Lawsuits, inflexible regulators, and a $36 million loss are often enough to sink even the best-managed community banks. Not Intercontinental Bank of Miami.
Nine years after it was cobbled together with institutions resembling scraps from a junkheap, the company has evolved into a $1.1 billion-asset object of admiration in the Florida banking scene.
"They came from a deeper hole and are now at a higher peak than any of their peers," says Richard X. Bove, a bank analyst with Raymond James & Associates in St. Petersburg. "That's why I really admire these guys."
Nine years ago the infant company was not so attractive. Non-performing assets exceeded capital; the two original pieces of the company - a thrift and a bank - were sick and near insolvency; the company had an overly complicated structure; and a jury awarded $12 million to plaintiffs suing the bank.
"It was ugly," says Thomas B. Brady, chief operating officer.
"You'd be horrified if you saw this in a bank today," concurs president and chief executive William L. Morrison.
As if those travails were not enough, shortly after moving into their 12-story downtown headquarters in 1987 the new management discovered the ceilings were covered with asbestos, forcing the roughly 100 employees to move to a temporary location nearby. The cleanup bill came to $4.5 million.
Analysts believe Intercontinental is now one of the most attractive acquisition targets in the state.
"You're damn right we are," says William H. Allen Jr., chairman of Intercontinental. "But we're not for sale. We're going to try to run this thing out as long as we can, and as long as we're having fun. I would be extraordinarily shocked if this bank doesn't last another five years."
Its size places it at a distant second to $41 billion-asset Barnett Banks Inc. of Jacksonville among Florida-based, publicly traded banks. For the past two years it has been one of 15 institutions nominated for Florida's "Company of the Year" honors, a contest sponsored by the Miami Herald.
Last year's $12.8 million in net income marked a sixfold increase in earnings from 1990, when the bank turned the corner. Stockholders have seen per-share earnings grow by at least 49% from 1990 to 1993. They increased 10% last year.
Returns on assets and equity have more than tripled since 1990, reaching 1.15% and 15.06%, respectively, last year. The bank's biggest burden, the overwhelming amount of nonperforming assets it shouldered from its predecessors, has been whittled down to $7 million last year from $53 million in 1987.
Its 0.93% ratio of nonperforming assets to total assets ranks among the best in the industry.
How was this turnaround achieved?
"Three things," says John W. Coffey, an analyst at Robinson-Humphrey Co., Atlanta. "People, people, and Lady Luck."
The core group of the bank's management - made up of Mr. Allen, Mr. Morrison, Mr. Brady, and chief financial officer Thomas E. Beier - has the advantage of having worked together or known each other for more than 20 years.
The pre-Intercontinental years were spent at Pan American Banks Inc. in Miami, where Mr. Brady and Mr. Morrison cut their teeth in the banking business beginning in the early-1970s. Mr. Allen joined Pan American in 1981 as chairman and chief executive. Mr. Beier, a former professional football player with the Miami Dolphins, was working at Atico Financial Corp., the controlling shareholder of Pan American.
Atico sold the bank in 1985 to NCNB Corp., which later became NationsBank Corp. The three former Pan American executives continued working for NCNB, but not for long.
Michael Weintraub, whose family was Atico's principal partner and currently owns about 22% of Intercontinental stock, had plans for Mr. Allen and seven other former Pan American executives who would hold positions at the yet to be conceived Intercontinental.
"The Weintraubs found themselves with 600,000 shares of NCNB stock, about $30 million in cash, but no going concern," says Mr. Brady. "They decided they needed to get a going concern."
That came in the form of a troubled $530 million-asset thrift, called Peninsula Federal Savings and Loan, purchased with Atico stock in early 1986. During the next year, Mr. Weintraub, who has sat on NationsBank's board since 1986 and owns 800,000 shares of its stock, began assembling the team that would run the future Intercontinental by luring them away from NCNB one by one.
Shortly thereafter, the S&L industry bottomed out. The new management team decided it needed to shift into commercial banking, and, in the summer of 1987, it acquired the nearly insolvent Intercontinental.
Although regulators had imposed a cease and desist order on Intercontinental and were about to seize it, the Atico group persuaded regulators to give them six months to turn it around.
The company's unique bank and thrift holding company structure proved to be the first of a handful of problems that the fledgling company had in its opening year. The asset problem was known: The nonperforming loan ratio was a whopping 15.06%.
What wasn't known was the seriousness of a lender liability lawsuit filed by a Miami developer against the previous management of Peninsula. When Intercontinental's former principal shareholder learned of that suit, she slapped the new company with another suit - for failing to disclose the first one.
"It was hellacious," Mr. Brady says. "Here we were, swimming in a swamp, fighting a bunch of alligators, and then this thing hits us."
A 1990 jury trial shocked the bank with a decision in favor of the plaintiffs, awarding them $12 million. That verdict was later overturned and was finally settled in the fall of 1993. The second suit was subsequently dropped, but the case in the end cost the bank more than $4 million in legal fees and interest payments.
The bank was also hamstrung in those early years by the regulators' refusal to allow it to simplify its bank and thrift holding company structure. The company finally merged all of its entities into a state bank charter in 1991. Its thrift operations had ceased the previous year.
It was now ready to bank - and to grow. During the next two years, the bank acquired six institutions and mushroomed to $1.1 billion by last year.
Its strategy is to be the bank for small and medium-size businesses in the $1 million to $50 million range. This vibrant south Florida market has paid off handsomely for Intercontinental, in part because these businesses have generally been ignored by the big regionals in Florida and cannot always be adequately serviced by the horde of smaller banks in the state.
Intercontinental fills the void.
"They are big enough to provide the services and credit needs for the middle-market businesses and small enough to serve them properly," says Mr. Coffey.
Most observers, however, doubt that the bank can maintain its brisk pace of the past few years. With competition heating up in the South Florida market and the health of the banking industry there generally restored, there are not as many dislocated customers looking for a new bank, they say.
While there are still plenty of small banks in the $100 million-asset to $200 million-asset range to be acquired, they don't come as cheaply as they did five years ago. Most analysts conclude that this scenario will amount to history repeating itself - like Pan American 10 years ago, Intercontinental will be sold.
The bank's management points out, however, that 55% of its stock is held internally, giving it the luxury of choosing its own destiny.
"If we start to slip or move laterally, then we'll have to revisit it (the possibility of selling)," says Mr. Allen. "Nothing lasts forever."