by Sean McManus
Staff Writer
Michael Sanchez always said he was never going to run a bank. But when investors in the highly profitable, upstart First National Bank of Nassau said that it would mean he could move to Fernandina Beach, he said, “When do I start?”
It was actually a homecoming for Sanchez, the bank’s president. He was born in Jacksonville and attended Lee High School (so did his parents), but lived in Atlanta for the last 30 years, working in the mortgage loan divisions of BankSouth and Tucker Federal.
“This is a great place to work,” said Sanchez from the one branch First National operates on 14th Street. “It’s just so nice.”
First National, which is supplying some seed money for commercial ventures in Fernandina Beach and Amelia Island, and is an active player in the new Gateway to Amelia project, opened its doors in July 1999. Sanchez moved down a year earlier to work on filing with the Security and Exchange Commission and organizing the sale of $10 million in common stock to about 600 shareholders with the help of his investment bank, Allen C. Ewing & Co., which was recently purchased by Intrepid Capital.
One of the factors that set First National apart from other community banks is its business plan. But more striking is its performance right out of the gate. First National ended 2001 with deposits of $57 million and over a half million in net after-tax income. That’s pretty good news for the shareholders of a bank less than two years old in a small town with one branch. They also became the fourth-ranked SBA lender in the North Florida District in the same short period of time.
It all started when Sanchez and the 14 local investors noticed that the margins between interest income — what a bank receives on loan interest — and interest expense — what a bank pays on deposit, has narrowed over the last several decades. So instead of doing what most banks do, which is wait years for enough loans that will generate enough income, they decided to go profitable quickly. They sold the guaranteed portion of SBA loans and made residential mortgages that generate fees. And it worked.
“We want to be 50 percent commercial banking and 50 percent mortgage lending,” said Sanchez, who recruited the underwriters from his days in Atlanta. Total staff at First Nation is about 40 people. Twenty are in Fernandina and 20 are at the wholesale mortgage division of First National in Neptune Beach.
The way it works is they buy loans from mortgage brokers, credit unions and other small banks. They hold them for about two or three weeks, then sell them to large institutional investors, making a fee plus interest income during the time they held the notes. So at a time when most investors would wince at the thought of resting their hopes on a company that prides itself on being cash intensive, the idea has propelled First National into one of the area’s leading financial institutions and is making its investors do anything but wince.
“This is a pretty different model than what you usually see in community banking,” said Sanchez, referring to the basic retail branch network concept. “We still want to have helpful, small town customer service but our infrastructure means we are a different bank in the back room.”
Sanchez said now they can grow from a de novo (that’s an industry term for a bank that’s less than five years old) into a mature financial institution profitably. And First National is a preferred lender, meaning they can approve SBA loans on the spot. They get business from other banks.
The next step will be to build the branch office infrastructure that First National has eschewed until now. They will start down the A1A corridor towards Jacksonville and see where it goes. First National currently handles business from St. Augustine to Savannah, in the back room. It is focusing on loans in the ballpark of a few hundred thousand dollars that are too small for the Bank of Americas.
Asked if the age of Internet banking means that banks can rely less on branch offices, Sanchez said, “Customer services are a critical component to the success of any bank. Now that we are in a position to grow we will find out where the greatest need for branches lies and we’ll build there. People still like to go see people they trust for their banking.”
And that means responding to the demographics.
“This is an unusual island,” said Sanchez about Fernandina and Amelia. “You’ve got the north part which is traditional Fernandina, and the south part, which is the Ritz-Carleton.” So that means First National has two books of business, regular community banking and banking for high net worth individuals.
Currently, First National is doing about $35 million in local loans. The goal is $50 million. Sanchez understands that Fernandina is not going to generate the kind of massive loan growth like Atlanta, and that’s why the fee-based structure of the mortgage lending is in place.
But First National is still, in some ways, like a lot of other community banks: trying to sell quality loans and quality customer service in a small town and make money.