Florida bank that went global to survive eyes growth at home
A Florida community bank that caters to Bolivian clients is moving to shore up its prospects on the homefront.
The $169 million-asset Anchor Bank in Palm Beach Gardens has agreed to buy the $58 million-asset Home Federal Bank of Hollywood in Hallandale Beach for an undisclosed sum. For CEO Nelson Hinojosa, the deal, announced last week, could be game-changing. It would move Anchor into Broward County, giving it a South Florida trifecta that includes Palm Beach and Miami-Dade counties.
It’s a huge market: 6.2 million people, more than 150,000 small businesses and $277 billion in deposits, according to the Census Bureau and the Federal Deposit Insurance Corp.
South Florida "is one of the five best banking markets in the nation, in my opinion, because of its wealth, because of trade finance," said Ken Thomas, president of Miami-based Community Development Fund Advisors. "Everybody wants to be here."
There are a total of 83 banks in Broward, Palm Beach and Miami-Dade — down from 118 in 2005, when Anchor was founded. Therein lies the real opportunity for Anchor, in Hinojosa’ s view.
“With all the merger-and-acquisition activity, we are one of the few community banks left,” said Hinojosa, who insisted that even in a digital world, personalized service and easy access to senior management are "very valuable" to customers.
Thomas agreed. "You can try to be high-tech, but that can be expensive. You can always be high-touch."
With regard to wealth management, one of Anchor's key business lines, the bank's relatively small size could work to its advantage with many potential clients, said Mayra Rodriguez Valladares, a New York-based banking consultant.
"Often in business, size matters, but here I wouldn't worry so much about that," Rodriguez Valladares said. "There's a cultural element to wealth management that I don't think is going away. People need to feel very comfortable with their bankers, because it's such a personal business."
For Home Federal, which does business out of a single branch, combining with a larger institution makes more resources available to its customers. “This merger will provide additional locations and convenience,” CEO Scott Rosenberg said in a press release announcing his bank would be sold.
The deal is expected to close by year-end. For Anchor it kickstarts a strategic plan it began developing in January.
“Starting around 2015, we began asking, 'What’s the future of this bank?’ ” Hinojosa said. “That’s when we finally decided our competitive advantage … was in building” Anchor in South Florida.
The ultimate goal of the plan was to produce a consistent 10% return for shareholders. Hinojosa is hopeful expanding to Broward will give Anchor the shot in the arm it needs to reach its target. Performance to date has been uneven.
While Anchor has reported a profit every year since Hinojosa took over in 2013, it has frequently fallen short of a 10% return on equity. Anchor reported net income of $1.7 million and an ROE of 13.47% in 2018, but its numbers have lagged since then. Through Sept. 30, profits totaled $335,000.
It's possible regulators could ask Anchor to raise more capital, Thomas said. "I would be surprised if they did not require a significant infusion of capital." Through Sept. 30, Anchor's leverage ratio was 9.3%, above the threshold required to be deemed well-capitalized.
"The way to go is to capitalize yourself strongly and become that high-touch bank no one can compete with," Thomas said.
Anchor struggled through the financial crisis, after plummeting land values produced more than $16 million of losses between 2009 and 2012. The bank flirted with failure, receiving a prompt corrective action order from the Federal Reserve in 2011 ordering it to raise capital or sell itself.
In 2013, a $5 million investment from a group of Bolivian investors, including Hinojosa’s family, helped stabilize the company and led to Hinojosa’s appointment as CEO later that year.
Hinojosa said his deep connections in Bolivia, where he served as a bank executive for two decades, helped raise Anchor’s profile at a time when money-center banks that do business in South America have been scaling back in smaller countries.
“You would see clients that had large sums on deposit for many years getting a check with a letter saying, 'Thank you very much, your account has been closed,’ ” Hinojosa said. "That's one of the strengths I bring to the table. I know them personally from doing business with them. These people started to reach out and work with Anchor, so we started to take on an international profile."
The trend has helped bolster Anchor, especially in wealth management. Now the focus is on adding to its book of business closer to home.
Home Federal represents Anchor’s first foray into mergers and acquisitions. It considered branching into Broward on its own, “but a de novo expansion would mean starting from scratch,” Hinojosa said. “Even though Home Federal is pretty small, it brings some momentum, which we can take on and keep growing.”
A number of banks have put aside M&A during the COVID-19 pandemic over concerns about a seller’s asset quality. Hinojosa acknowledged the issue, but said he was confident in his team’s due diligence work.
“We had people inside Home Federal doing [loan review], which gave us the comfort” to do the deal, Hinojosa said. “You need to be sure about the risk you are adding, especially in these challenging times.”
Hinojosa did not rule out the possibility of additional acquisitions.
"We envision [doing more deals] over time as opportunities come,” he said.