Security Bank reconsiders branches
By Peter Zalewski
August 25, 2004
Security Bank is rethinking its network of South Florida branch locations after posting its second loss in five years.
The North Lauderdale-based institution has suffered cycles of modest growth followed by losses for much of its 24-year history, despite being in one of the fastest-growing and most lucrative markets in the nation.
Security blamed its $193,000 loss in 2003 on operating inefficiencies and a loss of loans. When the bank lost $1.1 million in 1999, it blamed the red ink on international loans that went bad.
The nationally chartered bank had a modest $709,000 profit between 2000 and 2002.
Security Bank is hiring additional loan officers to bolster its lending, and avoid a repeat of 2003 when refinances devastated its loan portfolio.
“We are well positioned now,” said Manuel Fernandez, the bank’s chairman, president and chief executive. “The only thing is we have to hire a few more loan officers, which we are ready to do, and we are set. We are positioned now to obtain normal growth of an institution of our size, which will be 25 percent to 30 percent annually.”
Security is also selling or moving underperforming branches scattered throughout the tricounty area, Fernandez said.
In late July, Security asked federal bank regulators for permission to relocate its Miami branch from Brickell Avenue to fast-growing Coral Way. The move would save money on rent and put Security in the heart of an area that’s undergoing a real estate renaissance.
Security closed its Boynton Beach office in 2003 and in May sold its northernmost branch and deposits for an undisclosed price to Enterprise National Bank of North Palm Beach.
The Jupiter branch had collected only $2.3 million in deposits since 1999 even though northern Palm Beach County has grown dramatically during that time.
“That branch is very difficult for us to maintain,” Fernandez said. “It was a logistical problem more than anything.”
Enterprise president Randy Ezell said his institution bought the branch to seize on the area’s growth. His bank has sent couriers to Jupiter to pick up deposits and drop off receipts for clients who didn’t want to travel south to Enterprise’s headquarters.
“We have a customer base in Jupiter,” Ezell said. “It gives us an opportunity to better serve that base and expand.”
With those changes, Security’s management expects to lower operating expenses and brighten the outlook for an institution that has yet to take off after three decades.
Security started as a federal-chartered bank in 1980 on State Road 7 in North Lauderdale. In the next six years, it added a branch on Southeast 17th Street in Fort Lauderdale and another on University Drive that later moved to West Oakland Park Boulevard.
In the 1990s, Security expanded into Miami-Dade and Palm Beach counties.
It grew to seven locations, but only the Miami branch has had any success. It had $16.4 million in deposits in 2003. By comparison, the bank’s three Palm Beach County locations that same year had combined deposits of $9.6 million, according to Federal Deposit Insurance Corp. statistics.
Miami banking analyst Ken Thomas of BranchLocation.com said Security Bank would be best served by focusing on Broward County.
Thomas said the scattering of offices is difficult and expensive to administer for a small bank and that Security has been hurt by branches at inferior locations.
Thomas said branches must have between $15 million and $20 million in deposits to be profitable.
Security has $84 million in deposits spread among seven locations, but $37 million of that is at bank headquarters. Excluding those deposits, Security’s six other locations average about $7.8 million in deposits.
“When you have full-service branches, expect substantial deposits, especially when they have been open as long as these have,” Thomas said. “Any other bank would have closed these offices years ago.”
Highland Beach investment banker Nick Barbarine of Hovde Financial said Security would be wrong to retreat from Miami-Dade and Palm Beach counties if it has any plans to sell soon or in the medium term.
He said Security’s appeal as an acquisition would be based on its broad geographic reach. Out-of-town banks seeking a South Florida presence would possibly overlook the bank’s operating and deposit-gathering inefficiencies and look to its footprint.
Barbarine estimated the Security franchise would probably be worth twice its equity capital.
That figure was $8.2 million on June 30, according to FDIC statistics.
By comparison, Florida banks regularly sell for about 2.5 times their equity capital.
“You are not going to have to pay as lofty a multiple as you would with other opportunities,” Barbarine said.
Peter Zalewski can be reached at firstname.lastname@example.org or at (305) 347-6645.