VERO BEACH – Marine Bank and Trust CEO Bill Penney says despite losing $1.6 million in the third quarter and some stature from the bank rating outfits, his institution is well on its way to regaining its footing.
The local community bank, with its headquarters on Beachland Boulevard, recently lost its regulatory ranking of well capitalized and was lowered to a one-star out of five in banking watchdog Bauer Financial’s latest report.
The $1.6 million loss for the third quarter was due mainly to loans that were restructured to help clients struggling with the recession. Those losses moved the bank’s standing from well capitalized to adequately capitalized.
In order to build up its reserves, Marine is Bank seeking to raise $4 million from investors and shareholders in the coming months.
“The biggest thing for us is we are in the middle of this capital raise and when we complete it, it will restore all our capital ratios to where they should be well above the minimums,” Penney said. “And we have already raised 30 percent in the first few weeks. I am very pleased with that.”
The 13-year-old bank currently has $147 million in assets, and Penney points out has never offered a sub-prime loan even during the housing bubble when some banks and mortgage companies were offering loans to just about anyone who walked through the door.
“We were doing a training for our staff on lending in 2006, kind of the ABCs of lending, and I was up there talking about the three Cs (good credit, capacity to repay the loan and collateral) and in the back of my mind I am thinking, ‘Am I a dinosaur?'” he said. “These guys on Wall Street had this new mathematical model and were rewriting the rules, and it was kind of like in the tech boom when they said earnings didn’t matter – it was all about the revenue multiples.”
Of course, it turns out the three Cs still counted, but the fallout hurt all financial institutions no matter what their lending standards.
“These loans that were being offered, there was no income qualification, there was virtually no equity requirement and the credit score requirements had dropped way down,” Penney said. “That is a classic example of subverting the underwriting rules that have been around forever. The guys on Wall Street took that away and said we have a new model, and that allowed people to go out and buy houses and to bid up the prices, then the merry-go-round stopped and you had to get off and nobody could. That caused the run-up and then the deflation in the housing prices here.”
The ensuing recession, which has seen unemployment figures in Indian River County as high as 15 percent, hurt the bank in a number of ways.
Some Marine customers could no longer afford their loans because of job loss or a reduction of income.
“Most every community bank in Florida is in the same boat,” Penney said. “At the end of the day a community bank is a reflection of the economic strength of the community that it serves. I look at the averages and we are right in the middle. I am not proud of those numbers or ours, but we are not in this alone. A lot of the Florida banks are having difficulties with the economy.”
Penney says the bank took a hit another way when it restructured loans for customers who came in asking for relief due to a change in circumstances.
In order to restructure the loan, a new appraisal was required. Often times, the newly appraised value of the property had gone down, sometimes by as much as 50 percent.
Those losses led to Bauer Financial dropping Marine Bank to one star from its previous two-star rating.
Bauer Financial President Karen Dorway said the drop was due to the third quarter financials that Marine Bank reported.
“They posted a loss of $1.6 million for the quarter and that moved the bank from well capitalized to adequately capitalized, based upon the regulatory definitions,” she said. “In addition to that, their non-performing assets, meaning their delinquent loans and their repossessed real estate, went up to about 7 1/2 percent of their average asset.”
Dorway said many Florida banks have posted similar numbers and that should the $4 million in funding Marine is seeking come to fruition, it would return to more solid footing in terms of regulatory requirements and industry ranking.
“Certainly having the capital infusion, if it concludes the way they expect it to, would go a long way toward helping them with having lost $2.9 for the year to date,” Dorway said. “I don’t want to speculate what might happen in the future, but certainly that is a very positive transaction if they can get that concluded.”
Penney says he is not worried about getting the necessary capital and points as well to a perceptible change in the outlook from customers and business people not only locally, but throughout the state.
“I am hearing a little optimism out there,” he said. “I think 2011 could be a lot better year than a lot of economists are predicting.”