Rethinking strategy? Manatee County bank backs off deal to buy Clearwater's ailing Old Harbor Bank
Wake up and good morning. A Manatee County community bank -- whose expansion strategy eludes me, I must admit -- has backed away from its latest deal to buy and recapitalize a near-death bank in Clearwater.
Lakewood Ranch-based Community Bank & Co. scrapped a $25 million deal to purchase the struggling Old Harbor Bank of Clearwater. The transaction was expected to close this month but fell through in August even after Florida's primary banking regulator, Tom Cardwell (since replaced by Tom Grady by Gov. Rick Scott), fast-tracked its approval to avoid Old Harbor's failure, the Sarasota Herald Tribune reports here.
Old Harbor is a critically undercapitalized, "zero star" (lowest health rating), $219 million-asset bank that operates seven offices in Pinellas and Pasco counties. It lost $8.1 million through mid-year and reported a negative capital position, a condition that usually prompts regulators to step in and close a bank, the Herald Tribune states, though there are more than 40 "zero star" banks in Florida alone... which means many must "take a number" before regulators have the manpower to seize them, "fail" them and sell their remains to healthier institutions.
The Herald Tribune could not reach Community Bank officials for comment Monday. They announced the purchase in a July 7 press release, but remained silent when they backed out. The newspaper said Trevor Burgess, chief executive officer of Community Bank parent CBM Florida Holding Co., withdrew the purchase application Aug. 23 via an email to the Office of Financial Regulation. "Due to circumstances beyond our control, we must regretfully withdraw our application to acquire Old Harbor Bank," he wrote. "As per the (word removed here) request we will not be making a public statement at this time," he wrote, according to the Sarasota paper.
In more bullish times earlier this summer, Community Bank was on a mission to specifically expand in Pinellas, Hillsborough and Pasco counties. By adding Old Harbor's seven branches, Community Bank would have grown to 24 branches and nearly $1 billion in assets. "We continue to invest in recapitalizing Florida banks because we believe in the marketplace and in the recovery of the Tampa Bay economy," wealthy Brazilian businessman Marcelo Lima, chairman of CBM Florida Holding, said in a statement at the time.
And that may beg the question. Is Lima rethinking his belief in the Tampa Bay recovery or has talk of a double-dip recession made the banker more cautious? Or did a more in-depth look at Old Harbor's financial condition convince Community Bank to retreat? (Old Harbor's CEO for the past year has been Anthony N. "Tony" Leo, who was CEO at another Florida bank, Peninsula Bank of Englewood, for eight months before it failed in June 2010.)
As this St. Petersburg Times story noted in July, most expansion-minded Florida institutions wait until a bank fails before cutting a deal with regulators to take that bank's assets. Why? Because the FDIC assumes some of the riskiest loans and can provide other incentives to the buyer. Community Bank's strategy, in contrast, has been buying a bank for a nominal price before it fails — $1 in this Old Harbor case — and then furnishing capital to help the institution survive.
CBM CEO Burgess argued in July that by acting ahead of regulators, his company can preserve the value of a franchise, keep local jobs, help prevent future bank failures and get customers excited about who their bank is.
If all of that is true, why do we not see more acquisition-hungry banks buying crippled banks like Old Harbor before they fail?
"Many of these banks don't need to close. What they need is more capital," Burgess has said. Exactly my point. Most buyer banks wait for dud banks to fail because it is more expensive (raising capital these days is extremely tough) and, arguably a high risk deal.
Earlier this summer, CBM acquired First Community Bank of America, a zero star bank in Pinellas Park with $470 million in assets and 11 offices. CBM paid $10 million to buy the publicly traded parent and injected $20 million in fresh capital to shore up the combined bank's capital position.
For whatever reason, that same scenario apparently was not going to work in the Old Harbor deal.
- Robert Trigaux, Business Columnist, St. Petersburg Times