A STATE OF FAILURE: Florida 4th in nation in bank closures

The number is alarming. Bank failures so far this year have reached 124 — the most in 17 years.

And the latest closures — Century Bank FSB of Sarasota, Naples-based Orion Bank and Commerce Bank of Southwest Florida in Fort Myers — put Florida at fourth in the nation for bank failures. Bradenton alone has had three closures since 2008.

Bank analysts expect the rapid pace of failures to slow in 2010 from an average of 11 closures a month in 2009. Yet they acknowledge the troubled banking system still has much turmoil to face.

“We will continue to see closings but at a slower rate,” said local bank consultant Frank Knautz. “The problems these banks are experiencing are more related to the economic downturn catching up with them as opposed to underlying problems.”

The Federal Deposit Insurance Corp. isn’t projecting how many bank closures lie ahead. However, the FDIC does project bank failures between 2009 and 2013 will cost its deposit insurance fund $100 billion.

That puts plenty of bank failures on the horizon, given the 124 failures this year have cost the FDIC an estimated $32.2 billion.

“Unfortunately, this is not over with yet,” said Kate Monahan, a banking industry analyst with the research and advisory firm Aite Group. “The economic situation is still recovering, we’re still seeing job losses, foreclosures, people struggling to make payments on bills, mortgages and things of that nature. Unfortunately, all that will probably lead to additional failures.”

The troubled banking system is riddled with bad loans and dwindling assets and there are hundreds of financial institutions the FDIC considers troubled. The FDIC’s problem bank list reached a 15-year high this year when 416 banks were placed on the non-public list in the second quarter, up from 305 in the first quarter.

In the second quarter of 2008, there were 117 banks on the problem list.

“It’s quite high,” Monahan said. “Typically the FDIC or regulatory agency will set a deadline for the bank for progress to be made. If mandates are not met by a bank, that’s where we get into a situation where they seize the bank.”

States that have experienced growth in development have been hit the hardest by the financial crisis. Georgia tops the nation in bank failures with 21 this year, followed by Illinois with 19, California with 15 and Florida with 12.

Since 2008, Florida has seen 14 bank failures of which six were based in Manatee and Sarasota counties, and five were in Southwest Florida.

“I’ve been in the business since 1965 and this is the worst I’ve ever seen,” said Bill Sedgeman, president and founder of Community Bank of Manatee, based in Bradenton. “It is just so pervasive in Southwest Florida.”

Manatee and Sarasota counties have been more prone to bank failures because of the rapid appreciation of real estate values and the subsequent decline, Knautz said.

“During the height of property appreciation, Manatee County and Las Vegas ran neck and neck in leading the nation in rising home prices,” Knautz said. “As prices came back to realistic levels, and borrowers could not, or more importantly chose not to pay, pressure on banks increased. As a result, both (Manatee and Las Vegas) are feeling higher than average pressure on their economies.”

Manatee County’s unemployment rate is 12.4 percent.

“With people suddenly faced with no jobs, they begin living off savings, which reduced the deposit base of many banks,” Knautz said.

More than ever, banks are under strict orders from regulators to raise capital. The Bradenton-based Horizon Bank recently signed an enforcement order, agreeing to meet federal regulators’ requirements to raise capital and reduce problem loans.

Charlie Conoley, president of Horizon Bank, said the undercapitalized bank has begun a private stock offering in an effort to raise $3.5 million to $5 million.

“We’ve received several mid six-figure checks already so we’re off to a pretty good start,” Conoley said. “Right now, the regulation environment is all about your capital.”

Horizon’s written agreement came just a week after LandMark Bank, based in Sarasota, received an enforcement order from the Federal Reserve.

Feds are requiring LandMark to address oversight issues related to loan concentrations, non-performing loans, asset improvements and capital.

LandMark had $351 million in assets as of Sept. 30, and $19.05 million in non-accrual loans.

In Florida, nearly 40 percent of banks are operating under a publicly disclosed agreement with their primary regulator.

“When you add in agreements which are not publicly disclosed it is a safe estimate that well over half of all Florida banks are currently in some sort of agreement with regulators,” Knautz said.

Some local banks have taken it upon themselves to raise capital before regulators’ mandates to do so.

In October, Manatee River Community Bank, a one-star bank, merged with the four-star First America Bank of Osprey to strengthen its capital. Manatee River Community Bank, based in Palmetto, had $159.3 million in total assets, but the merger gives the banks a combined $285 million in assets. The combined bank assumed the name First America Bank.

Dan Hager, chief executive officer for First America Bank, said the merger gives the bank capitalization moving forward.

“The combined company will have greater financial strength, market presence and growth potential than either bank had individually,” Hager said.

Meanwhile, Community Bank of Manatee, which has a zero-star rating from Bauer Financial, recently received $15 million in new capital to weather the downturn in the real estate market.

On Nov. 3, federal regulators approved the capital investment via a stock sale to an investor group, CBM Florida Holdings Co.

“We’re working with borrowers to resolve problem assets and we’re raising capital so we can carry the assets into a better market,” Sedgeman said.

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