1st National Bank of South Florida Homestead 321,271 Yes Cease and Desist
Bank of Coral Gables Coral Gables 145,320 Yes Cease and Desist
BankAtlantic Fort Lauderdale 4,424,565 Yes Cease and Desist
City National Bank of Florida Miami 3,861,652 No Formal Agreement/Consent Order
Coconut Grove Bank Miami 615,282 No Formal Agreement/Consent Order
Eastern National Bank Miami 427,616 No Formal Agreement/Consent Order
Executive National Bank Miami 285,467 No Formal Agreement/Consent Order
First East Side Savings Bank Sunrise 81,591 Yes Cease and Desist
Gibraltar Private Bank & Trust Coral Gables 1,654,974 No Cease and Desist
Great Eastern Bank of Florida Miami 62,757 Yes Cease and Desist
Great Florida Bank Miami Lakes 1,516,057 Yes Cease and Desist
Home Federal Bank of Hollywood Hallandale Beach 81,082 Yes Cease and Desist
Intercredit Bank Miami 258,268 No Formal Agreement/Consent Order
Landmark Bank Fort Lauderdale 316,166 No Formal Agreement/Consent Order
Ocean Bank Miami 3,590,044 Yes Cease and Desist
OptimumBank Fort Lauderdale 183,601 Yes Cease and Desist
Pacific National Bank Miami 348,912 No Cease and Desist
Professional Bank Coral Gables 124,016 No Cease and Desist
Regent Bank Davie 487,796 Yes Formal Agreement/Consent Order
Security Bank North Lauderdale 113,404 Yes Cease and Desist
TransCapital Bank Sunrise 244,993 Yes Cease and Desist
Valley Bank Fort Lauderdale 124,427 Yes Cease and Desist
Type of Enforcement Action
Order to Cease and Desist:
An order issued when a bank is engaging or has engaged or is about to engage in an unsafe or unsound banking practice or a violation of law. The bank must follow certain requirements or take specific actions.
Formal agreement/Consent Order:
A formal agreement between a bank and the FDIC. The agreement states that certain actions be taken and/or certain activities are prohibited, or else the bank will be subject to a cease and desist order.
• Written agreement/Consent Order: A formal agreement between a bank and the FDIC. The agreement states that certain actions must be taken and/or certain activities are prohibited, or else the bank will be subject to a cease and desist order.
South Florida banks under scrutiny
.Many financial institutions in South Florida are operating under regulatory directives, working to put themselves back on sound footing.
By Ina Paiva Cordle
icordle@MiamiHerald.com
Hit hard when the real estate bubble popped in 2007, many South Florida-based community banks are still reeling from the aftershocks.
Over the last few years, past-due loans have mounted, funds required to offset loan losses have skyrocketed, and real estate has been repossessed and marked down, leading to a flood of red ink and a drain on capital.
All the while, regulators have been keeping a close watch.
In fact, of 240 Florida-based banks and thrifts, 78 — 32.5 percent — are currently operating under severe regulatory enforcement actions, including prompt corrective actions, cease and desist orders, formal agreements and consent orders. The actions are among the tools regulators use to work with banks to correct deficiencies and make sure they are on sound financial footing, and following safety and soundness guidelines and regulations.
That’s a higher proportion than in most, if not any, other state, banking experts say, and it reflects the current economy.
“It’s just only natural to see the increase in actions when the economy does go down,’’ said David Barr, spokesman for the Federal Deposit Insurance Corp. “It happened in the last crisis, in the late ‘80s and early ‘90s. And during the good times, there were considerably fewer.’’
Florida led the nation in bank failures in 2010, with 29 statewide. And one-third of all U.S. bank failures were in two states: Florida and Georgia, said Ken Thomas, a Miami-based independent banking consultant and economist. With 10 failures to date — including Palm Beach-based Lydian Bank on Aug. 19 — he anticipates a total of at least 15 bank failures in Florida this year. That would be on par with 2009, when 14 banks failed in the state, following two failures in 2008 and none in 2007 or 2006, before the crisis, when the number of banks in Florida topped 300.
The impact on the local economy of a bank seizure and sale to a stronger institution is hard to measure, Thomas said. Senior staff may well lose jobs, and if the new owners close branches, other employees may be out of work as well.
The successor bank may be stricter in its lending practices. Customers sometimes find themselves stripped of long-time working relationships and the accumulated good will that came with them. Though deposits are protected, bank closures may heighten anxiety about the overall economy.
A regulatory action doesn’t necessarily mean a bank is heading into failure; many are issued to banks that recover and thrive. Still, all but two of the 37 Florida banks and thrifts that have failed since Jan. 1, 2010 had a severe enforcement action in place, according to SNL Financial, a data and analysis firm.
“Many of the institutions cited by regulators may correct their infractions, yet others may be forced to raise capital, merge with a stronger peer, or see their bank seized by regulators,’’ SNL said in a report.
Without a doubt, South Florida holds the largest concentration of banks operating under regulatory directives within the state. Of the 78 community-based banks in Florida under such directives, 22 are based in Miami-Dade or Broward Counties, SNL data shows.
Requirements may be both strategic and operational. Some banks are instructed to engage their board of directors more actively in decision-making; others are told to bring in experienced senior managers. Some are told to create formal ethics policies, formalize anti-money laundering procedures, raise credit standards, increase loan-loss funds or write off bad loans. Most significant are directives to boost capital to meet higher capital-to-asset ratios required by regulators .
BauerFinancial, which rates banks nationwide on a five-star scale — two or fewer stars are classified as “troubled and problematic’’ — counts 19 problem banks in Miami-Dade and Broward, based on March 31, 2011 financial statements.
“Capital, profitability and asset quality, or non-performing or delinquent loans — those have the most impact’’ on the bank’s rating, said Karen Dorway, president and director of research for Coral Gables-based BauerFinancial.
Almost all the banks deemed “troubled and problematic’’ by BauerFinancial are also those operating under regulatory orders.
But consumers need not worry.
“As long as their money is insured by the FDIC, there are a lot of other things they need to worry about than the safety of their money,’’ Barr said.
REAL ESTATE SPILLOVER
Florida and South Florida have been hit harder than other markets because of the severity of the real estate downturn and our location as the epicenter of the housing crisis, Thomas said.
“The fortunes of most Florida banks, especially here in South Florida, are tied to the real estate market, both the residential and commercial sides,’’ he said. “And as it has collapsed so too have the fortunes of our banks.’’
While some indicators suggest local real estate values may soon be on an upswing, experts agree that the banking recovery will still take more time.
“It took us six years to blow up the bubble. It’s going to take five to six years to get out of this mess. And we’re now entering the fifth year,’’ said Ben Bishop, chairman of Jacksonville-based Allen C. Ewing & Co., an investment banking firm that specializes in banking.
Recent turmoil in the global economy has renewed fears about the health of the national banking system. Still, Bishop believes the worst is over for Florida. As long as the economy does not dip into another recession, next year will be the first full year of the recovery for Florida community banks, he said.
“Two-thousand-twelve is the first year that will see the loan loss provisions for banks start to decline, and that means earnings are right around the corner,’’ Bishop said. “They may not make a lot of money, but they will lose a whole lot less in 2012.’’
In the meantime, many South Florida banks operating under regulatory actions are working hard to correct their issues, including raising capital.
CORRECTING ISSUES
Here are the stories of seven such banks and the steps they say they are taking to meet regulators’ requirements.
• U.S. Century: In June, Doral-based U.S. Century Bank signed a consent order with regulators that cited issues with asset quality, management, earnings, capital, liquidity and sensitivity to market risk. The order was released by the FDIC in late July.
“The problem you will find with most banks is devaluation,’’ said U.S. Century Vice-Chairman, President and Chief Executive Octavio Hernandez. “When you have properties that have lost 50, 60, in some cases 70 percent of their original value, it is very difficult not to have capital issues, because when new appraisals come in, you have to adjust your books accordingly.’’
So far, the nine-year-old bank has made strides in disposing of some of its problem loans, which are mostly related to commercial real estate.
With $359 million in delinquent loans, U.S. Century sought to dispose of at least $25 million in loans in the second quarter, and it succeeded in selling off $38 million, said Abel Montuori, first executive vice president and senior lending officer. The goal for the third quarter is to dispose of another $71 to $80 million in loans, he said.
U.S. Century also recently hired the Japanese investment banking firm Nomura Securities to raise at least $150 million in private equity funds, said Hernandez. Last week he flew to New York to make presentations to potential investors. U.S. Century currently has $1.6 billion in assets.
“Our focus right now is on two things: raising capital and reducing our classified assets, and we have beefed up that department significantly,’’ Hernandez said. “All the attention of the bank is there and on the effort to raise capital, and meeting all the other areas of the consent order. We’re focused on that, and hope to have all that resolved quickly to regulatory satisfaction.’’
• Ocean Bank: Miami-based Ocean Bank, which previously had been asked to correct deficiencies, signed its most recent consent order with regulators April 28. The directive required stricter capital ratios and anti-money laundering controls and cited weaknesses in asset quality, management, earnings, liquidity and sensitivity to market risk. The bank, with $3.5 billion in assets, was founded in 1982.
Ocean Bank President and Chief Executive A. Alfonso Macedo said the bank has invested in new anti-money laundering systems and training and has put together a new team of experts.
Ocean Bank also has reduced its delinquent loans by half, from more than $770 million to $324 million.
“That’s been our biggest focus, because the more we improve our asset quality, the better we’re going to look and the more profitable we are going to be,’’ Macedo said.
To boost its ratio of capital to assets, since 2007 Ocean Bank reduced overall assets and has raised $100 million from its current shareholders. The company is now seeking additional capital from both current shareholders and outside investors. But it has not yet met an early July deadline for raising its capital ratios to the required level.
“We have a very good relationship with regulators,’’ Macedo said. “We are working closely with them and they know what we are doing.’’
• Great Florida Bank: Miami Lakes-based Great Florida Bank, which previously was served with a cease- and-desist order, received its most recent directive in April. It also was instructed to increase its capital. The bank, founded in 2004, has $1.4 billion in assets.
“We have entirely focused our plan on making sure we manage our risk, which we have, and making sure our risk does not deteriorate, and that our ratios improve, which they did over the last quarter,’’ said Great Florida Bank President and Chief Executive Mehdi Ghomeshi.
Trying to improve its capital ratios through internal measures, since late 2010 Great Florida has shrunk its balance sheet by 7 percent; reduced its non-performing loans by 8 percent; decreased its interest expense by 26 percent; and cut its overall expenses by 16 percent, Ghomeshi said.
“When the investors gain confidence in the economy and the banking sector, we will be able to raise the capital [from investors],’’ he said. “Unfortunately right now, investors are investing in bonds.’’
• Professional Bank: Coral Gables-based Professional Bank, which agreed to a consent order in December, just satisfied one of regulators’ primary directives last week by hiring an experienced president and chief executive, Raul G. Valdes-Fauli. Most recently president of the South Florida market at CNL Bank where he managed the tri-county region, Valdes-Fauli was previously president and CEO of commercial banking for Miami-Dade County for Colonial Bank.
Other issues — such as creating a business plan, a blueprint for earnings, and creating policies for lending, loan losses, ethics and interest rate risk management — have either been addressed or are in the works, said Valdes-Fauli, who started his job Aug. 15. The bank, founded in 2008, has $126 million in assets.
“We have a detailed business plan that is addressing all the issues raised in the order,’’ he said. “And we’re making wonderful progress in hopefully showing examiners we have everything buttoned up.’’
Other South Florida banks say they have already been successful in correcting every issue cited by regulators.
• Fort Lauderdale-based BankAtlantic was issued its most recent action, a cease and desist order, in February 2011, requiring, among other issues, that the bank raise its capital.
“What led to the C and D was that our non-performing loans ballooned because we’re a Florida bank, and many of our commercial real estate customers were having trouble, and as a result, the regulators required us to have even higher capital than we currently had,’’ said Alan Levan, chairman and chief executive of BankAtlantic Bancorp, the parent of BankAtlantic.
“We understood the rationale for it, and they gave us to June 30 of 2011 to increase the capital ratios, which we did,’’ he said. The ratios now meet regulators demands and are the highest capital ratios since the bank was founded in 1952, Levan said.
BankAtlantic raised its ratios through several methods, including selling its branches in Tampa; completing a stock offering to existing shareholders; reducing its concentrations of loans; and restructuring its balance sheet. For the quarter ending June 20, 2011, the bank, with $3.8 billion in assets, showed a profit for the first time since the second quarter of 2007.
“We believe that we have met everything that was required of us in the C and D,’’ Levan said. Typically, it takes regulators months to reexamine a bank and lift any enforcement actions.
• City National Bank of Florida, co-founded in 1970 by Leonard Abess and sold by his son Leonard Abess Jr. in 2009, signed a formal agreement/consent order with regulators in April 2010. The order cited City National’s anti-money laundering procedures as well as its concentration of real estate risk.
“Like most community banks we had a high percentage of real estate assets on our books,’’ said Jorge Gonzalez, president and chief executive of Miami-based City National Bank, which has $3.9 billion in assets and is now owned by Caja Madrid, the third largest financial services company in Spain.
“So we cleaned up all the assets that were underperforming, and we reduced the amount of real estate concentration,’’ he said. The bank’s nonperforming assets now represent 1.3 percent of total assets, and its capital ratios are above required levels, Gonzalez said. He expects the regulatory action to be lifted by the end of this year.
• In March 2010, Coconut Grove Bank signed a formal agreement/consent order that cited concerns found during a March 2009 examination, said Lynn M. Cambest, chief financial officer and treasurer.
“By the time we signed the agreement we literally had substantial compliance with all the issues raised in the letter, with the exception of raising capital,’’ Cambest said. Among those issues were board oversight, credit risk management, funds for loan losses, and improvement of assets and investments.
On June 24, Miami’s oldest continuously run bank — founded in 1926 — completed its last requirement, raising $32 million in a private placement, funded by 33 local investors, including Ivax Pharmaceuticals-founder Dr. Phillip Frost. It now has $648 million in assets.
Frost is now the bank’s largest individual shareholder, with more than 20 percent of the bank’s shares.
Other experienced businesspeople — including TECO Energy Executive Chairman Sherill Hudson — have recently joined the board.
As a result of the private placement, Cambest said Coconut Grove Bank’s capital ratios at the end of the second quarter were more than in compliance with regulatory directives.
Read more: http://www.miamiherald.com/2011/08/21/v-fullstory/2369351/south-florida-banks-under-scrutiny.html#ixzz1VmU8xVPP
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