Carlos Carballada:
The hometown bank president who could

If anyone but Carlos Carballada had staked such a fierce claim to the hometown bank name in Rochester, it might have made real trouble. People still might be muttering about First National Bank of Rochester’s questionable past, or wondering aloud about the strength of FNB’s recovery. If there still was a First National Bank of Rochester to wonder about, that is.
They might even suggest Carballada is not always as nice as his baseball cap and balloon image in TV ads make him appear.
And he’s not. Ask him. He’ll tell you.
Heads rolled soon after Carballada took control of FNB in 1992. At the time, the Office of the Comptroller of the Currency was sitting on the bank and so was the Federal Reserve Board. The National Association of Securities Dealers was glaring in its direction, too.
“I needed to be able to hit the floor running with people who had the same culture, objectives and work ethic as I did,” Carballada says now to explain the housecleaning then. “I couldn’t take the chance of delaying for six months or a year to get to know and evaluate people.”
Nine consecutive quarters of profitable operations later, the bank Carballada took on after it went $1.93 million in the hole for 1991 turned in a profit of $1.93 million for 1994.
Growth has replaced survival as the bank’s chief goal.
FNB plans to open three or four more fully staffed community banking offices in the Rochester area, following a recent move into East Rochester territory abandoned by the closing of M&T Bank and Key Bank of New York branches.
“We are in the unusual position of being a community bank in a large metropolitan market,” FNB’s chief says. “We have to compete with the giants with their tremendous resources. But what we can do that they cannot is build relationships instead of just doing transactions.”
Having chopped off and sold branches outside the Rochester primary market area, FNB is in a position to offer more offices, longer hours, better service, he adds.
FNB has taken the pick of the litter of highly skilled commercial lending specialists let loose by remote downsizing decisions at other banks, Carballada says. It can build on their knowledge of Rochester’s small businesses.
At the end of 1991, FNB handled $123 million in business loans and commercial mortgages. By the end of last year, that number was up to $133 million.
Other measures underline how Carballada has turned around the bank. Assets that totaled $319 million in 1991 dipped to $299 million just before he took over. They were up to $329 million at the end of last year.
Deposits plummeted 10.8 percent in the year prior to Carballada’s arrival, to $273 million. Despite the sale of two subsidiaries, on Dec. 31 deposits were back up at the $295 million level, having regained lost ground and then some.
Still billing FNB as the only independent locally owned bank in the area, Carballada is realistic about who it must compete against: “Everyone.”
FNB is a contender only because of Carballada’s realism, some observers say.
“FNB brought in top talent in Carballada at a time when it was in real trouble,” says Theodore Levy, vice president of research for Sage, Rutty & Co. Inc. “He has brought the bank back to a condition where it can go after the small and medium-sized business customers that feel overlooked and underserved by the big banks.”
How all that happened was not always pretty. If the besieged bank had hired out-of-town help to do the dirty work, it might have looked pretty ugly. Instead, what Carballada pulled off looks like the home team can play hardball.
FNB had high-profile problems in 1992, but Carballada was high-profile, too. For years Rochesterians had seen his face on TV and in print ads, personally promising to satisfy customers of Central Trust Co., where he was president and CEO.
Civic activism, capped by the chancellorship of the Board of Regents, had made Carballada a major force in charities and education here and beyond. His reputation among other bankers was what is usually termed “sterling.”
If anyone knew what image polishing could and could not do for a bank, it was Carballada. Image makers who work with him say the banker makes points with the public better than most professionals.
“He is an absolute natural as a communicator. Carl Carballada’s creativity and love for what he does comes across very well,” said Mat Adams, CEO of Adams Colway & Associates, the advertising agency that produces his TV spots for FNB.
Rochester’s TV image of the friendly banker downshifted into veteran banker mode when it came to getting the facts on FNB. While headlines focused on a boiling regulatory furor at FNB, the “Oh yes you can!” man on Central Trust’s TV ads was hitting FNB’s books to find out if he could.
A talent for staying focused amid turmoil was something Carballada picked up in the latter years of his presidency of Central Trust. During that period, parent Irving Bank Corp. lost a bitterly fought hostile takeover battle with Bank of New York. Heavy hitters lined up to snatch at BNY’s new upstate holdings, including Central Trust.
All the while, Carballada ran the bank. He had been president of Central Trust’s predecessor since 1976, after getting his start at Manufacturers and Traders Trust Co. in Buffalo in 1968.
When First Empire State Corp. bought Central Trust, it tried to keep him on in a divisional leadership role at subsidiary M&T Bank.
But Carballada had been a bank president for 11 years. “I wasn’t sure I could make the adjustment to a position that didn’t carry the same perception of authority.”
Meanwhile, down the street from Central Trust, four FNB directors jumped ship after a Turkish conglomerate backed out of a much-touted deal to buy the bank. That was April.
In May, FNB’s holding company disclosed to the Securities and Exchange Commission it suspected illegal insider-lending practices at the bank, among other things. Both the OCC and Federal Reserve were moving in. FNB president John Piraino was paving a path to the exit door that included a year’s pay and country club dues, while publicly denying he was leaving.
In June, Carballada was hired.
He fired Piraino by the first of July and scrapped most of the former president’s severance package. FNB reported to the SEC its suspicions about six separate insider transactions involving Piraino.
Carballada dismissed three other top FNB officials at the same time and put his team in the field. Three former Central Trust officials and an ex-Irving Services Corp. general manager joined Carballada in the drive to clean up FNB. Everybody got stock options.
Stock prices bounced wildly in the year preceding Carballada, ranging from $5 to $13.50 a share. Spring scandals drove the stock down to hover in the $5 to $6 range.
After his appointment was announced, the stock rose to $8 a share. It trades now in the $5.25 to $7 range.
Neither Carballada nor anyone in his posse was interested in quick fixes, he says. Image polishing was not the whole answer. Neither was turning the insiders out.
“There was no question the bank had some difficulties,” Carballada admits. “But there were no difficulties we couldn’t resolve with time and there was the potential to establish a strong, independent community financial institution with real economic value to the city and the county.”
Like many banks, FNB came out of the 1980s heavily involved in investor mortgages–loans for real estate developments often made before any commitments to buy or lease were in hand. When the economy plummeted, that brand of real estate business crashed hard.
Carballada’s first quarter with FNB was a loser: legal fees to keep regulators at bay, beefed up loan-loss provisions, costs of strapping loans gone bad on short leashes. All of these devoured profits in July through September 1992. So did some severance payments.
And like a lot of other banks, FNB bit the bullet on bad loans through writedowns, loss recognition and rigorous portfolio management. That process continues.
As he still does, Carballada operated face-to-face in shaking bad assets off.
“When I tell you no, you know who it is who is saying no to you,” Carballada says.
He went eyeball-to-eyeball with worried shareholders less than two months after taking over. At a special meeting of the bank’s holding company, FNB Rochester Corp., Carballada reassured them about the bank’s future and stonewalled them about the past.
In person, that is. On paper, FNB spilled the beans but good.
This is where FNB was not like a lot of banks, or not like a lot of banks that survived. Papers released before the meeting told the inside story.
FNB’s account told of bent bank rules, shoddy collateral, hidden dealings. In short, there was a lot of dirty linen for one very small bank.
Carballada’s personal presence was critical at that point.
“We were enormously lucky to get Carl on board, not just to clean everything up but to restore confidence financially and ethically,” said Michael Falcone, senior partner of Pioneer Development Co. and chairman of FNB’s board.
Even though the bank was well-capitalized, Falcone added, it was vital that regulators and the public trust its new leaders. Carballada had that trust.
What looked like a semi-scandal involving some small-town bankers in fact could have led to FNB’s undoing, if national trends are any indication.
Insider-lending practices were “contributing factors” in the majority of bank failures in 1990 and 1991, a General Accounting Office study revealed last year. Easy inside deals helped take down 175 banks during that period, the GAO said.
According to the government report, insider loans were symptoms of bad bank management. And in 1990 and 1991, many banks with those symptoms failed even after corrective moves had been made.
The day Carballada signed on with FNB Rochester, the bank and holding company inked consent orders with the Federal Reserve Board and Office of the Comptroller of the Currency.
Usually it takes five years to get out from under federal oversight. FNB was set free in two.
These days, FNB’s president is as forward-looking and friendly as ever.
During installation of a gallery of historic photographs in the bank’s downtown headquarters, he bounced continually out of his office to talk to craftsmen about the restoration work. FNB’s historic roots in Rochester fascinate Carballada, who sees the resurrected photographs of the old Powers Gallery every day.
After more than 25 years in the business and nearly three years in the saddle at FNB, Carballada will say only this about FNB’s scarlet past: “I’ve never been with or seen a bank that didn’t offer an opportunity for improvement.”

[Rochester Business Journal Profile, 4/21/95]