Florida's Weak Banks Get Even Weaker

TALLAHASSEE, Fla. ( TheStreet) -- Of 293 Florida banks and thrifts rated by TheStreet.com Ratings based on complete second-quarter regulatory filings, only seven were assigned "recommended" ratings.

Florida, usually at the forefront of real-estate peaks and valleys, has had eight bank or thrift failures this year and last, far behind Georgia, which has had 24, and Illinois, with 17, and California, with 14. But Florida has far fewer banks than Georgia or Illinois, and had the second-highest number of institutions with nonperforming assets comprising more than 10% of total assets as of June 30. The seven recommended Florida banks were rated B-plus ("good") or higher.

The most recent Florida bank failures were Community National Bank of Sarasota County and First State Bank of Sarasota on Aug. 7, with deposits and branches acquired by Stearns Bank NA of St. Cloud, Minn.

The largest Florida bank or thrift failure during the current cycle has been BankUnited of Coral Gables, which failed on May 21, with a group of investors led by John Kanas purchasing the bank from the Federal Deposit Insurance Corp. with a generous loss-sharing guarantee from the agency.

Large holding companies expanding their footprints in Florida by acquiring deposits of failed banks have included SunTrust ( STI) and FifthThird ( FITB).

Strongest Florida Banks and Thrifts

The number of Florida institutions rated B-plus or above is down from 11 in the first quarter.

Florida Banks and S&Ls Rated B+ or Higher (Millions of Dollars)
Chart
Source: Regulator filings via SNL Financial.

TheStreet.com Ratings takes a conservative approach with bank ratings, placing the greatest weight on capital strength, credit quality and earnings stability.

All of the highest-rated Florida institutions had total risk-based capital ratios greatly exceeding the 10% required for most institutions to be considered well-capitalized under regulatory guidelines.

The biggest bank among the highest-rated in the state was City National Bank of Florida of Miami, which had $4.2 billion in total assets and was rated B-plus, a downgrade from A-minus the previous quarter.

Largest Florida Institutions

The following includes capital, earnings and asset-quality indicators.

10 Largest Florida Banks and S&Ls (Millions of Dollars)
Chart
Source: Regulator filings via SNL Financial.

The largest bank chartered in Florida, based on June 30 total assets, was Northern Trust NA of Miami, a subsidiary of Northern Trust ( NTRS) of Chicago. Unlike the parent company, loans comprise most of Northern Trust NA's balance sheet. The bank, which has remained profitable through the crisis, was assigned a financial-strength rating of B ("good").

The second-biggest Florida institution was the new BankUnited, which was rated C ("fair") despite the new thrift's short track record. The FDIC agreed to share in losses on the loans acquired from the old failed BankUnited, and this guarantee was reflected in the institution's total risk-based capital ratio, which was a rather high 40.30% as of June 30.

Riverside National Bank of Florida, of Fort Pierce, had the lowest total risk-based capital ratio among the 10 largest banks in the state. It was included in TheStreet.com's list of undercapitalized banks and thrifts as of June 30.

After posting a net loss of $52.8 million for the second quarter, Riverside was left with a tier 1 leverage ratio of 3.81% and a total risk-based capital ratio of 6.04%, falling short of the 4% and 8% required for most banks to be considered adequately capitalized.

While loan quality has declined, especially over the past three quarters, Riverside's losses during the past 12 months have come mainly from write-downs on investment securities, beginning with preferred shares of Fannie Mae ( FNM) and Freddie Mac ( FRE), which were unexpectedly wiped out when the government-sponsored enterprises were place under conservatorship in September 2008.

Regulatory requirements to essentially write-down to zero certain securities downgraded below investment grade by the ratings agencies have also hurt the bank's risk-based capital calculations.

Executive Vice President Alan Polackwich told TheStreet.com that Riverside "is actively seeking capital, and we have multiple parties that appear to be quite interested."

Florida Banks With Weakest Loan Quality

Since there were 42 Florida banks and thrifts with nonperforming assets comprising more than 10% of total assets as of June 30 (second only to Georgia, which had 45), we're limiting the list to the nine institutions with nonperforming assets above 15%:

Florida Banks and S&Ls with Nonperforming Assets Exceeding 15% (Millions of Dollars)
Chart
Source: Regulator filings via SNL Financial.

A total of 15 Florida institutions were included in the list of Undercapitalized Banks and Thrifts as of June 30.

Two of the Florida banks on the undercapitalized list included Florida Community Bank of Immokalee and Hillcrest Bank Florida of Naples. P/>

Free Financial Strength Ratings

Along with TARP, the temporary increase of the FDIC's basic limit on individual-deposit-insurance coverage to $250,000 from $100,000 has curtailed bank failures. This increase has been extended through 2013.

The FDIC's temporary waiver of all deposit insurance limits for business-transaction accounts (checking accounts) has also mitigated the risk of deposit flight. This waiver is set to expire on June 30, 2010, after which business-checking accounts will revert to the $100,000 limit.

This means it will be more important than ever for businesses and municipal entities such as school districts to carefully monitor the health of their banks. It's very easy to have more than $100,000 of somebody else's money flowing through a business account.

TheStreet.com Ratings issues independent and conservative financial-strength ratings on each of the nation's 8,500 banks and savings and loans. They are available at no charge on the Banks & Thrifts Screener.

The writer owns shares in Riverside Banking Co., the holding company for Riverside National Bank of Florida, a former employer.

Philip W. van Doorn joined TheStreet.com Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.

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