Retire? Too Many Opportunities

Retire? Too Many Opportunities

By Sean Roth

Real Estate Editor

Who is Simon Portnoy, anyway?

In Gulf Coast business circles - and banking circles, for that matter - he's not widely known. But Portnoy is chief executive officer of one of the Gulf Coast's best-performing banks, Englewood-based Peninsula Bank (17.8% return on equity through Sept. 30), a bank he manages from Delray Beach on the east coast.

During the past two years, Portnoy has visited the Sarasota-Charlotte county market rarely: quick business trips, staff meet-and-greets and corporate strategy meetings. He spends the majority of the time on the east coast managing Peninsula's portfolio of branches there.

Peninsula Bank is broken into a group of seven banks clustered around Palm Beach, North Miami and Delray and another collection of five branches in Sarasota, Englewood and Charlotte County, with no banks in between.

"When I opened the east coast banks eight years ago, they were the hottest growth market," Portnoy says. "The past three years the west coast has really taken off."

Portnoy says the bank's niche customers are construction and real estate businesses, and the bank provides funding for hotel, shopping center, restaurant and gas station properties.

Peninsula, $454 million in assets, competes in two highly competitive regions with markedly different personalities. But like most multi-office banking companies, Portnoy manages by employing the same level of marketing, same rules for underwriting and a tight grip on overhead. Of the 12 branches it operates, the bank only owns four buildings; it leases the remainder.

"A lot of de novos spend a lot of money on infrastructure buying buildings," Portnoy says. "They think they're creating value, but what they're doing is making things even harder for themselves by incurring additional costs. There are depreciation costs. These are usually large elaborate buildings, and they require more employees; much more than we normally employ. It just ties up funds that could be producing more money elsewhere."

Peninsula backs up Portnoy's argument. According to Federal Deposit Insurance Corp. records, Peninsula has an impressive efficiency ratio - 42.73%. That means Peninsula spends an average of about 43 cents to generate every $1 of income. The industry standard in banking is that anything under 50% is a well-performing bank. In a ranking of Gulf Coast-based banks the Review compiled based on efficiency ratios through the first half of the year, Peninsula was ranked 10th out of 61.

"The result of that," Portnoy says, "is that most of bottom-line costs are fixed. That means that every extra dollar we generate principally goes to the bottom line."

This led Peninsula to generate net income of $4.3 million in the quarter ending Sept. 30. Through the first half of the year, Peninsula was in the top 10 among all Gulf Coast banks in return on equity (17.82%). Peninsula ranked in the top 15 in return on assets for the first half of the year, 1.38%.

"This never would have worked if the technology equation hadn't been there," Portnoy says. "I can sit in my Delray office; and I'm missing nothing. I've got a cell, faxes and e-mail. With the amount of the business that is going online, we can service customers at the same speed from Sarasota as we can from Delray."

As for employee problems and other issues that require on-site supervision, Portnoy looks to his CFO Sharon Rubin, who has been at Peninsula for eight years, and his departments heads.

Learning the numbers

With a graduate degree in accounting from the City College of New York, Portnoy spent his early years dealing with the numbers side of banking as an FDIC examiner and management-banking specialist for the national accounting firm of Peat Marwick Mitchell.

From there, Portnoy became a corporate vice president at Hartford National Bank and Trust Co., which at the time was the largest commercial bank in Connecticut. Around 1970, Portnoy joined Edmond Safra's Republic National Bank of New York as senior administration and operations officer.

Then at the bequest of New York bank regulators, Portnoy became president of Underwriters Bank and Trust Co. in an effort to save it from liquidation. "This was before the S&L period and would have been the first bank to go under in New York state since the early '30s," he says. "We helped save it and sold it off."

Portnoy left New York and went to work as president for Skylake State Bank in North Miami Beach. While there, he met Miami banking entrepreneur Abel Holtz. Portnoy joined Holtz's startup Capital Bank as executive vice president and chief operating officer. Holtz and Portnoy grew the bank to the point were it was one of the largest community banks in the Southeast.

In 1987, Portnoy left Capital Bank to become president of the struggling Commonwealth Savings and Loan of Fort Lauderdale (more than $1.5 billion in assets). The S&L suffered huge losses, in part because of the malfeasance of several of the bank's executives. In fact, according to The Miami Herald, after an evening confession by Commonwealth's treasurer, Portnoy reported the crimes to regulators.

Portnoy left Commonwealth after the government's Resolution Trust Corp. took it over and returned to Capital Bank. That was 1989. But within three years, he and two other shareholders were suing his former mentor, Holtz, to oust him as chairman. Although Holtz denied the accusations of spending hundreds of thousands of bank funds on two sexual-harassment lawsuit settlements, Holtz later was charged and pleaded guilty to misleading a federal grand jury that was investigating bribery charges against former Miami Beach Mayor Alex Daoud.

Holtz resigned but appointed his wife and two sons to the bank's top positions, which led to a power struggle over control with the bank's other top shareholders, including Portnoy. Around 1994, Portnoy and other executive shareholders successfully persuaded an administrative judge to remove the Holtz family and allow a merger of Capital Bank with Union Planters. By then, however, Portnoy had moved on.

"My plan was to retire and to teach, to just live a more leisurely life," says Portnoy. "I just never got the chance." The board of Peninsula Bank, of which he had been a part through Capital Bank's stake in the bank - asked him to run it.

Bringing Peninsula above water

Roy Talmo founded Peninsula Bank 1987 as 1st American Bank of Charlotte County, a de novo bank that he had intended to consolidate with his West Palm Beach-based bank of the same name. But after federal regulators booted Talmo, the consolidation never occurred, and the bank management was left to find its own way. In 1991, the bank changed to Peninsula State Bank.

Portnoy says when he became the top officer at the bank in 1994, it was with the condition that the bank had to grow. The bank had assets of $43 million and two offices.

Peninsula limped along adding three offices and another about $40 million in assets, but in 1998 Portnoy figured out the formula for growth. Assets surged from $85 million to $121 million with the addition of two new offices, including the bank's first east coast branch in North Miami Beach.

"We determined around 1997-1998, that there just wasn't enough movement on the West Coast. The bank was stymied," Portnoy says. "I had lived on the East Coast and maintained a home there. All of the banks there were skyrocketing. We made the decision to follow the same routine and rules in both markets." So Portnoy latched on to a coastal expansion.

During the same period in 1998, the bank nearly doubled employees from 35 to 62. Both return on assets and return on equity took a significant hit. The bank's efficiency ratio increased from 71.76% to 72.48%, even though the bank still managed to increase profits, from $617,000 to $724,000.

In 1999, the bank's assets increased to $180 million, and it opened another east coast branch in Margate. Expansion costs still dragged down the bank's earnings. In 2000, though, net income more than doubled to $1.2 million. That growth trend has continued through of the following four years. In 2004, Peninsula lowered its efficiency ratio to below 50%.

"I decided to stop the expansion three years ago," Portnoy says. "I thought, I'll just stay in the region and consolidate, but there has just been so much opportunity. The past year I've added another three branches, and I've got plans to add another three next year. Here we are again on the growth trail."

Through the first three quarters of the year, Peninsula is on track to have its best year ever. But Portnoy has even more ambitious plans for his bank's future.

"In two years, I expect us to be in the $1 billion category," says Portnoy, who with two partners own a controlling share in the private bank. "That will mainly be driven by expansion. We will close this year at close to $500 million. With a couple of new branches, that's $650 million. Then add in a merger or acquisition and with growth that should take us over that line."

Portnoy also has plans to take Peninsula public before June 30, 2006.

PENINSULA AT A GLANCE

2002 2003 2004 2005*

Total assets $252,295 $336,827 $380,109 $453,862

Net income $3,044 $3,780 $4,375 $4,320

Net interest income $8,499 $9,688 $11,562 $10,949

Total liabilities $230,319 $310,207 $349,600 $419,454

ROA 1.24% 1.30 1.23% 1.38%

ROE 15.07% 15.51% 15.31% 17.82%

Efficiency ratio 52.36% 52.11% 48.38% 42.73%

* Sept. 30, 2005. Figures in thousands Source: FDIC