Published June 11, 2006
First American shows it's a bank on the move
After buying Florida bank, fast-growing firm looks around for more hot deals
REGISTER BUSINESS WRITER
Iowans have figured out that the best time to visit Florida is when it's icy here and balmy there, but Clive banker Doug Bass is trying to make money along the Gulf of Mexico, come rain or shine.
Bass is the president of Stark Bank Group Ltd., the Fort Dodge company that owns Clive-based First American Bank. He spent last week in southwest Florida nurturing Pelican National Bank, a $186 million bank that Stark bought early this year. Stark didn't disclose what it paid for Pelican, which lost $1 million last year.
Bass said turnaround efforts are in place at Pelican. For instance, what once was a six-branch bank now has five. Instead of losing $250,000 a month, like it did in June 2005, Pelican is making $125,000 a month.
"In just 45 days!" Bass said after he emerged from an evening meeting with local directors of the bank.
Pelican may yet keep alive Stark's hot streak. Since 1998, when Bass joined as president and Thomas Schnurr came on board as chief executive officer, the privately held bank has tripled in assets, to $1.2 billion. It now is the ninth-largest bank in Iowa as ranked by deposits, and will pick up another $43 million if regulators approve its purchase of Waukee State Bank that it announced in April.
Stark and First American could buy another bank if an opportunity arises, Bass said. And the company has branched into stock brokering and management of client wealth with its announcement early this month of plans to buy Sioux City-based Warner Group Inc.
Banks across Iowa have been on the move the past decade, as they try to expand beyond their original service territories to new lands - notably the Des Moines area and Cedar Rapids/Iowa City - where populations are rising and pastures seem greener. First American has followed this trend, too, but with a twist: It doesn't chase consumers in the growing communities, but the businesses that serve them.
For instance, First American is the leading provider of one of two main types of U.S. Small Business Administration loans.
Bass, who works from the bank's operating headquarters in Clive, said that by catering to SBA borrowers, the bank hopes to develop relationships that will mature and endure.
"It's been a huge feeder system for us," he said. First American got involved in SBA lending in 2002 when a loan officer who had experience with the procedure joined it.
SBA lending requires more vigilance by the bank, and Bass said such loans cost both the bank and the borrower more money than would a traditional loan. So the idea is to get a company in sound enough shape that it can wean itself from SBA money, by which time its relationship with First American will be solidly forged.
"From Day One," Bass said of his arrival at First American, "the plan was to be a commercial bank."
First American executives felt that retail banking - catering to the public for deposits and loans on homes and cars - had become what Bass termed a commodity business. People can go online to pay bills or apply for auto and home loans and need never speak in person with a banker.
That's not the case with a business loan. Credit scores may drive consumer lending, but with business loans the expertise of the lending officer is crucial as he or she sizes up the capabilities of the applicant and the soundness of the business plan.
With business banking, Bass thought, First American could differentiate itself as it spread from Fort Dodge to Sioux City, and later to Des Moines.
Bauer Financial Inc. analyzes bank performance and lending, and Karen Dorway, president of the Coral Gables, Fla.-based firm, said she was struck that First American had devoted 75 percent of its loan volume to commercial transactions.
Bass said the share is actually more than 95 percent. And much of the remaining retail business is tied to serving the bank's commercial clients.
As Dorway noted, risk management is key when so much money is devoted to a specialty. At First American, Bass said this is accomplished by individually sizing up each borrower and using loan officers who are veterans and enjoy working for a mid-sized bank.
"We've had only one officer leave to go to another bank in town" during six years in the Des Moines market, Bass said. In a growing market such as Des Moines, bankers have become very mobile.
Laura Bernstein linked up with First American in early 2004 as she was looking for help bankrolling her purchase of a majority stake in VisionPoint, a Clive company that specializes in workplace training and leadership development programs.
Bernstein said her First American bankers were willing to be "creative and collaborative with us."
Since VisionPoint sells ideas, it doesn't have a lot of tangible assets for a bank to pin down as collateral. But Bernstein said the lender was flexible and "listened to issues as we moved through wrinkles that pop up in deals."
First American intends to apply that same style to Pelican, which is mostly a retail bank. Bass said that will change to the Iowa model over time as the bank gets into construction and other kinds of business loans that power the economy in southwest Florida.
"The Naples/Fort Myers area is exploding," Dorway said. And that's what Bass said attracted it to Pelican.
"The deposit base of Lee and Collier counties is equal to Iowa," Bass said. So Florida represents geographic diversity in a fast-growing region, which First American hasn't had until now.
Besides geography, Stark is looking for businesses that don't tie up cash. Regulators require that banks keep a certain percentage of their deposits on hand, but that isn't the case with a stock brokerage such as Warner Group.
John Venable, director of the Community Banking School at Samford University in Birmingham, Ala., said that as banks such as First American outgrow their home markets, they must set off for other areas, or business lines, if they wish to keep growing.
"It's not a bad strategy at all," said Venable.
Geographic diversity makes sense to Venable. So, too, does catering to SBA clients.
"They are niche players there," he said. If they're nimble enough, they can outmaneuver big national banks, which find that processing a $100,000 loan costs as much as a $10 million one.
Not every bank has succeeded in diversifying, with Venable noting that forays into insurance and stock brokering have been particularly tough on banks in general.
"They have not cracked the code very well" on perfecting diversification, he said.
First American isn't straying far from banking and money. Bass said its diversification efforts will typically be vertical moves into lines such as managing money for business clients who accumulate wealth.
First American is not alone in these endeavors in Iowa. Heartland Financial USA Inc. of Dubuque has opened or bought banks in three Western states and operates a fleet leasing finance business. West Bancorporation Inc. of West Des Moines has bought money management firms in Cedar Rapids and West Des Moines, and Storm Lake-based Meta Financial Group Inc. is processing credit cards from a facility in Sioux Falls, S.D.
First American and Stark remain on the prowl for business opportunities. That was one of the reasons that in April Bass shed one of his jobs, as head of the bank's Des Moines operations, so he could spend less time on daily banking chores and more time scouting for opportunities.
Bass said he isn't the lone person looking for deals, and that purchases are a result of group thinking by top executives. He's the one making the calls, though. The Pelican deal came in from a friend who was working in Florida. The Waukee State Bank purchase developed after he called the bank to let them know that if they ever were interested in selling, he was interested in buying.
"Our intent is to be on the short list when the decision is made to sell," Bass said.
Bass said he won't be rushed on deals, however, and some he is pursuing may not happen. That makes him happy that First American is privately held.
"Unlike a public company, we're not driven by shareholder value, or a 10-K," he said.
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