Sunday, February 28, 2010

Bank Busted?

Last Friday, it was revealed that a locally owned bank headed by former state representative Buzz Ritchie of Pensacola entered into a consent order with the FDIC over a month ago. Gulf Coast Community Bank, which serves the western two Florida counties of Escambia and Santa Rosa, was given three months at most -- and if we're any judge of it, it will work out to a lot less than that -- to clean up its act before the FDIC closes the bank.

According to the consent order [available here in pdf format], the bank was to submit by today -- Sunday, February 28 -- a "written plan and a comprehensive budget for the remainder of calendar year 2010 covering all categories of income and expenses." The plan needed to describe what steps it proposed taking "to improve the Bank's net interest margin, increase interest income, reduce discretionary expenses, control overhead, and improve and sustain earnings of the Bank."

The bank also was ordered, among other things, to --
  • immediately "eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss" in an FDIC "Report" (dated June 15, 2009 which remains unavailable to the general public);
  • within 30 days "charge-off... the remaining balance of any assets classified "Loss" and fifty (50%) (percent) of those classified "Doubtful;"
  • also within 30 days, "establish a comprehensive policy for determining the adequacy of the ALLL [allowance for loan and lease losses];"
  • within 45 days adopt and submit for FDIC review and comment a new "Management Plan... for the purpose of providing qualified management for the Bank -- including "all Bank officers, and in particular, the chief executive officer, chief credit officer, the chief operating officer, and staff members... [who can assure] restoration and maintenance of the Bank in a safe and sound condition;"
  • within 50 days "formulate a written plan to reduce the Bank’s risk exposure in each asset, or relationship in excess of $500,000 classified “Substandard” in the REPORT;"
  • within 60 days "achieve and maintain Tier 1 Leverage Capital Ratio of not less than eight percent (8%) of the Bank’s total assets and increase and maintain a Total Risk Based Capital Ratio of not less than twelve (12%) percent of the Bank’s Total Risk Weighted Assets;"
  • revise the bank's future loan policies;
  • and so on and so forth.
Reading between the lines, we'd guess by the time all of these requirements have been met, the bank's goose will be revealed as one thoroughly cooked carcass. And, frankly, a number of friends and neighbors who aren't bankers were predicting as much back in 2008.

That was when they saw Gulf Coast Community Bank constructing a new, fancy Gulf Breeze branch bank building in the long-abandoned former Winn-Dixie parking lot on Highway 98. No one else was building anything locally. Businesses were bailing out all over town.

"Expanding!?" our friends exclaimed in so many words. "Just as Bush is telling us the financial system is about to come crashing down around our heads? Is that bank delusional?"

Last week, CEO-for-the-moment Buzz Ritchie told the PNJ's Carlton Proctor that he's "confident he will remain head of the bank." But Ritchie didn't say for how long. As we read the "consent order" Gulf Coast Community Bank also must within 90 days hire --
"a chief executive officer with proven ability in managing a bank of comparable size and complexity and in effectively implementing lending, investment and operating policies in accordance with sound banking practices... ."
It seems to us that any executive who got the bank into this fix is unlikely to qualify for the job under the language of the consent order.

Then there's that pesky little "memorandum" item we came across on the bank's 2008 financials -- $6 million classified as "insider loans." What's with that?

We hope it all works out for everyone, especially the depositors. Really, we do. Speaking personally, however, we don't plan on letting Gulf Coast Community Bank have any of our money for longer than it takes to say "bank busted."