Suncoast Capital Group is an investment firm that deals exclusively in certificates of deposit (CDs). Using a proprietary back-end technology that enables it to handle large volumes and thus offer clients better rates, the company works with with banks, credit unions, and other institutional investors, some of whom need to raise deposits and others of whom have excess capital to invest.
The Coral Gables, Florida-based company was founded by Tony Romero, who has been a deposit broker for nearly twenty years. His first job in sales was at a small company called CIC Capital. In 1996, CIC Capital’s CD business was sold to another area brokerage firm, and it was there that Romero was asked to focus more on trading/underwriting as opposed to sales. He remained on the CD trading desk for ten years, up until the time he left to start Suncoast Capital.
Romero founded Suncoast because he had reached a point in his career where he felt that if he didn’t make a move, then he would likely would never do so. He did not want to grow old, look back with regret, and dwell on what might have been. He knew his business well and had the resources to do it on my own, so he and his partner, Omar Yaques, both resigned on the same day and Suncoast was born.
When the company was founded in January 2006, the financial crisis had not yet taken hold. There were few bank failures and although the toxic loans were already made and the die was cast, these loans had not yet begun to default. The company was fortunate in that the crisis created a climate that was favorable to its business. Unlike mortgage-backed securities, which can and did drop significantly in value, CDs are insured by the Federal Deposit Insurance Corporation (FDIC), an independent government agency. For the most part, Suncoast’s clients emerged from the financial crisis unscathed, and in fact the business grew exponentially as new investors flocked to the relative safety of CDs. Investor sentiment shifted from seeking the greatest possible returns to simply seeking an investment vehicle in which there was no risk to the principal.
There are billions of dollars of brokered CDs that are traded each year. Suncoast alone does over $30 million a month in new CD settlements. The business model is simple: by purchasing CDs in large blocks Suncoast is able to negotiate attractive rates which its clients would not be able to do individually. The company is able to offer its investor clients above-market rates and centralized safekeeping while keeping their entire portfolio 100% FDIC insured. The client base is exclusively institutional and includes credit unions, banks, and trust companies among others. The key investor clients are credit unions located in the United States with typically less than $300 million in assets.
Suncoast can offer clients a risk-free return that is higher than other guaranteed investments, such as U.S. Treasuries. This is because it actively seeks out those banks that need deposits and negotiates attractive rates on CDs which it then purchases for inventory and distributes to its investors. In addition, it allows clients the ability to maintain a large CD portfolio with centralized safekeeping, which makes it much easier for them to track interest payments and account for their portfolio. The business runs on technology developed in-house.
Some competitors run a fee-based business – they charge investors a fee and then refer the investor directly to the bank. This is a more hands-off approach because once the trade is done the investor is left to do all the accounting and tracking of interest on their own for each individual CD as opposed to receiving a comprehensive interest distribution statement for the entire portfolio.
This more hands-on approach extends to other areas of the business. Suncoast’s client all came with us from Romero’s and previous employer. In addition, it picked up new clients along the way through referrals from existing clients. The company considers its clients to be friends and has found that the best client relationships are very much like friendships. It strives to make a personal connection, which Romero thinks is the key to its success.
Suncoast believes that its business model benefits the issuing banks as well because they receive much-needed deposits in a timely manner, and many of them may not have access to those funds from their local deposit base. In effect, it serves as a secondary source of funding to banks that need new deposits to fund their loans and can often offer same-day settlement.
When the FDIC increased the insurance limit of deposits to $250,000, it helped Suncoast immensely since each trade was no longer capped at $100,000. This allowed the company to build a larger CD portfolio while keeping it fully insured. Although this change is due to expire on December 31, 2013, Romero is hopeful it will be extended or made permanent.
The company was financed entirely with the two partners’ own capital. Startup costs were modest, about $50,000. The company has never found itself in a position where it was short on capital. At present, it does about $30 million a month in new CD settlements. Revenue has grown at an average of 50% per year since inception. Clearly, that rate of growth is not sustainable for the long term, and Suncoast anticipate it getting to “normal” levels as time passes. Current annual revenue is about $2.5 million.
Romero loves what he does and has not thought about an exit. He and his partner plan to continue to broaden the company’s national footprint by adding more producers on both the bank and credit union side of our business and making sure they have the tools and resources they need to be successful. He plans to hire two more people this year and says the business is “firing on all cylinders.”
This segment is a part in the series : 1Mby1M Deal Radar 2010