Windfall: with its Venezuelan roots, Coral Gables-based Commercebank has had a stellar year of new deposits and soaring income. Now, chairman Guillermo Villar's biggest challenge will be deciding where to lend all that cash - Banking

South Florida CEO, March, 2003 by Wendy Doscher-Smith

To say it has been a good year for Coral Gables-based Commercebank is a bit of an understatement. Commerce-bank's recently posted 2002 year-end earnings of $35.5 million were up 70 percent over 2001, with the fourth quarter net streaking home at $11.5 million, more than double the $5.7 million net from fourth quarter 2001. Moreover, with deposits up 43 percent to $1.9 million, Commercebank's $3 billion in assets makes it the third-largest bank based in South Florida, behind only BankUnited and BankAtlantic.

So, what is Commercebank's secret? Well, for starters, it doesn't hurt to have strong connections in Venezuela, where the bank's holding company, Mercantil Servicios Financieros, is based. People in that economically-challenged nation are clamoring to transfer their money into safer harbors, especially ones they already trust. In that regard, it also helps to have a successful history (Commercebank was founded in 1979) and a well-respected operation, including chairman Guillermo Villar and president Millar Wilson. "This US bank is their [Mercantil's] Michael Jordan rookie card," says Miami-based banking expert Ken Thomas. "This is their jewel."

"I don't see any red flags going off," says Coral Gables-based BauerFinancial Inc. analyst Karen Dorway. Commerce-bank earns four out of five stars on Bauer's bank-rating scale, which takes into account various measures of a bank's health. Dorway says Commercebank shows a "decent level of capital" and "delinquencies under control."

About the biggest problem at Commercebank is its wealth of cash. Of $3 billion in assets, only $1.5 billion is in loans, Villar says. The rest of it is basically deposits. Currently, most of those come from the Venezuelan private banking system, from "medium- and high-net worth individuals," says Villar--who is quick to point out that "this is not all capital-flight monies." The typical Commercebank depositor is a Venezuela resident with savings inside and outside of the country.

Since Commercebank is affiliated with Banco Mercantil (also owned by holding company Mercantil Servicios Financieros) part of its deposits come from that Venezuela-based sister institution. But Commercebank has also won over clients by luring them with enticing products such as the popular "multi-currency account" whereby clients can use the Internet to do their banking globally. "It's what the marketing people call a 'killer product,'" Villar laughs.

With so much cash to invest, Commercebank's future strategy is to focus on the US domestic market, with special emphasis on commercial and real estate lending. Commercebank just hired three real estate lending specialists for its New York office, and more employees are coming aboard for real estate and corporate lending there and in real estate lending operations in the bank's Houston office. Commercebank also wants to expand into Palm Beach County, Central Florida and Florida's west coast. One hundred new employees are scheduled to be added this year to the current payroll of 520 people.

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"We already cover Miami-Dade and, partially, Broward," Villar says. "We think there is a good opportunity in the Tampa-St. Pete area and also in Orlando. There is a large Latin population there."

One thing which Villar does not want to do is compete with big US banks for retail business in South Florida. "Our strategy is to have branches in certain locations but not to be a widespread branch bank," says Villar. "We figure we will never be able to compete in the retail banking arena with big banks, so our market is more of the middle commercial market."

Since Commercebank's strength is lowcost funding through international deposits, the new domestic loan strategy is a way to "put those to better use," says Villar. "Latin America does not present many opportunities now." As for the coming year, he says, "We will probably be a bit bigger, but we don't anticipate growing at the same rate as last year on the deposit side."

"They [Commercebank] have been here many years," says colleague Clemencia de Tobon, president and CEO of Miami's Eastern National Bank. "They have a lot of places for people to place business. They are diversified. They have a menu. And the market in general is helping banks that have a good strategy like that."