Economy

Return to Article

These Florida Banks Could Be in Danger

Philip van Doorn

As a follow up to last week's failure of First Priority Bank of Bradenton, Fla., TheStreet.com Ratings has prepared a list of 12 Florida banks with the weakest asset quality as of June 30.

The list is based on preliminary FDIC data, which are subject to change. Bank call report data are often revised before being finalized about 45 days after quarter-end. Savings and loan institutions are not included, since preliminary results for June 30 are not available for the group.

Here are the 13 banks with nonperforming assets of over 8%, as of June 30. TheStreet.com's ratings (based on March 31, 2008, financials) are also included.

Click here for larger image.

For most of the listed banks, the majority of nonperforming assets were residential construction and development loans.

When looking at asset quality, reserves and capital levels, it's important not to dwell on just one ratio. For example, Integrity Bank had loan loss reserves covering just 18.27% of nonperforming loans as of June 30, however, its annualized ratio of net charge-offs to average loans for the first half of the year was 0.67%. Since the institution was well-capitalized and its loan loss reserves covered 3.09% of total loans as of June 30, it was positioned to handle four times the level of charge-offs over the next two quarters.

The two bolded banks were considered below well-capitalized per regulatory guidelines, as of June 30. To be well-capitalized, a bank needs to maintain a leverage ratio of at least 5% and a risk-based capital ratio of 10%.

Topping the list was Ocala National Bank, with nonperforming assets (including loans past due 90 days or more and repossessed real estate) of 17.64%. With an annualized net charge-off ratio of 4.67% of average loans during the first half, and loan loss reserves covering 2.73% of total loans as of June 30, it's clear that the institution is not ready to handle continued charge-offs at this level.

Ocala's net loss for the second quarter was $7.6 million, as the bank added $6.5 million to loan loss reserves during the quarter. The institution slipped from well to adequately capitalized, with leverage and risk-based capital ratios of 5.10% and 8.24% as of June 30.

A call to Ocala National Bank was not returned.

When we looked at troubled Florida banks back in May, we pointed out that Florida Community Bank had limited loan charge-offs, even though it had the second-highest nonperforming assets ratio on the list.

Florida Community remained second on the list, with nonperforming assets comprising 15.62% of total assets as of June 30. Things changed during the second quarter, as the institution reported net charge-offs of $11.4 million. The annualized ratio of net charge-offs to average loans for the first half of 2008 was 3.25%. Loan loss reserves covered 2.51% of total loans as of June 30. While this would normally be a high level of reserve coverage, it appears low at this time, based on second quarter charge-off activity.

The good news for Florida Community was that its leverage and risk-based capital ratios were 12.14% and 15.21%, giving it room to add significantly to loan loss reserves during the third quarter.

Third on the list was Freedom Bank of Bradenton, which was considered significantly undercapitalized, with a leverage ratio of 3.00% and a risk-based capital ratio of 4.97%, as of June 30.

Freedom Bank recently announced an agreement with Community Bank Investors of America, LP, for $5 million in new capital, contingent upon Freedom raising an additional $15 million from other investors.

Nonperforming assets, including loans past due 90 days and repossessed real estate, comprised 14.01% of total assets as of June 30 -- a huge increase from 8.14% last quarter. As would be expected in this environment, the majority of the problem loans were to residential real estate developers who stopped making payments as the housing demand collapsed.

At the end of the first quarter, loans past due 30 to 89 days (but still considered "performing") comprised 5.50% of total assets, and gave an indication of the large increase in nonperforming assets in the second quarter. As of June 30, loans past due 30 to 89 days comprised 2.23% of total assets, so hopefully the rise in nonperforming assets will moderate in the third quarter.

Spokesman Frank S. Knautz expressed confidence that the agreement with Community Bank Investors would lead to a large capital infusion, and that the $284 million institution would work through its loan problems.

While June data for savings and loan institutions is not yet available, we do know of one S&L that would make the list. Federal Trust Bank of Sanford (held by Federal Trust Corp(FDT)) was adequately capitalized, with a risk-based capital ratio of 8.24%, according to the holding company's second quarter earnings release. This ratio declined from a revised 8.96% last quarter.

After Monday's market close, the holding company announced it would terminate a previous rights offering, and make a public offering of common shares in an effort to raise capital.

According to the earnings press release, nonperforming assets comprised 10.78% of total assets on the holding company level. While there was some further detail in the holding company's press release, we'll save further comments for when the S&Ls' complete second-quarter results are available.

Ratings more important than ever

TheStreet.com Ratings issues financial strength ratings on each of the nation's 8,600 banks and savings and loans which are available at no charge on the Banks & Thrifts Screener. In addition, the Financial Strength Ratings for 4,000 life, health, annuity, and property/casualty insurers are available on the Insurers & HMOs Screener.