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R-G Crown Branches Out Across Florida
By Richard Burnett | Sentinel Staff Writer
July 28, 2003
"It is absolutely the right move for them to get into the Florida market, particularly in Orlando, which has the second-largest population of Puerto Ricans in the United States, after New York."
Few things can make bankers grin more than being able to tap into billions of dollars to fuel their business.
Jack Koegel and Nelson Montalvo have billion-dollar smiles these days.
Both have labored long in the banking business: Koegel, a former lawyer in Ohio, started his bank management career in the 1980s after coming to Florida. Montalvo rose from teller to executive during the '90s.
Now the top executives of Casselberry-based R-G Crown Bank are on the cusp of an aggressive plan to expand the thrift across the mid-section of Florida from Orlando to Tampa, with up to 30 new branches by 2005 and increasing its assets to $1 billion by year's end.
The financial catalyst for this bold expansion? R-G Crown's parent company, San Juan-based R&G Financial Corp.
As Puerto Rico's second-biggest mortgage company, R&G also owns R-G Premier Bank and other financial operations on the island and in New York. But it is now throwing its corporate weight into the Florida market.
With more than $7 billion in assets, $3 billion in deposits and $660 million in stockholder equity, R&G has the deep pockets needed to finance R-G Crown's growth plan for Florida, which includes acquisitions, expanded lending operations, more products and services, officials say.
The bank also expects to capture more of the burgeoning Hispanic market -- especially customers from Puerto Rico, where R&G Financial enjoys widespread name equity.
"Our intent is to use all of R&G Premier Bank's net worth, assets and name recognition to benefit the growth of R-G Crown Bank," said Koegel, longtime president of the former Crown Bank, which recently adopted the new moniker.
While many of the details are still on the drawing board, being a subsidiary of R&G Financial has already made a big difference for Crown since it was acquired in June 2002 by the Puerto Rican financial conglomerate.
Backed by R&G's capital, R-G Crown can now lend more money to more customers, making it a stronger competitor in commercial lending. As a result, its commercial real estate lending business has almost doubled to $200 million, officials said. That has attracted a parade of new business accounts, which along with new individual accounts has created a strong momentum for R-G Crown's growth.
In Central Florida alone, deposits at the thrift's six local branches jumped more than 103 percent, to $262.5 million at the end of 2002, according to a recent report by the Florida Bankers Association.
Although that is dwarfed by major players such as SunTrust and Bank of America -- where local deposits total in the billions of dollars -- R-G Crown hurtled past its major Hispanic-owned rival, Banco Popular, which has nine local branches and $231.7 million in deposits, the FBA report said.
R-G Crown officials are clearly pleased at such comparisons, but they are quick to point out their differences with Banco Popular, Puerto Rico's largest financial institution, which until recently had marketed itself as "the bank for Hispanics" in Florida and other states with large Latino populations.
"R&G is not interested in coming here, raising a flag and being seen as a bank only for Hispanic customers," said Montalvo, vice president and regional manager for R-G Crown. "We don't think that has worked for other ventures, so we certainly don't plan to do it. Our focus is to serve the entire community, not strictly one segment of the community."
Still, R-G Crown considers the growing Hispanic market a high priority in its business plan. It already has two branches located in heavily Hispanic areas of metro Orlando, and that number is expected to double in the next year. R-G Crown also has programs and systems in place enabling customers in Puerto Rico to bank seamlessly from the island to the mainland.
"We want to earn new customers here and at the same time make sure we retain customers for R&G as they come here," Montalvo said. "We can capitalize on that relationship because we know a lot of R&G customers in Puerto Rico will feel a comfort level with R-G Crown."
To many observers, R&G Financial pulled off a coup with its $100 million buyout of Crown. Many of the banking powers-that-be would love to have added it to their stables. But Crown wanted to retain its management team, employees and branch structure -- an unlikely outcome if the bank was sold to another suitor.
As it turned out, R&G agreed to the terms. But R&G Chairman Victor J. Galen has become chairman of R-G Crown and visits Orlando frequently these days. The 70-year-old financial entrepreneur has even leased a luxury apartment downtown.
"Physically, I'm spending about half my time in Orlando now, but mentally I would say I'm there 100 percent," he said. "I enjoy working with the people in Orlando and would like to be there full time. We've seen how much the market has expanded, how the real estate values have gone up. And we are very dedicated to the commercial real estate and consumer lending business."
R&G's arrival in Florida has attracted more than a little attention in the state's banking community, said Alex Sanchez, executive director of the Florida Bankers Association. There is little doubt that R-G Crown will be able to make inroads in Florida's Puerto Rican community because of its familiarity with R&G's name, he said.
But it is uncertain how much of an advantage that will be.
"From SunTrust to Southern Community Bank, everyone is targeting the Hispanic market now, with varying degrees of success," Sanchez said. "Both R-G and Banco Popular will use their extensive marketing experience to leverage their advantages. But they aren't alone now. All the other banks have realized the Hispanic market is one they need to target."
At the same time, Banco Popular, which opened its first U.S. branch in 1997, is now reaching out beyond its traditional boundaries to appeal to the general market. Earlier this year, the bank launched a campaign to reshape its brand in Florida and the rest of the country.
"Banco Popular has always been a trail blazer, a pioneer in setting the footprint for those coming after us," spokeswoman Frances Ryan said. "In our view, competition is always a good thing. The more competition, the better we have to be in serving customers."
Despite all the positive vibe surrounding R-G Crown these days, the bank has seen its share of turbulence in recent years, incurring losses of $2.04 million in 2000, almost $3 million in 2002 and $3.3 million in first quarter 2003 alone.
The losses were triggered by a variety of factors: In 2000, for example, the bank wrote off about $2 million after dissolving its subprime mortgage business. Last year, Crown took a hit from restructuring and other costs related to the acquisition.
But there was one culprit that generated losses in every year since 1998: Its dwindling mortgage servicing portfolio, triggered by refinancings and loan prepayments.
Briefly put, Crown provides payment processing and collection services to other mortgage lenders. When mortgages in Crown's portfolio are refinanced with a different lender and paid off, the portfolio value decreases and the bank must take a charge against its earnings. If the bank doesn't make enough money from other sources to erase such charges, it becomes a loss.
Clearly, the refinance boom of the 2000s has been tough on Crown's bottom line, but bank officials said the losses have mostly been on "paper" -- accounting for the estimated market value of its mortgage portfolio -- rather than from actual operations.
"When analysts look at a bank's performance, they specifically look at how a bank is doing from its core operations, excluding extraordinary type events like this," said Koegel, Crown's president. "Through the years, we've made millions and millions off our loan-servicing portfolio. In the past, we've often adjusted their value upward. It all depends on the swings in the economy."
R-G Crown is not alone in wrestling with losses from the huge refinance bubble, said Thomas Monaco, senior vice president and analyst for Keefe, Bruyette & Woods, a banking stock research firm based in New York.
"It's really not an alarming number for R-G Crown, given the huge amount of prepayments that are happening in the country," he said. "Overall, this is a very good deal for R&G in the long term.
"It is absolutely the right move for them to get into the Florida market, particularly in Orlando, which has the second-largest population of Puerto Ricans in the United States, after New York. I won't be surprised, however, if it takes some time to get settled, to integrate their operations and get things pumping on all cylinders."
Crown vs. Popular
R-G Crown is small on a national scale, but has fared well in Central Florida, compared with the larger Banco Popular (34th among bank-holding companies with U.S. operations).
* Central Florida deposits only
SOURCE: Florida Bankers Association
Tops in Central Florida
The latest government figures collected by the Florida Bankers Association show this lineup of the top 10 banks and thrifts based in Central Florida, as gauged by the institution's total deposits.
SOURCES: FDIC, Florida Bankers Association