. "And they're doing it in a hard market, geographically in particular."
During the crisis, Stonegate, essentially a niche lender to the wealthy, has stood out as much for what it didn't do — lend excessively and expand before failed-bank deals became available — as for what it did: make smart acquisitions once the government made such deals possible.
On Tuesday, Stonegate said it would acquire the $121.3 million-asset Southwest Capital Bank in Fort Myers for $9.4 million in stock. The deal would strengthen Stonegate on Florida's Gulf Coast, a region the $575.2 million-asset company entered last year through failed-bank buys. Southwest's capital strength — it has a total risk-based capital ratio of 15.53% — improves Stonegate's growth prospects.
Not that it could have much more momentum. It added more than $200 million to the balance sheet in the past year, increasing assets by 53.3%. Its net loans and leases have grown by 23.5%, and its Tier 1 capital has more than doubled since June 2009.
"They are one of the few community banks in Florida … that is making money, growing, has a strong balance sheet and, most importantly, still has access to private capital," said Ken Thomas, an independent bank consultant and economist in Miami.
One reason for Stonegate's success is its business plan, Thomas said. The bank describes itself as a "private bank for business," in which it targets wealthy customers — mainly small businesses and high-net-worth professionals. It operates only a handful of branches, all in affluent communities. The bank has good fee income and is a strong underwriter.
"Private bankers tend to be, as a rule, more conservative," Thomas said.
As of June 30, Stonegate had nonperforming assets of $14.5 million, or 2.53% of total assets — on par for banks of its size, yet impressive for South Florida, Thomas said. It posted profits in November 2005, eight months after opening. Though Stonegate recorded a loss for its first year, its chief executive, David Seleski, predicted at the time that it would be profitable going forward.
That forecast was accurate, but Seleski won't gloat today. When pressed for the secrets of Stonegate's success, he credits much of it to timing. The management team was formed from two groups of bankers who came together after their employers — SouthTrust Bank in Birmingham, Ala., and Florida Bank in Tampa — were sold in 2004.
Also serendipitous was the failure in July 2009 of the $119 million-asset Integrity Bank in Jupiter, Fla., where Stonegate also had a branch. Stonegate's managers were not looking for failed-bank deals, but Integrity was just down the road, so they checked it out on a whim. With little competition, Stonegate won the bid.
That gave the bank the credibility and confidence it needed to bid on more failed institutions. It picked up the $65.5 million-asset Partners Bank and the $83 million-asset Hillcrest Bank Florida, both in Naples, last October.
More important, the Integrity acquisition helped open up new avenues for raising capital.
"For better or for worse, when we did an early FDIC deal, there was a lot of capital chasing that," Seleski said in an interview. "So we never said we were going to do another one, but I think that was always an implied idea that we might, and that's where the money's been going."
Stonegate raised $14.3 million through a private offering in October, and another $27.4 million in March. Seleski said the capital cushion has helped Stonegate address its few problem loans.
Paula Johannsen, a managing director at Carson Medlin Co.'s Florida operations in Tampa, said the fact that Stonegate raised capital twice, in a reasonably short period, speaks highly of the bank.
"They were clean to start out with and their timing was fortuitous," she said. "It certainly gives them the power to be aggressive in doing acquisitions."
Seleski said Stonegate plans to operate in major markets across the state, in contrast to a standard retail strategy of concentrating branches in a handful of counties.
Stonegate is looking to expand market share by leveraging its capital and lending where regional banks have not. Seleski said the phones have been ringing with new customers who, a few years ago, wouldn't have been interested. "I think the larger banks, for whatever reason, have left a bad taste in their mouths," he said.