Three Rescues

Two banks from outside the region are acquiring three failed institutions on the Gulf Coast. What do they know?

David Seleski has been here before.

The president and chief executive officer of Fort Lauderdale-based Stonegate Bank opened a branch in Sarasota in June 2007.

Six months later, he closed it. “We're never going to be profitable here,” Seleski remembers thinking at the time.

But Seleski is back on the Gulf Coast, this time acquiring deposits and some of the better assets of two Naples-based banks that failed Oct. 23: Partners Bank and Hillcrest Bank.

“Now's a good time to get in,” says Seleski, who is scouting other acquisitions from Tampa to Naples. Four-year-old Stonegate recently raised $14.2 million in a private offering to new and existing investors.

Seleski is betting that the Gulf Coast's economy has hit bottom and that real estate values won't fall much further. “Now's a good time to get in and pick up market share,” he says. “Others are red-lining Southwest Florida.”

“I don't think it's going to be a quick turnaround,” Seleski says. “It'll be a couple years before we see significant improvement.”

Seleski appeared on NBC's Today show because Partners was the 100th bank to fail.

Stonegate reported $375 million in assets in June and was one of the few profitable Florida banks, reporting $135,000 in net income last quarter.

Despite a large concentration in real estate lending, Stonegate started pulling back from more speculative loans in the middle of 2006, Seleski says. “We've had charge-offs and non-performing loans, but not to the level as everyone else,” he says.

Still, less than 1% of its loans are past due or in non-accrual status. “We've been really aggressive about charging things off,” Seleski says.

Stonegate acquired both Hillcrest and Partners so it could achieve economies of scale in back-room operations, which Stonegate can handle at its Fort Lauderdale headquarters. The two Naples banks combined have eight branches and $149 million in deposits.

“We believe once we convert them, they will be profitable right away,” Seleski says.

Stonegate acquired about one third of the Hillcrest loans and substantially all of the Partners loans.

“The difference was Hillcrest had a lot of participation loans and out-of-area loans; we didn't need a loan in Georgia to help us,” Seleski says. “Partners, for the most part, all their loans are local, so we're here to stay and be a player.”

Meanwhile, First Federal Bank of Florida in Lake City acquired the assets of Flagship National Bank in Bradenton. The FDIC agreed to share in the losses on about $130 million of Flagship's $190 million in assets, indicating that it was probably in the worst shape of the three banks that failed on the Gulf Coast on Oct. 23.

Under the loss-share agreement, the FDIC will reimburse 80% of the losses on commercial loans for five years up to a threshold amount. After that, the FDIC covers 95% of the losses. Specific details of the loss-share agreement and other terms were not available from the FDIC.

First Federal President and Chief Executive Officer Keith Leibfried couldn't be reached.

First Federal also is one of the few Florida banks still generating profits. The 47-year-old bank reported net income of $1.7 million with total assets of $631.5 million.

Unlike many of its troubled counterparts in Florida, First Federal doesn't have as high a concentration in real estate loans. About 35% of the bank's assets are in cash and securities, according to the latest FDIC data. Of its real estate loans, only $45 million are in construction and development.

In a prepared statement, First Federal says it plans to recapitalize Flagship, though it did not say how much.

In a brief response to emailed questions, First Federal Chief Financial Officer David Brewer says one reason for the bank's relatively good performance is that the North Florida real estate market did not escalate as much as the Gulf Coast market and consequently has not dropped as much.