Community bankers Don Page and Larry Starnes were both breathing easier last week.
Page, who runs Cortez Community Bank in Brooksville, received a badly needed lifeline of $15 million in capital from a South Florida pension fund manager. Starnes, who runs Patriot Bank in Trinity, raised about $4 million in new capital to shore up his bank as of Friday, most of it from local investors.
So are they envisioning a return to happier times in the Florida banking world?
There are too many problem loans still looming, too many commercial properties mired in foreclosure proceedings, and too many fellow banks with too little capital. The only thing plentiful: speculators eager to capitalize on down times by buying bad loans for 20 cents on the dollar.
"Right now, the bottom feeders are out there," Page said, "but this is going to turn around eventually. Probably by 2012. I think it'll level off. I think we'll stop bleeding to death."
If community banks in Florida thought 2009 was rough, just wait for 2010 to unfold. A fourth-quarter analysis by the Federal Deposit Insurance Corp. last week was chock full of chilling statistics:
• The FDIC said the number of banks on its "problem list" swelled 27 percent in just one quarter to 702, the most since 1993. That translates to roughly one in every 11 banks in the country in need of more capital to survive.
• More than 5 percent of all bank loans nationally were at least three months past due as of year-end, the highest level since the government began tracking the rate 26 years ago.
• Nearly three-fourths of Florida banks lost money last year. Their combined losses of $1.98 billion were an improvement from the $2.76 billion combined loss in 2008, and credit quality had slightly improved. But there also were 16 fewer commercial banks than a year ago and total assets have shrunk by $1.5 billion.
FDIC Chairwoman Sheila Bair predicted the number of bank failures in 2010 will likely exceed last year's 140. Bearing the brunt of the carnage won't be the megabanks, the primary focus of the national bank bailout, but rather the community banks whose bread and butter was small business and commercial real estate loans.
Florida has accounted for 17 of the country's 160 bank failures since the beginning of 2008, or just under 11 percent. Some analysts think Florida's share of the pain will grow as banks are forced to reconcile more troubled commercial loans in the year ahead.
Ken Thomas, a Miami-based banking consultant and economist, predicts 200 more bank failures this year nationally, 20 of them in Florida.
Although the FDIC doesn't release its problem bank list, Thomas estimates that Florida and Georgia alone account for 25 percent of stressed-out banks: about 70 in Florida and the balance in Georgia.
"That's an incredibly large number," he said. "Seventy out of 280 banks in Florida are troubled. That's one in four."
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Why care if you're not a banker? Because the baby steps the economy has taken toward crawling out of the Great Recession won't go far without healthy banks able and willing to lend to both consumers and small businesses.
If small businesses are the heart of the economy, banks provide the lifeblood.
For all the promise of Small Business Administration loans in which the government assumes 90 percent of the risk, bank lending is still anemic. The FDIC data released last week revealed U.S. bank lending plummeted 7.4 percent in 2009, the steepest one-year decline since 1942.
Florida banks made about $109 billion in loans in the fourth quarter of 2009, down about 5 percent from the previous quarter and 13 percent from a year earlier.
Some community bankers say not enough credit-worthy customers are knocking on their doors. It's mainly applicants who may have difficulties repaying.
Part of the problem is they're hamstrung by regulators who are requiring them to raise more capital before they lend, even as the regulators' bosses in Washington criticize banks for being tight-fisted.
Starnes, the CEO of Patriot Bank in Trinity, said his bank had to rein in making loans when its ratio of capital to risk, a key measure of a bank's financial stability, fell to 8.41 percent last year. That's far below the minimum 10 percent level that regulators desire.
With the millions just raised, however, the bank's capital ratio will be closer to 14 percent. That puts the bank back in the lending mode. "We have the sign out front: 'Patriot is an SBA lender. We make loans,' " Starnes said.
It wasn't easy raising money. Starnes, a longtime banker with Wachovia Corp. who came to Patriot a year ago, said the initial push was very discouraging. The bank hosted receptions for shareholders and potential shareholders.
"I made phone call after phone call after phone call and so did our board members. All of a sudden the message started to resonate," he said. "We were told by regulators that this was the first bank in a long time that was successful in raising capital the way we did."
Page of Cortez Community Bank took another route.
The bank agreed to give an 80 percent stake to BCOM CCH Holdings, a pension-based partnership in Miami, in return for the $15 million investment.
In ceding control, however, Cortez broadens its customer base. BCOM manages more than $100 million in pension funds with strong union ties to plumbers, carpenters and other workers, all potential customers needing to finance car purchases, home equity lines and mortgages.
Cortez also gains time to hold on to some of its troubled assets for a longer period, presumably to dispose of them at a much better price than they would get now.
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Both Starnes and Page illustrate the name of the game these days for community banks: finding capital.
Banks are hard-pressed to raise money through a public offering in this environment; the federal TARP program funneling money to the big banks has run its course; and it's uncertain whether another government program geared toward community banks will take hold.
Private investors are the primary source that's left.
And it's hardly a panacea, says Thomas, the Miami banking analyst. For one, there are too many banks chasing too few private capital dollars.
And taking the private capital, Thomas contends, could take a negative twist. "Many of these guys are in here with the Wall Street mentality of short-term profits and not into community investment."
His fear is that five years from now, some of the private investors that swept into Florida will cash out with their profits, leaving little evidence of helping the community or doing their fair share of lending.
Nevertheless, there are growing examples of how private equity infusions have resurrected failed Florida institutions. Bond Street Holdings, a Naples-based investment group formed last year to acquire banks via FDIC-assisted transactions, bought both Premier American Bank in Miami and Florida Community Bank of Immokalee after raising $440 million.
Then there's the turnaround at BankUnited, Florida's largest bank.
After the original BankUnited FSB failed in May, a group of New York-based private investors led by banker John Kanas invested $875 million to buy the institution.
Thanks to the FDIC spending $5 billion wiping away problem loans, the turnaround was dramatic.
With its revitalized, clean slate, BankUnited posted a $192 million profit in 2009, making it the most profitable Florida bank by far.
Annualize that profit since May and add in profit estimates so far this year and that means Kanas and company have already recouped almost a third of their investment, a turnaround that may get more private dollars chasing FDIC-brokered deals as failures continue to rise.
Indeed, Bloomberg Business News reported on Friday that one such high-powered group is taking shape now, targeting this region.
William Isaac, former chairman of the FDIC, is reportedly leading the group of ex-regulators and bankers raising $1 billion to buy failed lenders in the southeast.
The investment group BSE Management LLC, which is seeking private fundraising sources, is rounded out with former top executives at Freddie Mac and the Office of Thrift Supervision, among other places.
"The organizers behind BSE are a 'Who's Who' of the banking system," Chip MacDonald, a partner with Jones Day in Atlanta who specializes in bank deals, told Bloomberg.
Jeff Harrington can be reached at email@example.com or (727) 893-8242. Follow him on Twitter at twitter.com/jeffmharrington.