Banks based in Lee and Collier counties are saddled with $418.4 million in bad real estate debt — up from $19.1 million two years ago, according to data from the Federal Deposit Insurance Corporation.
Banks are required to report to the FDIC how much they have in loans that aren’t being repaid and the reports for the quarter ended Sept. 30 show an explosion of bad debt.
State and federal regulators have stepped in with public oversight orders directing three local banks — Orion Bank, Riverside Bank and Florida Community Bank — to raise their loan qualifications, step up management and make other improvements.
Experts say the worst is not over: All signs point to increasing debt because of foreclosures already in the pipeline and worsening unemployment.
“Banks and all financial institutions are under a lot of stress because of the overall financial conditions out there now,” said Linda Charity, director of the Division of Financial Institutions of the Florida Office of Financial Regulations. “It’s fair to say this environment is probably going to continue for a while.”
The result is likely to be an increasingly tough borrowing environment for already strapped small businesses and consumers.
One local businessman said he’s already feeling the strain.
“I’m struggling over here,” said custom tailor Remy Fenelus, who owns Remy’s Custom Design in south Fort Myers. Already hard hit by the recession, he had 250 suits stolen by burglars who ransacked his store four weeks ago.
It’s tough to get a bank loan these days, he said.
“You have the credit line with the bank and they just take it away,” he said. “Or they’ll just reduce it to nothing.
Bad debt held by banks typically contributes to their customers’ difficulties getting a loan, said Karen Dorway, president of Fort Lauderdale-based BauerFinancial, which tracks bank information nationwide.
“You see a shift in how the management is managing the resources,” she said. “Instead of focusing on the growth and building the company, they’re focusing on how do we solve these problems.”
The oversight agreements are intended to help banks get back on the right track and typically involve the Florida Office of Financial Regulation and either the Federal Reserve Bank or the FDIC, depending on how the bank is chartered.
The regulatory orders can come in a variety of forms, including confidential agreements with banks and public orders.
“It sort of moves up in terms of severity as things progress,” Charity said. “But it is not necessarily a bad thing. It’s a road map and a working partnership with the bank to strengthen the operation.”
An order issued recently to Immokalee-based Florida Community Bank listed 20 stipulations, including tightening lending to customers who already have troubled loans and requiring regulatory approval of new executive officers. The bank had $8.5 million in bad real estate debt in 2006, but had $105.7 million as of Sept. 30.
Bank president and chairman Stephen Price did not respond to requests for comment.
Even if the bank is not consciously tightening lending policies, Dorway said, “if you’re a loan officer and you’re looking at your portfolio and you say ‘My goodness, 3 percent of these loans are non-performing,’” there’s likely to be a more cautious attitude.
Banks that find themselves with a lot of bad debt have to be cautious and deliberate in their lending policies, said David Hall, president of Fort Myers-based First Community Bank of Southwest Florida — the only locally based bank to appreciably reduce its real estate debt this year.
First Community was ordered by the FDIC in June 2005 to stop making construction loans for commercial builders and, in retrospect, that set the bank on a course of financial responsibility, he said.
The bank’s real estate debt was $4.2 million in the third quarter of 2006 and increased to $6.5 million a year later. But it was down to $3.3 million in the latest FDIC report.
Recovering has been hard, Hall said.
“It’s been many late nights and weekends,” he said, but he expects his bank to survive and thrive now. The FDIC’s order was lifted in July 2007.
Any local bank could have cut back on real estate lending as the market went downhill, he said, but many did not.
Why?
“I’ve asked myself that question,” Hall said. “Everybody was up (in bad debt) except our little old bank.”
Other banks haven’t fared so well. Riverside Bank of the Gulf Coast, for example, was being considered for purchase by group of Brazilian businessmen.
But the deal fell through, Riverside chairman Elmer Tabor said Friday — although he noted there are six more interested buyers in the wings.
The Brazilians, he said, passed on the deal because of “not only the instability of the local economy, but the national economy with the markets going wild. They don’t think this is a good time to be putting money in the United States.”
Riverside’s bad real estate debt ballooned from $1.5 million in 2006 to $52.4 million this year. In June it closed four branches and laid off 45 of its 157 employees.
Kent Ellert, who was president of Fifth Third Bank in South Florida until Nov. 1, has formed Southeast Acquisition Holding Corp., with three partners to scout for investment opportunities among cash-strapped local banks.
“We are big-time believers in the long-term strength of the local and state economy and we think the current environment presents some opportunities,” Ellert said.
Ellert said the group will seek investment interest in banks, outright acquisition or might aggregate smaller banks.
source:
news-press.com
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Business likely will feel pinch of tighter criteria
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Rory Vanucchi
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