Joseph Catti remembers getting a call from the manager of a branch of Finemark National Bank & Trust who wanted to know what rate he should give to a good customer on a certificate of deposit.
Catti's answer: “I don't know. Give him whatever rate you want.”
The episode is illustrative of the management style Catti has brought to the bank since he assembled a group of investors to open Finemark in early 2007. “We hire the very best people and expect them to make decisions, knowing that not every decision is going to be right,” says the 53-year-old president and CEO of the bank and its holding company, Fort Myers-based Finemark Holdings.
This hands-off approach has helped the bank's revenues grow to $8.3 million last year, an 84% increase over the prior year. Revenues include both income from lending and non-interest income from such operations as wealth management, as reported to the Federal Deposit Insurance Corp.
But that growth has also come at a price, as employees (including two full-time chefs) go all out to satisfy clients. The bank has posted a cumulative $5 million in net losses in the three years it's been open, including a $1.3 million loss in 2009, according to FDIC data.
In his PowerPoint presentation to shareholders earlier this year, Catti included the word “profitability” in big bold letters. “The company as a whole in 2010 will be profitable,” Catti says.
Catti, 53, is no banking neophyte. The first-generation college graduate and son of a union plasterer, he grew the Northern Trust office in Fort Myers to $1 billion in assets under management by the time he left the firm as its market president in May 2006. Although he grew up in Miami, Catti had never heard of Fort Myers before moving here to raise his four children in May 1992.
To an outside observer, Finemark has the hallmarks of a mini Northern Trust before it became the giant it is today. Wealth-management services such as stock trading and trust services represent a significant portion of Finemark's revenues now and in the future, just as it has been for Northern Trust. Neither is a retail bank with drive-through branches.
But Catti says his decentralized decision-making approach is a significant departure from the Northern Trust model. “We're not building an old Northern Trust,” Catti says.
What's more, Catti stresses that Finemark is not being managed for short-term profits (Northern Trust is publicly traded). “This is not intended to be a short-term investment. We have no intention to build and sell,” he says. The goal is to be profitable and to repay shareholders by way of a dividend.
“I don't want the financials to drive every decision we make,” Catti says. “I don't want it to cloud our decision.” The bank maintains a conservative balance sheet with about a third of its assets held in safe and liquid securities instead of loans.
Catti is counting on wealth management services to be a big driver of profits in the future. In fact, non-interest income at Finemark represented nearly 16% of total income and grew 259% last year to $1.3 million in 2009 compared with the prior year. “The goal would be that at some point non-interest income will be equal to interest income,” Catti says.
To do that, the company launched Finemark Financial Services late last year to provide clients with investment advice and securities brokerage. And it's growing its trust services, which allow it to manage money for generations and generate steady recurring fee income. “It's like an annuity,” Catti says.
But it's expensive to build a wealth-management operation. Total non-interest expense rose 67% to $7 million in 2009. “The challenge we have is building our bench strength for future growth,” Catti acknowledges. As the revenues grow, however, expenses will represent a smaller portion of revenues over time.
The trim banker who runs regularly with a group of other executives has ambitions beyond Florida and plans to expand the bank to other states. “Our intention is not to remain a Southwest Florida bank,” says Catti, who acknowledges that to do that he may have to raise more capital this year, a daunting task in these uncertain times.
“We'll continue to build the business where we know people,” he hints. “We want to be in a position to expand.”
Click here to review Finemark's performance over the past three years.