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Provident Buys Gotham

By Scott Van Voorhis

Some of the world’s largest banks are facing new competition in their New York City backyard from a pesky local upstart.
Provident New York Bank recently gained its first beachhead in Manhattan, acquiring Gotham Bank. The bold move puts the $3 billion-plus bank, based in Rockland County in the Lower Hudson Valley outside New York, in direct competition with the likes of $1.8 trillion Citigroup and the $2.2 million JPMorgan Chase & Co.
Montebello-based Provident’s move is yet another example of community or regional banks seeking new growth at the expense of the behemoths of the industry, challenging the titans in their urban strongholds. And New York is an appealing battleground, with the city on the rebound after a tough economic and real estate downturn.
“Gotham Bank is a great strategic fit for us and offers an attractive platform in the New York City market to grow our franchise,” said Jack Kopnisky, president and CEO of Provident Bank. “The acquisition of Gotham Bank continues the implementation of our strategic objective to expand our reach into the greater New York City marketplace.”

Buying a Big Apple Beachhead
Provident announced plans in January to buy Gotham for $40.5 million in cash. The price is 125 percent of Gotham’s net worth, with an estimated 3.3 percent core deposit premium.
Provident is expanding through the acquisition of a relatively strong community bank franchise rather, than picking up a troubled operator at a fire sale price. A small, community orientated commercial bank with a single branch in mid-town Manhattan, Gotham was founded in 1980 and has earned a reputation for offering a high degree of personal service for its clients. Gotham has $169 million in loans on its books, as well as $335 million in deposits. The deal is anticipated to close in the third quarter of the year.
“Provident Bank has a strong plan for the future and we are pleased to be an important part of their entry into New York City,” said Laurence R. Marchini Jr., CEO of Gotham Bank of New York.

Healthy New York Market
an Attraction
It was not Gotham’s size that was attractive to Provident, but rather its value as a springboard into the wealthy Manhattan market, a rich hunting ground for banks interested in tapping into a vibrant commercial lending market and attracting high-net-worth customers.
Even as many other major cities have struggled to get back on their feet after the Great Recession, New York City managed to escape the worst of the downturn. Fitch Ratings recently affirmed its “AA” rating on New York’s $41 billion-plus municipal debt load. Along with citing prudent management practices by city officials, Fitch also pointed to the “inherent economic strength” of the New York City economy.
New York has recaptured many of the jobs it lost during the recession. Moreover, key sectors, such as tourism and commercial real estate, are booming.
The city attracted a record 50.5 million visitors from around the world in 2011, according to Fitch. And commercial real estate is doing well, with 30.1 million in leasing activity in 2011, the highest volume in more than a decade. New York’s 9.3 percent vacancy rate is the best of any major metro market in the country. In addition, there is a huge concentration of wealth in the Big Apple, with median income 123 percent of the national average. In a telling statistic, the financial services sector accounts for 12 percent of all jobs in New York and 30 percent of all take-home pay, according to Fitch.

Hitting the Ground Running
Meanwhile, Provident has already put into motion a plan to tap into the wealth of business and personal lending opportunities to be found in New York City. Provident plans to hire three to five New York-based banking teams, which will partner with Gotham’s veteran Big Apple lending team. The new teams will focus on middle market commercial lending while also offering personal banking services to business owners, senior managers and their employees.
David Bagatelle, an executive vice president at Provident, will oversee the expansion in a newly created position as president of Provident’s New York City operations.
“As we put together our middle-market banking teams in New York City, Gotham provides a platform to expand that includes a core asset and deposit base, a long-term client base, an advantageous location in midtown Manhattan, and an initial legacy client relationship team,” Mr. Bagatelle said in a press statement
Though Provident might seem mismatched, moving into the home territory of such banking behemoths at Citigroup and JPMorgan, it is yet another example of how community banks in the New York metro market and across the country are moving into claim lucrative niches serving small and mid-market businesses and wealthy individuals as the big banks focus on more global concerns, notes David Albertazzi of the Boston-based Aite Group.
Banks like Provident, a larger community bank with $3.1 billion in assets, have a nimbleness their much larger competitors can’t match. Technology is also proving to be a great equalizer, allowing small banks to expand their reach in ways that would have been impossible a decade or two ago, he noted.
“Larger institutions have been closing branches and have been creating opportunities,” Albertazzi said. “Much smaller institutions are grabbing at those opportunities.”
Other community banks and investors are looking at making similar plays in the New York metro market. Private equity investor Michael Carrazza pumped $50 million back in 2010 into Patriot National Bank, based in the wealthy New York City bedroom community of Stamford, Conn. The bank’s location was a major draw – it came with three branches in New York itself. The bank has aggressively pushed to ramp up its commercial and industrial lending, as well as loans to small businesses.
“In other geographies, we might not have been quite as interested,” Carrazza said, adding the “spread of customers in both New York and Connecticut” was an attraction. “It is a very affluent and stable market.”
New York-based Amalgamated Bank, after a $100 million bailout by a group of investors – including a fund launched by Lakers great Magic Johnson – also plans to ramp up its business lending in New York. The bank’s problems stemmed from housing ventures across the country that blew up with the real estate bubble burst. The bank lost more than $100 million over the past several years on real estate loans gone bad, some made in once-booming Sun Belt markets like Las Vegas. A profit of $9 million in 2009 turned to a $1.2 million loss in 2010.
“New York is probably one of the more stable markets in the world,” said Ed Mermelstein, a real estate attorney and co-founder of international real estate law firm Rheem Bell & Mermelstein in New York. “It has fared the best during the downturn and the risk and reward scenarios are different.”

Suburban Invasion?
Provident is not alone in seeking to expand from a suburban base into a downtown urban area, following a game plan seen in other cities.
In Boston, suburban community banks like Eastern Bank and Danvers Bank have expanded from suburban bases to open branches in downtown Boston. It is a way, say bank executives, of following their customers to work. Making such moves even more enticing has been a retreat by the big banks from the nitty-gritty of community lending.
Provident’s push into New York is part of a larger strategic reorganization by the bank, executives wrote in a filing with the federal Securities and Exchange Commission.
The bank has restructured its management structure around geographic markets, such as New York, hiring market presidents to oversee them, as well as a new chief operating officer.
The bank’s main two twin areas of focus are growing “core deposit generation” and using that as a springboard to expand is commercial loan portfolio.
Total loans on Provident’s balance sheets rose 4.3 percent during the last three months of 2011, hitting $1.7 billion. The growth came as the bank added more than $105 million in commercial real estate loans to its portfolio.
As it expands into New York, Provident is hoping to find a sweet spot between very small community banks and impersonal financial giants. Kopnisky, the bank’s chief executive, makes a comparison with the retail industry to describe the niche Provident is striving to fill. According to remarks published on the bank’s website, he sees Provident as the mid-sized retailer, perfectly perched between the mom and pop stores and the mass chains.
“With a smaller, local store, customers get a superior level of customer service, whereas large department stores can offer greater selection but with less individual attention,” Kopnisky said. “Provident Bank is situated between these two categories, allowing us to focus our attention on each customer, without sacrificing the innovation or range of services necessary to adequately serve our customers.”

Posted on Thursday, April 19, 2012 (Archive on Wednesday, July 18, 2012)
Posted by Scott  Contributed by Scott


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