Another bank is deep into trouble
heraldtribune.com
Monday, September 1, 2008 at 12:27 a.m.
VENICE -
The Office of the Comptroller of the Currency came down hard on Community National Bank of Sarasota in April, declaring it had found "unsafe and unsound banking practices relating to the lending function at the bank."
The OCC, which regulates nationally chartered banks, also stated that Community National is in "troubled condition," and ordered the bank to hire a senior loan officer, shore up its capital and develop a plan to reduce its "high level of credit risk."
The OCC's action came as a surprise to many in the Southwest Florida banking community, who viewed Community National as a sleepy institution that consistently reported high profits despite its relatively small size.
In 2006, for example, Community National ranked No. 89 on American Banker's list of community banks with the highest return on equity. The bank reported returns of 29 percent in 2005 and 28 percent in 2004.
So what happened?
The OCC has not been willing to comment on Community National's condition beyond what it said in its 18-page order, and Charles Graham, the bank's chief executive, did not return calls for comment.
Community National lost $1.5 million in the first two quarters of the year. Its non-current loans totaled $4.9 million as of March 31, and court documents show that it has foreclosed on another $5.6 million in loans during the past five months.
That means that more than 10 percent of Community National's $94 million in loans are in default.
"Once a bank gets over 10 percent, it becomes very difficult to get in front of that without a capital infusion," said Tramm Hudson, a Sarasota bank consultant.
Two other Southwest Florida community banks that faced a similar situation in recent months have responded in different ways. Freedom Bank managed to come up with additional capital and is still operating, while First Priority Bank was forced to shut down.
Problems with real estate
Like these other banks, Community National's problems stem from loans made to builders, developers and speculators during the real estate boom.
The largest loan to go bad was $1.99 million in financing for Venice orthopedic surgeon J. Fred Miller III.
Miller bought commercial land on Jacaranda Boulevard just south of Center Road in 1993 for $950,000 and sold off two parcels in 2005 for $645,000, county court records show. But by 2008, Miller still owned four acres of undeveloped land and owed nearly $2 million to Community National. The bank foreclosed in March and seized the land three months later.
Miller could not be reached for comment.
Jim Walter, an agent with Richardson Kleiber Walter in Venice, said Miller's land had been for sale for at least a dozen years.
"It always seemed a little pricy," Walter said. "Over the last couple of years, land prices went down hard and have not come up."
Another large loan that Community National foreclosed on was made to Venice resident Doug Reddy.
Court records show that Reddy bought a Woodmere at Jacaranda condo unit in December 2005 for $289,900, financing the purchase with a $260,000 loan from Community National. Fifteen months later, Reddy paid off the original mortgage and got a $586,000 replacement.
Community National foreclosed on the loan in February and Reddy transferred the condo to the bank in April in a deed in lieu of foreclosure valued at $117,500.
Court records show that Reddy and his wife speculated in real estate during boom, at one point owning six properties in Venice. They managed to sell three of them at a profit, gaining $234,000 from the transactions. But by 2007, the couple were nearly $1 million in debt on their other three properties.
US Bank foreclosed on a $225,000 loan in September 2007, and seized the property a month later.
Reddy could not be reached for comment.
More speculators
Several of the other loans that Community National foreclosed on involved customers who speculated on buying and selling building lots in North Port and Port Charlotte.
The bank foreclosed on two loans in May totaling $275,000 that were made to Molly Valentine Inc., a company controlled by North Port real estate agent Judith Larue.
Larue bought and sold building lots in North Port and Port Charlotte during the boom. She even sold two lots that she bought for $36,000 in 2004 to herself for $60,000 a year later, court records show.
With the decline in land values, Larue could not continue to make payments on her loans. But she is refusing to give up without a fight.
"I felt the bank did not live up to its fiduciary relationship," Larue said.
North Port residents Donald H. Declercq and Bruce Parrish ran into similar problems.
Declercq paid $57,500 for three Port Charlotte building lots from 2001 to 2004, initially receiving $17,600 in loans from Community National. But Declercq's total debt to Community Nation rose to $270,000 by 2005 and he defaulted two years later.
Similarly, Parrish paid $25,000 for a lot in North Port in August 2006 and received a $248,000 construction loan from Community National.
Parrish's financial troubles became evident by April 2007 when subcontractors began filing liens for unpaid bills. By October, Parrish had been hit with seven liens totaling $58,663. Community National foreclosed eight months later, winning a $264,724 judgment in July.
Parrish could not be reached for comment, and Declercq's number has been disconnected.
Like these other borrowers, Port Charlotte general contractor Aleksandr Filipskiy received a $360,000 loan from Community National in September 2006 to build a house on Gasparilla Road in Rotonda West. By August, the loan was in default. But it was not the only loan that Filipskiy defaulted on.
Polo Contractors, Filipskiy's company, bought property at 15384 Acorn Circle in Port Charlotte from Vitaliy Taranov for $174,500 on Oct. 6, 2006. Polo Contractors sold the property on the same day to Filipskiy's wife for $230,000, financing the deal with a loan from SunTrust.
SunTrust foreclosed in March and won a $349,506 judgment in August. Filipskiy could not be reached for comment. His home and office numbers have been disconnected.
Another borrower who defaulted on loans to Community National is Venice resident Neil Smith, who bought five North Port building lots in June 2005 for $225,000 and received $183,6000 in financing.
Smith later sold the same lots to his own company, Re Florida Land and Home LLC, for $202,400 and obtained a $171,950 loan from Century Bank in January 2007.
Smith never paid off his Community National loans. The bank foreclosed in January and won a $201,270 judgment four months later. Century Bank foreclosed two months later.
Smith, whose home number has been disconnected, could not be reached for comment |
