John O'Neill says Century Bank is on the way up because he stuck with the executives he found there - and they with him.
Banker of the Year: John O'Neill
John O'Neill says Century Bank is on the way up because he stuck with the executives he found there - and they with him.
By Francis X. Gilpin
John P. O'Neill was struck by the idiosyncrasies of Century Bank when he arrived in Sarasota four years ago to take the helm of
the thrift. "It was almost an unknown entity in town, although it had been around since the mid-80s," O'Neill says.
Most of Century's earning assets came courtesy of mortgage brokers. "There wasn't a sales force, in terms of lending, to speak of," he recalls. The money loaned out came from unreliable certificates of deposit, which retirees were antsy to cash out at maturity. "They'd leave you for a basis point or a toaster, whatever you wanted to give them," says O'Neill. "That was fairly hot money."
The overall picture was unsettling. "The place operated on very thin margins and was very operations-driven," he says. "The focus at the end of the day was more 'Are the tellers in balance?' rather than 'How many new accounts did you open?' or 'How many loan apps did you take?' "
Throw in a history of regulatory scrutiny and the revival going on today at Century under O'Neill looks all the more impressive.
Even as assets have grown more than 50%, to $452 million at the end of June, O'Neill has kept overhead low. "We still are very thrifty when it comes to expenses," he says.
Hence, return on equity has shot up from 6% in 2000 to 17% last year.
Century and its ongoing turnaround remain a secret in some Gulf Coast banking circles. But perhaps that will start to change with O'Neill's selection as GCBR's local banker of the year for 2004.
"The performance has been spectacular," says Benjamin C. Bishop Jr., chairman of Jacksonville investment bank Allen C. Ewing & Co. "This is essentially a mortgage bank that John O'Neill has taken and stabilized. John has done a heck of a job. He's taken some of the volatility out of the earnings."
Surprisingly, given his first take back in 2000, O'Neill has whipped Century into shape mostly with the organizational chart he inherited. "It just needed direction. It was lost at sea. There wasn't a strategy," says O'Neill. "I've got to give a lot of credit to the management team that I've got for you guys recognizing me because I'm just the bandleader here."
Early ownership change
The original ensemble formed in the spring of 1984. A local investor group headed by banker James U. Wade turned a profit the first year of operation in 1985 at what was then Century Federal Savings and Loan.
Wade, who previously worked for a Bradenton S&L, was Century's biggest shareholder when the investors sold out to Fort Lauderdale financer Barry W. Florescue in 1988 for $5.7 million.
Florescue, 60, a transplant from upstate New York, is chairman and chief executive of Century Financial Group Inc., corporate parent of the now-federally chartered savings bank. Century is his sole banking property. But Florescue operates a handful of other businesses through a Pompano Beach holding company. The self-made multimillionaire has tried in recent years to expand his little empire, by unwelcome means if necessary. Florescue made a failed play for the Morton's steakhouse chain alongside the king of hostile takeovers, Carl Icahn.
It may have taken Florescue a while to realize that running a federally insured financial institution is different than running a soap factory, one of his other holdings.
Century Bank operated under a supervisory agreement with federal thrift regulators for the first half of the 1990s. Florescue was sanctioned by the Office of Thrift Supervision in 1997. The regulators accused him of tapping Century resources to obtain a series of perks for himself and his wife at a time when his thrift was below minimum capital requirements.
Florescue had to repay $71,000 to the thrift as well as pay a $50,000 civil penalty. He retained a seat on the Century board. The chairman of the thrift is Charles W. Miersch, a retiring business school dean at the University of Rochester, Florescue's alma mater. At Florescue's request, the OTS finally lifted a cease-and-order against him earlier this year.
John O'Neill says Florescue has done remarkably well with Century, considering it should have been liquidated along with other weak Florida thrifts in the late 1980s and early 1990s.
"This place was doomed. They were going to close it," O'Neill says of the regulators. The New York native was working in South Florida banking by then. "The problem was, they had bigger fish to fry, one of my competition down in Miami, David Paul."
While the feds were distracted by the infamous CenTrust chairman Paul and other S&L looters, Century managed to get its act together under the guidance of Wade, who stayed around after Florescue's purchase.
But Florescue wanted to see faster improvement after he got himself untangled from the OTS and regulators eased up a bit as the S&L crisis shrunk in their rearview mirror. By 1999, Century began an evolution from cautious thrift to bolder commercial bank, in everything but name and charter.
Wade may have been uncomfortable with the shift. He left Century in early 2001, within months of O'Neill's appointment to run daily operations as executive vice president. Wade's departure at age 65 was portrayed as a long-deserved retirement. Yet Wade was back in charge of another local bank within a week of packing up at Century.
O'Neill, then 50, had firsthand experience transforming a sleepy S&L. He came to the Sunshine State in 1986 at the invitation of Alan Levan. The colorful South Florida real estate man wanted O'Neill to help him remake Atlantic Federal Savings & Loan into a nimbler and more diversified enterprise. It is known today as BankAtlantic Bancorp Inc.
Put in charge of retail banking, O'Neill ended up president of the thrift in 1991. "He was a straight shooter," O'Neill says of Levan. "He was one of the few guys that survived in the real estate business down there, always seemed to land on his feet.
"We parted our ways after 10 years and I have nothing bad to say about the guy. He gave me a heck of an opportunity."
Ironically, after four years with two other South Florida banks, O'Neill was paired up with Florescue by Ryan, Beck & Co., the investment banking arm of BankAtlantic.
"It was a microcosm of what I had at Atlantic Federal," O'Neill says of his first conversations with Florescue about Century. "He wanted to basically go with the same strategy. Move away from a traditional thrift to a full-service bank."
That wouldn't be easy. Lacking a sales mentality, some Century employees had to be reoriented - or replaced.
"Our consumer lender was kind of the Ensign Pulver of the organization," O'Neill remembers with a chuckle, referring to the Jack Lemmon character in the 1955 "Mister Roberts" film. "Nobody knew what he did. He was a hall walker. The only reason we made consumer loans was if somebody walked in and asked for it. It was not marketed."
O'Neill says he hired aggressive loan officers and fired up consumer lending. From less than $10 million, Century has grown consumer loans to more than $75 million. The $20 million in commercial lending has mushroomed to $125 million.
On the liability side, O'Neill reduced Century's dependence on CDs, which made up 85% of deposits, and opened more savings accounts that wouldn't flee at the drop of an interest rate.
Executive vice presidents Donald M. Farr, Century's chief financial officer, and Charles J. O'Mara, who oversees commercial lending, deserve much of the praise, says O'Neill. He also singles out senior vice presidents William J. Albanese, the top mortgage banker, and Francesca M. Sedini, who streamlined residential mortgage servicing.
O'Neill says he didn't have to make many personnel changes. "I just reset the marching orders and [they] execute[d] it," he says.
The outcome pleases Century owner Barry Florescue. "John is tremendous," Florescue told GCBR. "Not only is he a good banker but he's a great person."
Century's 17.16% ROE in 2003 is nearly 200 basis points better than the average for Florida thrifts in the same asset class of $300 million to $500 million. The 1.12% return on assets was just below the average, but has trended upward.
"We weren't making 50 basis points on assets when I arrived here," says O'Neill. "We should earn close to a point and a quarter on assets; 17.5, 18% on equity this year."
O'Neill also hopes to get the efficiency ratio under 50%, meaning Century would be spending less than 50 cents for every dollar of income.
Work in progress
Yet there is more to do. Century has reduced the ratio of non-current to outstanding loans during the O'Neill presidency, from 2.27% in 2000 to 1.77% last year. But that's still quite high, especially when the peer group average is an uncomfortably elevated 1.50%.
O'Neill doesn't dispute that Century needed more experience in some areas.
Just as he showed up in 2000, O'Neill was dumbfounded to learn that Century was wrapping up a deal to buy a $7 million portfolio of sub-prime loans in Alabama. The thrift's capital was below $20 million at the time. "The regulators were all over that," he says.
Adding to O'Neill's queasiness, Century was sued over the transaction, but prevailed in court. "We came out of it virtually unscathed," he says. "But it was a bullet that we dodged." The sub-prime portfolio, whittled down to $3.5 million now, does yield 18%.
Century has had to take back a pier restaurant overlooking the Manatee River in Palmetto no fewer than three times. A recent sale to an adjacent marina owner may rid Century of the property for good.
"There was some scrubbing I had to do at the time we were redirecting the company and installing a sales culture into our people," says O'Neill.
Real estate appreciation in Sarasota and Manatee counties has made his job easier. "The strong economy has kept our asset quality up," he says. "When we have a problem, rarely do they get to foreclosure. The customer is able to dispose of the property and get out whole and the bank doesn't get hurt."
Century is down to two delinquent commercial loans, according to O'Neill, with combined balances of under $500,000. One of those properties is set for sale this summer, he adds. The OTS gave the thrift a solid rating following a recent examination.
But are real estate values forming a bubble around Sarasota that could burst?
"We worry about that," replies O'Neill. "In the last 18 months on our loan-to-values, it's rare for us to lend 75 or 80% on a commercial property right now. We're down in the 65 to 70%, loan-to-value."
Century has no formal loan committee. On big commitments, O'Neill usually hashes it out with Florescue and Miersch over the telephone, after he sends them the presentation and visits the potential borrower. Century loan officers pride themselves on giving fast answers, says O'Neill, even "when it may be no."
Unlike the larger banks, too, Century is willing to customize the credit. O'Neill says he occasionally falls back on his installment-lending past and structures payments for the rhythms of a seasonal economy. He calls it a variation on "the old teacher's plan." Minimal or suspended payments over the summer, then a heavier schedule kicks in when autumn rolls around.
"We're not afraid to think outside the box," he says.
Hunt or be hunted
But O'Neill admits that Century must open a few more boxes to stay competitive. Its seventh and newest office has been open for more than a year in Venice, where there is now $27 million on deposit.
The Century board - Miersch, Florescue, two other associates of the owner, and O'Neill - wants to open an eighth location somewhere out east by the end of the year.
"Anything near Lakewood Ranch is an arm and a leg," says O'Neill, shaking his head. "But that's where you've got to be if you want good retail, year-round, permanent business."
Contrary to some industry expectations, Florescue is too wrapped up in his businesses right now to sell Century. "This guy is a hard-charger, too," O'Neill says of his boss. "It's no walk in the park. But he's a very, very bright businessman.
"That's the beauty of one owner, who's a holder, not a folder. You look at his assets. He hangs onto them."
A more likely scenario has Century kicking the tires. Florescue confirms that. "We're looking to add branches and a smaller bank," he told GCBR.
But privately held Century will have to pay cash for another institution, notes Ewing & Co.'s Ben Bishop. There are no public shareholders to milk in an all-stock merger.
Florescue's money or creditworthiness will be required if Century wades into the torrid seller's market for Florida banks, where multiples are stratospheric.
The Century owner seems unfazed. "We see some attractive opportunities out there with a small bank that maybe the bigger banks, paying these ridiculous prices, are overlooking," says Florescue.
Two years ago, Century came close to getting one of O'Neill's old employers, Gateway American Bancshares Inc. in Broward County. Snatching it away with a better offer was Clearwater-based PCB Bancorp Inc., now part of Colonial BancGroup Inc.
O'Neill's preference would be for Century to take over a commercial bank within an asset range of $75 million to $150 million.
South Florida would appear to be prime hunting ground. Besides Florescue's ties to the area, O'Neill's wife has remained in Fort Lauderdale so the last of their four children could attend high school on the east coast.
"The principal owner having a presence over there does not preclude us," O'Neill says coyly. "Operationally, the back office people throw up every time we mention it. But, from a marketing standpoint, it would make some sense."
CENTURY BANK, A FEDERAL SAVINGS BANK
March 31, 2004December 31, 2003December 31, 2000
$ in 000sFirst quarter resultsFull-year resultsFull-year results
Return on assets1.18%1.12%0.33%
Return on equity18.62%17.16%6.06%
Non-current loans to loans1.04%1.77%2.27%
Net charge-offs to loans0.03%0.08%0.02%
Total risk-based capital ratio10.42%10.61%10.58%
Source: Federal Deposit Insurance Corp.
JOHN P. O'NEILL
Title: President and director of Sarasota's Century Bank, a Federal Savings Bank
Education: Bachelor's degree in business from LeMoyne College, Syracuse, N.Y.
Family: Wife Mary lives in Fort Lauderdale and teaches tennis at a preparatory school.
Children: John Patrick Jr., 28, graduated from the University of Notre Dame; Brendan, 26, graduated from Merrimack College; Molly, 23, graduated from Boston College; and Colin, 18, enters Providence College this fall. Notice a pattern? "We give them two choices," the Jesuit-educated O'Neill jokes. "We give them north and Catholic."
Past employers: M&T Bank, Buffalo, N.Y.; BankAtlantic, SouthTrust Bank and Gateway American Bank of Florida, all in South Florida.
How he got to Florida: O'Neill came home one night and pulled into what he thought was his driveway in snowy Buffalo. "It was a 10-foot drift," he says. "By the time I got the car off the road so the plows wouldn't hit it in the morning, who was on the phone but a recruiter from Florida."
Interests away from work: An avid jogger and freshwater fisherman "up north," O'Neill says he "played tennis till the shoulder went and the wife beat me too many times."