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Bank Directors lose three banks: two Florida, Colorado

by Christopher Menkin


 

In covering the failure of banks in detail for almost three years, most were over extended in construction and land development loans, followed up by commercial loans, and 1-4 family home loans. The banks that failed started their decline either in 2006 or 2007, with obvious growing charge offs, and the time consuming and burden of growth in non-conforming loans, coupled with the result of not being able to raise additional capital, meaning the inability to bring in new investors. The numbers being posted are basically a minimum of 90 days behind, and more than likely close to a year. So what happened in 2008 was really the reporting reaching the point in 2009. All those who failed needed new capital, but their friends and relatives had already been approached in the formation of the bank. To raise capital for an entity losing money, charge offs, non-conforming loans, and god forbid, a cease and desist order from the FDIC, made it quite difficult, and in these cases, impossible. And they all started too late, six months to a year after the numbers were reported to the FDIC.

The larger banks have access to a more “public marketplace,” as well as many products to produce additional revenue, such as leasing, where the write offs were not happening with these banks. The smaller banks are trapped in their community and reflect it in the local down economy without the ability to reach further into communities in other states with the products available to larger banks with more staff and abilities.

Couple this with mismanagement by a board of directors who really had no business directing a bank, thinking they knew what they were doing, who in reality were usually a bunch of well-to-do friends and community leaders who raised enough money so they could have the local prestige of being on the board of a bank. I don’t know if that is as true today as it was five years ago when a bank director was looked upon as not only a celebrity in the community, but a financial successful person. If the bank is successful, it most likely is true today…but if not…

To top it off, the construction and business loans were mainly to their friends and relatives. In the end, the bank directors lost their initial investment as well as the respect of those they talked into investing in their bank.

These directors should have seen it coming. Leasing News Contributor Steve Chriest, a former leasing company president, and active then in training sales personnel for large corporations, saw it, and wrote about it in the February 3, 2006 edition (1)


 

The 17 branches of Bank of Choice, Greeley, Colorado were closed with Bank Midwest, National Association, Kansas City, Missouri, to assume all of the deposits. This is a long time bank that made it through the depression, founded January 1, 1896 and had 284 full time employees in 2008, the last years they opened a new office to 214 full time employees March 31, 2011 at two offices each in Arvada, Fort Collins, Greely, and Parker, one each in Auora, Denver, Elizabeth, Englewood, Evans, Kiowa, Platteville, Windsor. 12 of these offices opened from 2000 to 2008.

Charge offs of Construction and Land Development loans did them in with $7.8 million in 2009 and $$20.2 in 2010, along with nonfarm loans in the same years $2.3 and $7.5, farmland $2 million and $3.2 million. In fact, the first quarter of 2011 found $2.5 million in farmland charge offs as non-current loans had also climbed to $106 million, compared to $3.3 million in 2006 and $8.8 million in 2007.

Bank of Choice had lost $51 million in 2009 and $59.9 million in 2010.

A blog on the failure of this bank brought comments from a person who posted what he had learned in a four year Bank Strategies LLC as to "...why some of the banks got into the troubled condition they found themselves in regardless of what the economy or real estate values did. Below are a handful of actual examples of the dozens of practices that we have found in our studies that are inappropriate and significantly contributed to the risk profile of the bank. We are putting this forward now because Board members in all banks are nervous and we think will provide some perspective for you to share with your Board.

"Examples:

"The bank distributes loan packages at loan committee, not before, and makes on decisions on each loan usually within 10 minutes,
A lender tells us the approach of the bank is to book the loan and worry about the details later. When asked what the details are, the lender responds financial statements, tax returns, and written appraisals,
A bank grows from a $100 million bank to a billion plus bank without ever putting a Chief Credit Officer position in place,
Officers turned down in loan committee go directly to the President/CEO who possesses the full lending authority of the bank and the President overrides the loan committee decision,
A bank President structured an acquisition and development credit on a three-year term with interest carry for the entire three years,
A rural bank enters a metropolitan market and starts making CRE loans and the only person approving the credit is the President who has no CRE experience and who had not updated the loan policy to deal with CRE loans.

"The examples above are some of the more blatant situations we have seen during our management study engagements. While each study has been unique, we have also observed many common flaws in various fundamental aspects of risk management and general oversight amongst the banks we have worked with.

"One common flaw is that banks' board of directors often knew what was going on but deferred to the judgment of the President/Executive team, whom they believed knew more about banking and therefore, concluded the practices must be okay. Clearly, Boards need to be better informed, better trained, and, in some cases, have the benefit of an independent management study before their primary regulator dictates it. This will help protect them from liability by insuring the practices and approaches of the bank are appropriate."
hoocoodanode.org/node/13384

 


 

The numbers of Bank of Choice:

(in millions, unless otherwise)

Net equity  
2006: $73.5
2007: $80.6
2008: $128.9
2009: $91.3
2010: $26.9
3/31: $22.0

Profit:  
2006: $4.4
2007: $4.0
2008: $1.1
2009: -$51.0
2010: -$59.5
3/31: -$8.3

Non-Current Loans:
2006: $3.3
2007: $8.8
2008: $33.7
2009: $63.7
2010: $97.9
3/31: $106.0

Charge Offs
2006 $507,000 ($328,000 commercial, $179,000 nonfarm,
2007 $564,000 ($231,000 Commercial, $175,000 L&C, $129,000 1-4 family, $29,000 individuals)
2008 $8.2 ($3.2 commercial), $2.3 L&C, $1.8 nonfarm, $512,000 1-4 family, $171,000 indiv.)
2009 $19.0 ($7.8 L&C, $3.7 1-4 family, $2.8 commercial, $2.3 nonfarm, $2 farmland, $247,000 ind.)
2010 $37.8 ($20.2 L&C, $7.5 nonfarm, $4.7 1-4 family, $3.2 farmland, $2.0 commercial)
3/31 $2.5 ($1.6 farmland, $1 L&C, -237,000 commercial)

Land and Construction, 1-4 family multiple residential, Multiple Family Residential, Non-Farm Non-Residential loans.

As of March 31, 2011, Bank of Choice had approximately $1.07 billion in total assets and $924.9 million in total deposits. In addition to assuming all of the deposits, Bank Midwest, N.A. agreed to purchase approximately $853.0 million of the failed bank's assets.

Tier 1 risk-based capital ratio 3.47%

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $213.6 million.

(1) Bad Moon on the Rise
http://www.leasingnews.org/Selling_Up/Bad_Moon.htm
http://www.leasingnews.org/Selling_Up/index.htm
 

www.fdic.gov/news/news/press/2011/pr1112...
 

Ninth Bank to fail in Florida this year
 

Tier 1 risk-based capital ratio 0.32%

Note the drop in equity, profit, charge offs, and non-current loans. Most had very low Tier 1 Risk Capital, and as alarming, a trend you giving you little confidence to invest in, but as well as even extend credit. Note the following bank had a Tier 1 risk-based capital ratio 0.32%.
 


 

The six branches of LandMark Bank of Florida, Sarasota were closed with American Momentum Bank, Tampa Florida, acquiring the banking operations, including all the deposits. Founded February 4, 2000 the bank had gone from 66 full time employees in 2006 to 53 full time employers March 31, 2011 at the six offices located in Sarasota.

(in millions, unless otherwise)

Net Equity

 
2006
$23
2007
$24.4
2008
$25.6
2009
$15.3
2010
$8.5
3/31
$677,000

Profit
 
2006
$2.3
2007
$1.3
2008
-$728,000
2009
-$10.1
2010
-$6.6
3/31
-$7.8

Non-current loans
2006
0
2007
$1.6
2008
$6.4
2009
$18.6
2010
$38.8
3/31
$36.3

Charge Offs
2006 $366,000 ($208,000 commercial loans, $52 consumer loans)
2007 $260,000 ($208,000 commercial loans, $52 consumer loans)
2008 $2.5 ($1.4 1-4 family, $1 L&C, $60,000 commercial loans, $52 nonfarm)
2009 $8.6 ($3.2 L&C,$2 nonfarm , $2 loans to individuals,$1 1-4 family, $466,000 commercial
2010 $3.0 ($1.3 L&C, $1.3 commercial, $287 non-farm, $94,000 1-4 family
3/31 $5.0 ($2.9 L&C, $1.2 1-4 family, $472,000 commercial, $420,000 non-farm

Land and Construction, 1-4 family multiple residential, Multiple Family Residential, Non-Farm Non Residential loans.

As of March 31, 2011, LandMark Bank of Florida had total assets of $275.0 million and total deposits of $246.7 million.

 


 

Reportedly American Momentum was opened in 2006 with $100 million in capital, $90 million of it allegedly from Don Adams, the lead investor. He is considered “a Texas tycoon with business interest in Florida, including an agriculture and livestock operation near Ocala. Adams ran privately held First American Bank of Texas that he sold to Citigroup for $750 million in 2005, getting out at the right time. American Momentum has a strong board of directors: www.americanmomentumbankfl.com/a_directo...
www.americanmomentumbankfl.com/loc_locat...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) LandMark Bank of Florida, $34.4 million

www.fdic.gov/news/news/press/2011/pr1112...

 


 

The two branches of Southshore Community Bank, Apollo Beach, Florida were closed with American Momentum Bank, Tampa Florida, acquiring the banking operations, including all the deposits. This is another young, small bank, founded September 12, 2005, with 10 full time employees as of March 31, 2011 with offices in Apollo Beach and Sun City Center.

Apollo Beach

The collapse of real estate was the culprit to this bank, where Wikipedia describes the area with "...a beautiful waterfront community. It is a year-round haven for boating and fishing enthusiasts, with its many miles of canals and inlets.

"Perhaps the fifty-five miles of navigable canals are the best known characteristic of Apollo Beach. The canals average a depth of seven feet in the center and all are connected, eventually merging into Tampa Bay. The canals themselves are lined with magnificent homes, with lush tropical foliage. The majority of home sites have docking facilities with sail boats and motor boats lining both sides of each canal."
en.wikipedia.org/wiki/Apollo_Beach,_Florida

Sun City Center is more of a retirement community, age restricted: "2000 Census...The median age was 75 years. For every 100 females there were 74.4 males...It is legal to drive golf cars on the wide palm lined streets during daylight hours and most shopping has special parking slots for same. There are several golf courses, about 20 various hobby shops, an outdoor and two indoor pools in the main clubhouse area. There are clubs for almost any interest or hobby including ham radio, computers, sewing, cards, investments, and dancing."
en.wikipedia.org/wiki/Greater_Sun_Center...

(in millions, unless otherwise)

Net equity  
2006: $7.9
2007: $7.6
2008: $6.6
2009: $2.9
2010: $1.7
3/31: $856,000

Profit:  
2006: -$322,000
2007: -$326,000
2008: -$1.1
2009: -$3.8
2010: -$937,000
3/31: -$878,000

Non-Current Loans:
2006: 0
2007: 0
2008: $1.3
2009: $3.3
2010: $1.0
3/31: $23.8

Charge Offs
2006 0
2007 $14,000 (commercial and industrial loans)
2008 $66,000 ($47,000 nonfarm, $19,000 1-4 family)
2009 $1.8 ( $1.3 L&C, $351,000 nonfarm, $110,000 commercial, $20,000 1-4 family)
2010 $1.6 ($711,000 nonfarm, $292,000 commercial, $248,000 C&L, $208,000 individuals)
3/31 -0- (note large non-current loans rise above)
 

Land and Construction, 1-4 family multiple residential, Multiple Family Residential, Non-Farm Non-Residential loans.

As of March 31, 2011, Southshore Community Bank had approximately $46.3 million in total assets and $45.3 million in total deposits.

Tier 1 risk-based capital ratio 2.61%

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) for Southshore Community Bank will be $8.3 million.

www.fdic.gov/news/news/press/2011/pr1112...

Tracking Bank Failures Map:
http://graphicsweb.wsj.com/documents/Failed-US-Banks.html

List of Bank Failures:
http://www.fdic.gov/bank/individual/failed/banklist.html

Bank Beat:
http://www.leasingnews.org/Conscious-Top%20Stories/Bank_Beat.htm