When Stonegate Bank opened its doors in 2005 with 16 employees and two branches in Broward County, it didn’t know the greatest financial shock wave in a generation would soon level banks across the nation.
But in the wreckage lay opportunity: failed banks that needed a buyer, including 65 in Florida alone since 2009.
Call them “recession roadkill” — banks that may have reeked of the stench of death but made a tasty meal for hungry newcomers seeking fast growth.
Stonegate was one of the first to move on the failed banks held by federal regulators. Between 2009 and 2011, the Pompano Beach-based institution added roughly $243.5 million in assets to its balance sheet by acquiring failed Florida banks from the Federal Deposit Insurance Corporation. Buying up the former competition allowed Stonegate, seeded with $40 million from institutional Wall Street investors and local backers, to move into retail markets in Palm Beach County and along Florida’s west coast.
It was a marked shift in strategy for a bank that had started out strictly to serve commercial clients — one that, so far, is working. Stonegate now runs 21 branches and since 2010 has quadrupled its assets to $2.3 billion, making it the the ninth-biggest financial institution based in South Florida.
Now the shifting winds of international politics have created another opportunity for Stonegate: Cuba.
In July, Stonegate became the first U.S. bank to set up a correspondent relationship with Cuba’s central bank since President Barack Obama resumed diplomatic relations with the island nation. American companies with licenses to do business there will now be able to use the account. And in an earlier deal facilitated by the U.S. Department of State, Stonegate also agreed to provide banking services for the Cuban embassy, which had been without a banker for more than a year.
“I think we are decisively opportunistic,” said David Seleski, the bank’s president and chief executive officer since its founding. “We move at a faster pace than most banks. We don’t suffer from paralysis by analysis. We were one of the first banks into the FDIC deals because we understood the risks but we weren’t sitting around having four meetings a day. It was the same thing with Cuba. We evaluated the risks and determined it was the right decision.”
Welcome to Havana
The reopening of diplomatic relations between the United States and Cuba has created a need for financial services in the communist country. Filling the void is a double-edged sword: Banking for Cuba promises profits and global headlines but also carries regulatory risks and the scorn of South Florida’s hardcore exile community.
Nevertheless, Stonegate, which hardly does any international business, was the first bank to step up after rivals in Miami-Dade shied away.
In May, Stonegate agreed to provide banking services for Cuba’s embassy and diplomatic mission in the United States. In July, the bank announced it would open a correspondent banking relationship with Cuba’s central bank.
The move is crucial to Obama’s new policy towards America’s longtime foe. Obama has called for a lifting of the long-standing embargo, which Cubans call “the blockade,” that has prevented free trade between the two nations. (Only Congress has the power to lift the embargo.)
Stonegate’s decision led to global headlines. But Seleski said profits and publicity were not why the bank agreed to work with Cuba after Ariel Pereda, a Stonegate customer and food distributor who has a license to export to the island, recommended Stonegate to the State Department.
“The driver of it wasn’t, ‘Look, this is something we’re going to make a lot of money on,’ ” Seleski said. “We believe very strongly in the fact that the embargo has not been a good thing for Cuba, has not been a good thing for America and has not been a good thing for South Florida. We wanted to help the coming together of both countries.”
Being opportunistic is one reason we’ve been successful.
David Seleski, Stonegate CEO
Ultimately, Stonegate wants to be the bank of choice for companies licensed by the U.S. government to do business in Cuba. “Travel-related companies are already leaping at this,” Seleski said. “You look at the cruise lines, you look at the airlines, you talk about the boat tours, the ferries. That’s immediate . . . I think food, some areas of technology [such as cellphone carriers], building supplies, I think those will all be big, too, and many of those companies are in South Florida, so I think the region as a whole will benefit.”
Seleski said he couldn’t get into the specifics of Stonegate’s future plans for the island because of ongoing discussions with the U.S. and Cuban governments.
So far, the bank has only been able to take what amount to baby steps. For one, it’s difficult to drum up business while the embargo remains in place. Until it is lifted, companies in approved industries must seek special permission from the Treasury Department to do business in Cuba. And American credit cards still don’t work on the island because no U.S. bank has agreed to support them, although major card companies including American Express and MasterCard have said they’re open to the idea. (Stonegate, a commercial bank, doesn’t issue cards of its own, but setting up a correspondent relationship with Cuba’s central bank, as Stonegate has done, could move the process along.)
“What Stonegate has done with Cuba is a good first step, but it is really a minor, minor step in the overall context of banking,” said Fernando Capablanca, managing director of Whitecap Consulting Group in Coral Gables. “Apart from the publicity, I think Stonegate is hoping to be in a position, if and when the embargo is lifted, to be ahead of all the other banks in Cuba.”
Capablanca said a logical next step for the bank might be to start doing remittances to the island, a business currently dominated by Western Union.
“There is still so much to do, especially on the part of the Cuban government,” he added. “Let’s not forget that it is still a cash economy for all practical purposes. There are only 300 functioning ATMs on the whole island. It’s not like you can walk into a restaurant or movie theater and hand them a credit or debit card.”
And anti-money-laundering and bank-secrecy regulations hang heavy over any bank involved with Cuba, which was only removed from the U.S.’ state sponsors of terrorism list in May as part of the recent rapprochement.
“For banks in Miami, compliance is always going to be the 800-pound gorilla in the room,” said David Schwartz, president and CEO of the Florida International Bankers Association.
For banks in Miami, compliance is always going to be the 800-pound gorilla in the room.
David Schwartz, FIBA president
South Florida banks have been especially targeted by federal regulators over international transactions since new financial regulations went into effect with the Patriot and Dodd-Frank acts.
“In Cuba, you’re dealing with a country still under the embargo and so therefore the type of monitoring and due diligence that’s required is at a very high level,” Schwartz said.
Stonegate now has two full-time employees dedicated to Cuba issues and compliance.
It’s not just regulators who will be watching Stonegate with an eagle eye, said Andrew Hall, a Miami-based attorney who has won nearly $3 billion in judgments against the Cuban government for a client who says he and his family were tortured and threatened by Cuban security services.
Hall said that if Stonegate’s embassy account is used for more than diplomatic purposes, the funds held in them could be subject to garnishment.
“We will be monitoring Stonegate as best we can,” Hall said.
Even though attitudes toward Cuba are changing, especially among young people, South Florida remains a hotbed of anti-Castro sentiment. Stonegate has had to contend with sit-ins and protests at its Coral Gables branch.
Seleski said the bank had lost a few customers over Cuba but had gained others. And he said he had received support from community leaders.
9 percent Rise in Stonegate’s stock value since Cuba deal was announced.
In a recent Miami Herald op-ed calling for South Florida’s exile community to heal the wounds of the past, Cuban-born healthcare executive Michael Fernandez wrote that the island’s “isolation was and is not a sustainable strategy.”
Despite the shifting climate, said the head of one local bank who asked not to be named because of the sensitivity of the issue, doing business with Cuba simply wasn’t an option because of the regulatory burden and reputational risks.
“I think if you were to look at any bank in Dade over the last 30 or 40 years, in the back of a drawer, everyone had a Cuba plan that said ‘One day, this is how we’re going to be the bank that works with Cuba,’ ” the banker said. “But the reality is different. There’s no rule of law, there’s no real commerce. The government relatively speaking has no money. And there hasn’t been clear enough direction from the U.S. regulators. There was no way we could touch that business.”
A bank for business
When Seleski and his team of top executives founded Stonegate in 2005, they knew what they wanted to be: a commercial bank serving businesses rather than a retail bank going after consumers.
“The focus was to provide high-level services to middle-market, small-business customers,” said Seleski, who had been Florida regional president for SouthTrust before it was sold to Wachovia in 2004. Sharon Jones, Stonegate’s chief financial officer, and Steve Cameron, Stonegate’s chief operating officer, had worked with Seleski at SouthTrust and joined him in founding Stonegate.
Commercial business still makes up about 85 percent of what Stonegate does. But the recession gave the bank inroads into retail banking in markets in Palm Beach and on Florida’s west coast by allowing it to buy up failed banks.
“What it really boiled down to is the government paid us to clean up something and get into a market instead of us going in there and starting something in that market and having to spend a bunch of money,” Seleski said. “And having those physical branches out there is great advertising for the bank as a whole.”
The recession provided another opportunity for the bank.
During the downturn, Seleski said, “the big banks really cut their staff way back.” That meant small businesses looking for a higher level of attention from their bankers were out in the cold.
Daniel Gold left a bigger bank to open an account at Stonegate when he started an industrial lighting company called Future Energy Solutions in Fort Lauderdale in 2009. Erin Knight, Gold’s relationship manager at his previous bank, had left her old job to work at Stonegate, where she is now Miami market president. Gold wanted to maintain that tie.
“Not so many years ago, banking used to be done by real people,” Gold said. “I needed to have a bank where I could pick up the phone and talk, and I knew I could get that at Stonegate with Erin.”
Helped by lines of credit from Stonegate, the company now has operations in three continents.
Stonegate has also bought three other banks via normal sales for $143.1 million over the last four years and added residential mortgage and wealth-management divisions in addition to its core businesses of commercial and commercial real-estate lending.
Fueled by the acquisitions, Stonegate has grown quickly.
The bank’s deposits have grown 348 percent since 2010, according to an analysis performed by SNL Financial for the Miami Herald.
Last year, NASDAQ listed Stonegate’s stock for the first time, making it one of only six other locally owned banks that are publicly traded. It holds a top five-star rating from Bauer Financial.
And Stonegate’s deposit growth has dwarfed its publicly traded competitors, SNL found. BankUnited, of Miami Lakes, and First Miami Bancorp, of South Miami, were the closest with deposits growing 104 percent and 94 percent respectively since 2010.
Wall Street cash
One immediate effect of the Cuba deal? Stonegate’s stock price is up roughly nine percent since May. By close of business on Friday, the bank’s stock stood at $31.08 per share and its market cap at $393 million, according to NASDAQ.
“Every bank in South Florida turned down the opportunity to be Castro’s private banker,” said Ken Thomas, a local banking industry analyst and consultant. “I think Stonegate accepted because it’s a bank that is looking to grow as quickly as possible and then sell out.”
About 60 percent of Stonegate stock is owned by institutional investors and mutual funds, including FSI Group, Wellington Management Company, BlackRock Fund Advisers, the Banc Funds Company and the Vanguard Group.
Another major investor who also sits on Stonegate’s board is Lawrence Seidman, a New Jersey-based financier known as one of the nation’s biggest activist investors in local banks. (Seidman was briefly banned from banking in 1992, but that order was overturned the next year by a federal judge.)
Seidman was one of Stonegate’s original backers and now owns roughly 5 percent of the bank.
“I’d never done an IPO before because I never thought they were worthwhile,” Seidman said. “But banking is a people business, and I was convinced Dave and his team could create good value.”
He said he has no plans to agitate for a change in management or a sale to a bigger bank. “Any talk of a sale is up to the market, to Dave and to the rest of the board,” Seidman said. “I’m very happy with my investment.”
For his part, Seleski dismissed any speculation about selling out. “We’re a publicly traded company, so I really can’t discuss that,” he said when asked if Stonegate had received offers to sell. “We’re having fun, and we’re doing what we love.”
And he strongly hit back at suggestions that as a Wall Street-backed commercial bank, Stonegate was any less dedicated to the region it serves than local community banks.
“Absolutely, we’re a Wall Street bank,” Seleski said. “We got our investments from Wall Street and we turned around and in 2009, 2010 and 2011, we were one of the few banks that was actually out there making small-business loans and supporting our customers. Our capital is from Wall Street, but our focus is on the local community.”
Absolutely we’re a Wall Street bank.
With its finances in good shape, Stonegate is now considering further expansion. After moving into Florida’s west coast, Stonegate is eying the Orlando and Jacksonville markets.
“Those are growing markets, and we’d like to be involved,” Seleski said.
While Stonegate has opened more retail branches as it expands and acquires competitors, Seleski said it will stay true to its core commercial businesses.
“Retail banking is very expensive,” Seleski said. “And to compete with the Bank of America and the Chases and the TD Banks and so on, it’s very difficult because they have a branch on every corner. The amount of expense you have to put in to make something like that go is very difficult. It’s not a bad business, but in our opinion, it’s a lower return business.”
And for all the talk of Cuba, the bank knows the public’s attention will eventually drift away, said Steve Cameron, Stonegate’s chief operating officer .
“In 30 years,” Cameron said, “no one will remember that we were the first except us.”
Business: Stonegate Bank was founded in 2005 with a $40 million investment from Wall Street institutional funds and local backers. Its top executives — David Seleski, Sharon Jones and Steve Cameron — had worked together at SouthTrust before it was acquired by Wachovia in 2004. Stonegate focuses on commercial, residential mortgage and commercial real-estate lending. It has acquired several banks from the Federal Deposit Insurance Corporation and through normal sales, expanding from its South Florida base into the Naples, Tampa and Sarasota markets. It is also eyeing expansion into Orlando and Jacksonville. Growth has been rapid: total assets at the bank have nearly quadrupled since 2010. Loans and deposits are up by similar amounts. In May, Stonegate made global headlines but courted local animosity when it agreed to handle banking services for Cuba’s government after the United States resumed diplomatic relations with the island nation. In July, Stonegate agreed to set up a correspondent banking relationship with BICSA, Cuba’s central bank. NASDAQ began listing the bank’s stock last year.
Headquarters: 400 North Federal Highway, Pompano Beach.
Management: David Seleski, president and chief executive officer; Sharon Jones, chief financial officer; Steve Cameron, chief operating officer; Erin Knight, Miami market president.
Branches: Two in Miami-Dade County, nine in Broward, three in Palm Beach, three in Sarasota, two in Lee, one in Collier and one in Hillsborough.
Employees: 268 employees, with 122 based in Miami-Dade and Broward.
Clients: 22,500 account holders.
Total assets: $2.3 billion.
Total deposits: $1.9 billion
Quarterly net profits: $6 million for the quarter that ended June 30, up from $1.9 million during the same quarter of 2014.
Total capital ratio: 11.8 percent. The FDIC standard for a “well-capitalized bank” is 10 percent.
Bauer Financial rating: Five stars.
Stonegate’s major investors
Stonegate is listed on the NASDAQ Stock Market as SGBK. Its major investors are institutional and mutual funds. Dates and valuations are as of June 30.
- FSI Group (Cincinnati-based investment company): 7.2 percent of shares valued at $21.9 million
- Wellington Management Company (Boston-based investment company): 6.5 percent of shares valued at $19.7 million
- Lawrence Seidman (independent bank investor): 5.6 percent of shares valued at $17.4 million
- The Banc Funds Company (Chicago-based investment company): 4.8 percent of shares valued $14.6 million
- BlackRock Fund Advisers (San Francisco-based investment company): 2.8 percent of shares valued $8.4 million
- The Vanguard Group (Malvern, Pennsylvania-based investment company): 2.6 percent of shares valued at $8 million.
Source: Yahoo Finance