ABA Banking Journal - June 2008 - (Page 38)
TOPCOMMUNITYBANKS First East Side Savings Bank Non-S thrift under $100 million No regrets about moving to Florida B rian Kiley recalls with a hearty laugh how his friends in banking reacted to the news that he and his bank were exiting Chicago after 87 years to operate solely out of south Florida. The usual comment was: “Are you nuts?” They might very well say that. But the owners and management of First East Side Savings Bank, founded in Chicago in 1920, knew what they were about. In October 2007 the bank sold off its Chicago operations and concentrated on Florida. Going north by going south And while the bank’s owners and management can’t predict the future, they know that real estate is cyclical and that, in time—however long that may take— south Florida will once again be a thriving market for the small-homebuilder market that is the bank’s niche. Currently about 60% of First East Side’s loan portfolio consists of singlefamily construction loans. (It does not make condo or pure commercial loans.) The bank has one location in Tamarac, Fla., just west of Ft. Lauderdale. Its president and CEO is Diane Raddatz, whose father, William Raddatz, Jr., was CEO before her, and whose grandfather, William Raddatz, Sr., was a founder, and the first CEO, of the savings bank. Consider also that the closely held federal stock savings bank has been lending to builders in southeastern Florida since the mid-1980s; has had a full-service branch there since 2003; and has always been well capitalized. Thanks to the nice premium it received on the sale of its Chicago operation, First East Side’s leverage ratio at the end of 2007 was 19.5%. The proceeds of the sale were also what propelled the bank to the number-two position among non-S corp banks and thrifts under $100 million in assets, with a sky-high return on average equity of 47.65%. “It’s a good time to have a lot of capital,” says Kiley, executive vice-president of the thrift. That’s true in more ways than one. The obvious reason being as a cushion for loan losses, but First East Side has not suffered a loan loss in its construction portfolio—not one in 22 years—to which point Kiley adds an emphatic, “Knock on wood!” But another good use for capital is for acquisitions, which the bank is considering in the current buyer’s market. First East Side has never acquired a bank to this point, says Kiley, but with loan growth flat for the foreseeable future, a well-chosen acquisition may make sense. Where the growth was The bank left Chicago mainly because most of its loan and deposit growth was in Florida, which, when management first thought about the move, still had a booming economy. But it was also proving difficult, says Kiley, for the small bank to manage operations in two very different, widely separated markets. So last October the bank sold about $60 million in deposits, along with mortgage loans and fixed assets, to Chicago Community Bank. About 15 employees remained in Chicago. “That was the tough part,” says Kiley. The bank currently has 17 employees and around $92 million in assets. While it doesn’t have a large mortgage portfolio, First East Side is a traditional thrift and has always made 15and 30-year fixed-rate mortgages, keeping all loans in portfolio. It has made relatively few mortgage loans the past five years, however. “It’s difficult to make many loans when you require a 20% down payment,” says Kiley. That old standby has served the bank very well and is making something of a comeback elsewhere. Outlook for rest of the year As shown in the tables in the Top Performers article (p. 28), First East Side’s total assets, deposits, and loans were all down through yearend. Part of that was due to the sale of the Chicago branch, but partly it’s because builders in Florida are on the sidelines right now. And that’s where they’ll likely stay for the foreseeable future, Kiley believes. “I don’t think there will be a quick turnaround in south Florida,” he says. “It will take time to work the inventory through the system.” Foreign buyers are active, he says, but even so there are many properties on the market, with many of them going into foreclosure. So the numbers will be much more modest for First East Side Savings this year. “We’re struggling like everyone else,” says Kiley. The thrift’s historical performance range is not normally in “top” territory—ROA of around 1% and an ROE of between 6% and 10%. But with its ample capital put to good use in a market that will eventually rebound, those numbers could climb. — Bill Streeter, editor-in-chief 38 JUNE 2008/ABA BANKING JOURNAL www.ababj.com/subscribe.html
Table of Contents for the Digital Edition of ABA Banking Journal - June 2008
ABA Banking Journal - June 2008
Do Fee-based Services Have an Edge?
Snapshot: Net Interest Margins Vary Sharply with Size
100th Anniversary: Then & Now
ABA Chairman’s Position
"What? No Annual Surprise Bonus?"
Pass the Aspirin
Cover Story: Top Community Banks: How They Did...
...And How They Did It
First East Side Savings Bank
Mackinac Financial Corp.
The Peoples Bank
Managing the E-mail Monster
Handling PEPs in the Age of "L'affaire Spitzer"
To Advertise/Index of Advertisers
ABA Banking Journal - June 2008