Q&A: Daryl Byrd, CEO of IberiaBank
Byrd on the Naples market, keeping Orion ...
NAPLES — Orion Bank is gone.
Hillcrest of Florida has shut down, too, along with Partners Bank and Commerce Bank of Southwest Florida.
Since Oct. 23, regulators have closed four banks in Naples and Fort Myers, leaving many to wonder which local bank might be next.
Orion was one of those to go in Naples this month after losing $75 million in the third quarter. Regulators swooped in to close the bank on Friday the 13th.
A week later, on Nov. 20, Commerce Bank in Fort Myers became the 12th bank in Florida to fail this year — and the 124th in the nation.
At least four other banks in Lee and Collier counties have been hit with regulatory enforcement actions during the past three years, ordering them to stop their “unsafe and unsound practices.”
While it doesn’t mean the banks will close, it’s a warning sign they’re in financial trouble. Those banks are Marco Community, Liberty, Royal Palm and Florida Community Bank in Immokalee.
In the two counties, five operating banks have a “zero” rating, the lowest possible from BauerFinancial.
All of them are under cease-and-desist type orders, except Bank of Florida-Southwest, which was $64.4 million in the red as of Sept. 30, according to its call report filed with regulators.
A rising tide
A look at the local banks left standing in Lee and Collier counties shows only two have turned a profit this year. Through the third quarter, Edison National Bank earned $401,000 and Sanibel Captiva Community Bank had profits of $301,000.
Combined, local banks and thrifts have lost more than $200 million this year, not including those that have failed.
Others with large losses are TIB Bank (-$11 million); Florida Community Bank (-$29.6 million); Royal Palm Bank (-$39.3 million); Liberty Bank (-$15.8 million), and IronStone Bank (-$17.6 million), according to their call-thrift reports.
Last year, most local banks didn’t make money, either. Their combined losses exceeded $180 million.
In February, regulators shut down Riverside Bank of the Gulf Coast in Cape Coral after it lost $49.2 million in 2008.
Banks are reeling from bad loans. Loan losses continue to mount and eat away at their capital. Banking analysts and bankers themselves expect more banks to be shuttered this year and say they won’t be surprised to see more closed in Southwest Florida.
Nationally, there are more than 500 institutions on an unofficial list of problem banks; many of them are in Florida and Georgia where the real estate boom-bust has been so severe. The two states combined now have more than 30 failures.
“More banks will fail. It already has been cast. You can’t put the genie back in the bottle,” said Daryl Byrd, the CEO of IberiaBank in Louisiana, which took over Orion Bank after it failed.
Lee County has often been called “ground zero” for foreclosures. In 2004 and 2005, the real estate market peaked as a frenzy of investors rushed to buy homes in hopes of flipping them for a profit. Home prices skyrocketed. Now they’ve plummeted, leaving many borrowers upside down on their mortgages.
Many investors got caught with mortgages they couldn’t afford when the market slumped.
“I think we overdid it a bit in real estate, not just in Florida, but all over the country,” Byrd said.
He said some banks weren’t as disciplined as they should have been in giving out loans and they got too greedy. Then there’s mortgage fraud and predatory lending, which has led to more loan defaults.
Naples, in particular, has lured banks because of its wealth. It’s home to hundreds of Fortune 500 CEOs, and other well-heeled executives and retirees. Some have called the market “overbanked” because there are so many local, state and national banks with offices on seemingly every corner.
The competition among bankers in Southwest Florida also may have led to problems.
“I think one of the things that’s difficult is that when there is a high amount of competition, things don’t get priced properly,” said Steve Gilhooly, TIB’s chief financial officer. “If loan competition is intense, then banks may soften their standards to make loans, not charging enough for the loan or taking on more risk.”
Cease-and-desist orders also suggest banks have been mismanaged or there wasn’t enough oversight from directors.
Search is on
Local banks continue to hunt for capital. But finding it is tough. Investors have been reluctant to put their money in banks because so many are failing across the country.
Commerce Bank hoped to recapitalize itself by merging with another bank. But it didn’t happen before regulators stepped in to close it Friday. The bank’s core capital used for operations had slipped to a negative $2 million. Losses had grown to $7.4 million by the end of the third quarter.
After the Federal Deposit Insurance Corp. (FDIC) was appointed as the receiver, Commerce Bank was taken over by Central Bank in Stillwater, Minn. The cost to the FDIC Deposit Insurance Fund is estimated at $23.6 million.
Commerce Bank was hardest hit by a residential program that offered construction loans for new homes, President and CEO Mark L. Morris said in an interview a few days before his bank failed.
The bank opened in September 2005 when the market was still at its peak.
“The values have dropped dramatically, which prompted our charge-offs,” Morris said.
Several local banks recently made it on a list of financial institutions across America that are “bleeding” more capital because of rising loan defaults and investment losses. The list by banking analyst Philip Van Doorn, with The Street.com, included Marco Community Bank, Liberty Bank and Royal Palm Bank. Orion also made the list before it failed.
Van Doorn predicts bank failures will accelerate into next year.
At Marco Community, the core operating capital has shrunk to $5 million after losses of $4.5 million last year and $5 million this year.
The publicly traded bank has operated under a writen agreement with regulators since 2007. It has assets of $138 million.
James Kauffman, the bank’s CEO, said he has been aggressive in writing off bad loans. He hopes the bank soon will be profitable again.
He sees an opportunity for growth and says the bank has options to raise more money, though no specific capital plan has been announced.
Looking for a way out, Liberty Bank, with assets of $154 million, is one of the latest to get a cease-and-desist order. In a move to address the regulators’ concerns, Liberty Bancshares — the holding company for Liberty Bank in Iowa — plans to acquire the Naples bank.
The board of directors in Iowa already has approved the purchase, but regulators still must sign off. The Iowa bank is much larger, with more than $1 billion in assets, 29 locations and a lot more capital, said Russ Olson, president of Liberty Bank in Iowa and a director for the Florida bank, in a recent interview.
The Naples thrift lost more than $6.9 million in the quarter ending Sept. 30.
Several public banks have looked to sell more stock to raise money.
Bank of Florida Corp. in Naples recently won shareholder approval to increase its common stock by five times, from 20 million to 100 million.
But the multi-bank holding company has since announced it would postpone the marketing for its planned public offering, saying “it appears that public investors are back on the sidelines for the very near future.”
Bank of Florida Corp. — with total assets of $1.5 billion — is the parent company for Bank of Florida-Southwest in Collier and Lee counties; Bank of Florida-Southeast in Broward, Miami-Dade and Palm Beach counties; Bank of Florida-Tampa Bay in Hillsborough and Pinellas counties, and Bank of Florida Trust Co.
TIB Financial, with $1.7 billion in assets, still plans to raise more money through a secondary offering.
In September, it got shareholder approval to increase its publicly traded shares from 40 million to 100 million. It hopes to raise another $60 million to $70 million in its new public offering, which is expected to move ahead after Thanksgiving.
TIB’s core capital is at $137 million, far above that of other local banks.
But it appears there is room for improvement: TIB has a two-star rating from BauerFinancial, out of a possible five. Problem loans have been growing. TIB hopes to grow and attract new customers from the shake-up that’s likely to come with the other bank failures, said Gilhooly, the chief financial officer.
Earlier this year, TIB took over Riverside Bank of the Gulf Coast after it failed.
“We want to remain well-capitalized,” Gilhooly said. “We want to be stronger.”
Could be worse
Alex Sanchez, president of the Florida Bankers Association, said in any recession, bank failures are to be expected. But it could be a lot worse.
“We had 534 in 1989. We had 400 in 1990. That’s almost 1,000 banks within two years that closed,” he said.
Those closures came during the savings and loan crisis.
“I think the economy is getting brighter,” Sanchez said. “We have lessons learned and we’ve just got to be smarter and better when we recover as far as the development of our state.”
Southwest Florida banks and thrifts
Losses/profits in 2009 (through Sept. 30)
TIB Bank -$11 million
Marco Community Bank -$5 million
Florida Community Bank -$29.6 million
Bank of Florida-Southwest -$64.4 million
First Community Bank of Southwest Florida -$2.5 million
Shamrock Bank -$819,000
Bank of Naples -$1.9 million
FineMark National Bank & Trust -$915,000
Royal Palm Bank of Florida -$39.3 million
Edison National Bank +$401,000
Liberty Bank -$15.8 million
Florida Gulf Bank -$415,000
IronStone Bank -$17.6 million
Preferred Community Bank -$592,000
Reliance Bank FSB -$5 million
Sanibel Captiva Community Bank +$301,000
Southwest Capital N.A. -$3.9 million
Source: Call-Thrift reports, FDIC