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PressDespite shaky economy, some see opportunity for new banks
In the midst of the biggest economic crisis in 80 years, featuring the largest number of bank failures in more than a decade, a handful of people have decided that the best thing to do right now is open a new bank on Long Island. "This is one of the best businesses you can start now," said Steven Schnall, who is taking over the troubled Golden First Bank in Great Neck and restarting it as Quontic Bank. Schnall, 42, founded New York Mortgage Trust in 1992 and ran it until 2007. He will start with $12 million in capital after buying the bank. Its existing bad loans will be sold, leaving Quontic with a clean balance sheet, Schnall said in the home office at his six-story house in TriBeCa. His enthusiasm for starting a new bank is matched by that of others who have done the same thing in the past couple of years. Some are veterans of other banks, and some, like Schnall, come from other industries, but all agree that the banking industry's difficulties are an opportunity for them. In part, that's because new banks are, by definition, unencumbered by a legacy of bad loans. As a result, they're able to be conservative and still extend credit when some more established banks can't. In addition, for those able to make loans, this is a good time to do it, bank officials say. Real estate values are low and likely to go up, lessening loans' riskiness. And because interest rates generally are low, the difference between what banks charge on loans and what they pay in interest on deposits is especially profitable. Still, there likely will be fewer new banks on Long Island in the next few months. It takes months to raise the necessary capital and clear regulatory hurdles, and most of the newest banks were in the works before the economy crashed. "You probably will see few come on line in the next few years," said Daniel Murphy co-chairman of Merrick-based Madison National Bank, which opened in 2007. Regulators are scrutinizing new banks more closely than ever, he said. Indeed, Thomas O'Brien, president and chief executive of the State Bank of Long Island, said the new banks could have a tough time ahead of them. "It's a very tough business," O'Brien said. "By design, you lose money the first few years." Employees have to be paid, and until a bank makes loans - and gets back interest on those loans - it has little income, O'Brien said. But the chief executives of Long Island's six new banks remain optimistic. More than half of them are profitable or expect to be soon, and several of them are already opening new branches and planning for more. "Anyone who's got the doors open is doing a good job. They had to have a good foundation" to withstand tougher regulation, said Robert Long, acting president of Hanover Community Bank in Garden City Park one of the new ones. "They're going to flourish." A VARIETY OF BANKS Traditional Traditional retail banking with multiple branches is the most common form new banks take. On Long Island, both Madison National Bank and Empire National Bank have more than one branch, with plans to open more. And community banks now with one branch, Quontic and Gold Coast, both have plans to expand. "We've had an extraordinary amount of growth," said Doug Manditch, chairman and chief executive of Islandia-based Empire. The bank is about to open its fourth branch, in Garden City, and just raised $5 million in capital to go with its original $37 million, he said. Now is a good time to find places for new branches, said Michael Puorro, co-chairman of Madison. When large banks close branches, a small one like Madison can acquire it for much less than building a new one, he said. Community For obvious reasons, many banks start as community banks, as much a part of a downtown as a deli or hair salon. For Robert Long, the acting president of Hanover Community Bank in Garden City Park, the plan is to remain strictly local. The idea is to attract local residents and businesses to be depositors and to re-lend the money within 5 to 10 miles. Long said Hanover's goal is to be an integral part of the community. "We know every street in the area," said Long, whose office is smaller than those of many branch managers at larger banks. "We know the values. We meet everyone we lend to, face to face." It's working, Long said. Customers are coming in for loans and because Hanover forges close relationships with those borrowers, he said the bank can safely make loans that larger banks can't. Private client Not all new banks want to be found. Herald National Bank's Melville branch is down a hallway in an anonymous office building off the Long Island Expressway, and no one would ever find it without knowing where it is, and that's by design. The teller window is almost hidden in an otherwise nondescript office. Herald is a private client bank, founded to serve small- and medium-sized companies, their managers and hardly anyone else. "These kinds of companies have a need for credit," said Herald president and chief executive David Bagatelle. The business model works, he said. Herald has no bad loans, plenty of capital and is the fastest-growing new bank in the country, he said. ###
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