News Column

Financiers Find Their Niche

June 2001

By Derek Reveron, HISPANIC BUSINESS magazine

Falcon International Bank, based in Laredo, Texas, lives in a world of large competitors that grow ever larger through mergers and acquisitions. Nonetheless, revenues for Falcon International increased 37.5 percent last year, for a total of $14.81 million. Ranking 255 on the HISPANIC BUSINESS 500, the company is 11th in the Finance category for the list.

Only 11 years ago, the bank's survival was in question. It operated on the verge of failure, with nearly one-fourth of its loans in the red and capital dangerously below 4 percent of assets. Federal regulators ordered Falcon to strengthen its balance sheet. In 1995, a group of investors, including current CEO Adolfo Gutierrez, took control.

Since then, Falcon has specialized in home mortgages, commercial lending, and small-business loans. "When you are surrounded by Goliaths, you have to look for niches," says Mr. Gutierrez.

In 1997, the bank opened a branch in downtown Laredo that focused on letters of credit, international wire transfers, and private banking. That branch now accounts for more than 35 percent of the bank's deposits.

Today, Falcon has four branches, 100 employees, $114 million in outstanding loans, and $160 million in assets. The bank expects to nearly double its assets by 2003, according to Mr. Gutierrez.

Like other banks and finance companies on the HISPANIC BUSINESS 500, Falcon is a relatively small competitor in a big-player industry. The total number of banks in the United States drops 5 percent per year because of consolidation, according to the Federal Deposit Insurance Corp. (FDIC). Most of the consolidation occurs among small and regional banks. In Texas, for example, the number of institutions with assets less than $100 million fell to 460 in 2000 from 548 in 1998, while the number of banks with assets above that level remained the same. The number of employees in the Texas banking industry dropped 15.3 percent between 1998 and 2000, according to FDIC data.

Big banks strive for efficiency and offer a wide variety of services from insurance to equipment leasing and human resource consulting. Likewise, small banks try to diversify services and charge fees rather than depending on interest income. Many small institutions sell insurance, mutual funds, and mortgages to the secondary market. Deregulation of the financial-services industry means that in addition to direct competitors, small banks must cope with rising threats from nontraditional lenders such as securities brokers, credit unions, and mutual fund companies.

So far, Falcon has prospered through traditional banking practices on the retail side and improvements in its loan portfolio on the investment side. In February 2000, Falcon National Bank converted from a national charter to a state charter and changed its name to Falcon International Bank. State-chartered banks can loan up to 25 percent of their capital to a single customer, compared to 15 percent for nationally chartered banks. According to Mr. Gutierrez, the conversion improved the bank's ability to serve the borrowing needs of its biggest clients local construction companies.

"Community banks are incorporating a can-do and must-do attitude to thrive in an increasingly competitive environment," summarizes a survey by the American Banking Association. A key component of the must-do formula is personal service, especially in markets such as Laredo, which depend on cross-border trade with Mexico. Mr. Gutierrez says he hires employees more for their ability to give good service than for banking knowledge. "I hire the personality and train the person," he jokes.

Eventually, the merger and acquisition trend may catch up with Falcon Bank, but it won't be soon. The company has declined several merger overtures from local and regional institutions, says Mr. Gutierrez, who owns a 51 percent interest in the bank. "We want to stay independent and get as big as our customer base will allow us and still give good service," he declares.

Top 10 Finance Companies

Rank / Company / 2000 revenue ($M)

1 / International Bancshares Corp. / $479.13

2 / Hamilton Bancorp Inc. / $175.00

3 / TELACU Industries Inc. / $100.00

4 / Somerset Capital Group Ltd. / $76.70

5 / Manuel Lujan Insurance Inc. / $49.92

6 / United PanAm Financial Corp. / $33.46

7 / Alhambra Capital Management Inc. / $25.60

8 / Menendez Financial & Insurance Services / $24.00

9 / UniBank / $23.90

10 / Insurance Marketers Inc. / $19.89

2001 Hispanic Business Inc. Reprinting, copying, or transmitting all or part of this information requires written permission.

Source: HISPANIC BUSINESS magazine

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