Off the Shelf

To get a sense of where Florida banking is headed, take a road trip along State Road 29 to the small town of Immokalee in eastern Collier County.

Better known for its migrant-labor camps and penny-per-pound tomato battles, Immokalee is also home to one of the biggest bank failures in Florida in this downturn. When it failed on Jan. 29, Florida Community Bank of Immokalee was the sixth-largest of 69 banks headquartered on the Gulf Coast from Tampa to Naples, as measured by its $836 million in assets.

Ranked as the fifth most-profitable bank in the country in 2006 by SNL Financial, Florida Community Bank collapsed under the weight of bad real estate loans it made in surrounding areas where it opened branches. Its most high-profile bad loan was the one it made to a surgeon who planned to build an amusement park in Fort Myers.

Because the bank is headquartered in Immokalee, its strategic network of branches in better locations such as Cape Coral, Fort Myers, Naples and Port Charlotte was often overlooked. So when it failed and a group of New York investors acquired it from the Federal Deposit Insurance Corp. on Jan. 29, it didn't garner the headlines of previous failures, such as Naples-based Orion Bank in November.

But of all the bank failures in Florida, this ranks among the top because of who acquired it: Bond Street Holdings, a group of former banking executives, regulators and investors from New York City who raised $440 million last year to buy failed Florida banks from the FDIC. That's enough capital to create a $4 billion bank by assets. Only seven banks headquartered in Florida have more than that sum.

The list of executives of Bond Street reads like a who's who of finance. They include Daniel Healy, former chief financial officer of North Fork Bancorp; Vincent Tese, the former state superintendent of banks for the State of New York; Leslie Lieberman, former head of Drexel Burnham Lambert's financial services mergers and acquisitions group and later chief executive officer of the investment-banking arm of Banque Indosuez; and Stuart Oran, a former partner at New York law firm Paul, Weiss, Rifkind and a United Airlines executive.

“While the seizures started, we got approval for a shelf charter,” says Healy. A “shelf charter” is a new regulatory mechanism by which investors apply for a national bank charter from federal regulators. The charter remains inactive, or “on the shelf,” until such time as the group buys a failed bank. Bond Street received approval for a shelf charter in October, raising $440 million in a private transaction with Deutsche Bank as the underwriter.

Acquisition strategy
“We were in a three-point stance in January,” Healy says. On Jan. 22, the Bond Street investors acquired Premier American Bank in Miami, a $350 million asset bank. Then a week later it acquired Florida Community Bank in Immokalee.

To run its Florida banks, the Bond Street investors have hired seasoned executives such as Kent Ellert, the former president of Fifth Third Bank in South Florida and former regional president of Wachovia's Gulf Coast region.

Ellert is now president and chief operating officer of Florida Community Bank. “We interviewed a lot of veteran bankers,” Healy says. “You really need to be close to the marketplace.”

The Bond Street investors are just getting started.

“Our goal is to be the next Barnett Bank,” says Healy, now the chief executive officer of Premier American. Barnett was the largest commercial bank in Florida when NationsBank (Bank of America's predecessor) acquired it in 1997. With the $440 million it has raised, the bank is about one quarter of the way to its $4-billion-asset goal now that it has acquired Premier American and Florida Community banks.

The plan is to use half the capital Bond Street raised within 18 months and then offer stock to the public to raise even more capital and allow the initial investors to sell if they choose.

For now, the target market is South Florida, from coast to coast. “We kind of drew a thin line across the state, from Orlando down, because the opportunities are there,” Healy says.

Commercial lending
The reason investors like Bond Street have descended on Florida is because the greatest number of bank closures are likely to happen here. Regulators are eager to find investors to take over failed banks and the FDIC is shouldering the bulk of the losses for the next five to 10 years.

In addition, the state's banks offer a rich source of stable deposits, which investors are buying for tiny premium.

And Healy says most banks operating in Florida are focused on managing bad real estate loans, not making new ones to creditworthy business owners. “There are lots of opportunities to make commercial loans,” he says.

Healy isn't too keen on making commercial real estate loans, which until recently has been the main driver of profits for Florida community banks. “All you have to do is drive down the coast and look at all the see-through buildings,” Healy says. His verdict on a recovery in the commercial real estate market: “It's going to take several years.”

Despite the grim outlook for real estate, a host of investors and rival financial institutions have raised money to buy failed banks in Florida. “Competition has heated up,” Healy acknowledges.

But competition may be tempered by the fact that the FDIC may be less generous with future loss-share agreements for failed banks. “People are going to price it differently,” Healy says.

While Florida's economy won't rebound anytime soon, Healy is encouraged by the fact that he doesn't think population growth will stop. “I get excited about this because I've been in banking for a while,” says Healy.

Revival in Immokalee

Along a commercial stretch of State Road 29, church volunteers are busy raising a red-and-white revival tent on a small patch of grass along the busy highway.
Just a few blocks up the road at the headquarters of Florida Community Bank, a different revival of sorts is happening.

Kent Ellert, the newly installed president and chief operating officer of the bank, is surveying the $50,000 renovation of the bank's headquarters, which had become so rundown that its outdoor sign was missing some letters.

Employees are visibly happy that a group of New York investors under the banner of Premier American Bank of Miami acquired the bank after it failed on Jan. 29. Raymond Holland, the bank's president for the Immokalee area, says jittery customers have brought deposits back to the bank.

Despite losing $124 million in the last two years, Florida Community Bank had a loyal following.

It's the oldest bank in Southwest Florida, chartered in Everglades City by the Collier family in 1923. The Price family managed the bank since they led a group of local investors to buy it in 1963 until it failed on Jan. 29.

And Florida Community Bank has a network of well-located branches that vaulted the bank into the $1-billion-asset category during the mid-decade's economic boom. “It's got a very nice network in places that aren't over-banked,” Ellert says, pointing to places like LaBelle in Hendry County. Premier American paid a 0.4% premium for the $796 million in deposits at Florida Community Bank.

Of the $836 million in assets as of Dec. 31, Premier American only acquired $499 million worth, including consumer, residential, agriculture and commercial and industrial loans as well as fixed assets. The FDIC retained loans on land, acquisition and development loans and real estate assets acquired through foreclosure.

Ellert sounds like many of the recent bank acquirers when he says rival banks aren't focusing on new business because they're so busy managing problem loans. “They're not serving their clients,” he says.

Deploying those deposits won't be as challenging as it seems because the local bankers have a “deep knowledge” of their community. About 90% of the staff of Florida Community Bank has stayed on with the new entity.

Florida Community Bank will be focused on making commercial business loans. The commercial real estate market isn't finished correcting, he says.

“Commercial real estate is still very problematic,” Ellert says, noting that it's impossible to tell when that sector will turn around. Investors in commercial real estate should be prepared to hold an asset for at least five years, he says.