GulfSouth Private Bank, Florida, Closed By Regulators

The state of Florida had its sixth banking failure of the year today when regulators closed GulfSouth Private Bank, Destin, Florida.  The FDIC, acting as receiver, sold the failed bank to SmartBank, Pigeon Forge, Tennessee.

All four branches of GulfSouth will reopen as branches of SmartBank on Monday.  All depositors of failed GulfSouth will have uninterrupted deposit insurance coverage up to the applicable limits and will automatically become depositors of SmartBank.  Over the weekend, depositors of GulfSouth will have full access to their money through the use of debit cards, ATMs and checking accounts.

GulfSouth Private Bank was a deeply troubled institution due to a large amount of loan defaults.  The troubled asset ratio at GulfSouth was 272% compared to a national average of 12%.  Once a bank’s troubled asset ratio reaches 100%, failure is virtually guaranteed.  GulfSouth was established on November 21, 2005 which corresponded closely to peak values in real estate.  Competing for new loan business as a new bank in an overheated real estate market almost guaranteed a future banking failure.

In addition to a mountain of defaulted loans, GulfSouth owed the U.S. Treasury $7.5 million under the TARP program.  Under the terms of the Capital Purchase Program, the Bank made four payments to the U.S. Treasury totaling $681,300 and then defaulted on its payment obligations.   The last payment made to the U.S. Treasury for the TARP funds was made during June 2010.

GulfSouth had also been under regulatory scrutiny since June 2010 when it signed a Consent Order with the FDIC under which the Bank agreed to institute a wide array of remedial measures related to financial and managerial controls and to raise additional capital.  Ultimately, the Bank was unsuccessful in its efforts to recover from bad lending policies and weak property markets and wound up being closed by the Florida Office of Financial Regulation.

At June 30, 2012, GulfSouth had total assets of $159.1 million and total deposits of $151.1 million.

In addition to assuming all deposits of GulfSouth, SmartBank also agreed to purchase all of the assets of the failed Bank. SmartBank discussed their first acquisition of a failed bank in a press release.

“We welcome GulfSouth Private Bank clients to the SmartBank family,” said Billy Carroll, President and CEO of SmartBank. “We are excited and committed to locally serving our new clients in the Destin area with the same level of exceptional service and responsiveness that we have built the SmartBank name upon. Our strong capital position and successful past performance helps ensure our commitment to be there for our clients today, tomorrow and for many years to come.

SmartBank organized in 2006 and is headquartered in Pigeon Forge, Tennessee with 4 locations across East Tennessee.

SmartBank’s results during its first five years have proven a successful execution of its strategic plan. SmartBank reported strong earnings in 2011 along with a healthy capital and excellent asset quality. Recruiting the best people, delivering exceptional client service, strategic branching and a conservative and disciplined approach to lending have all given rise to SmartBank’s success.

“This is the first FDIC-assisted transaction that we have completed and we look forward to serving clients in the Florida market. Our team will work hard to make this a seamless and successful transition for GulfSouth Private Bank clients,” said Carroll.

SmartBank is a full-service bank with assets of approximately $340 million serving clients in Sevierville, Pigeon Forge, Gatlinburg and Knoxville, TN and four locations in Florida including Destin, Pensacola, Fort Walton Beach and Santa Rosa Beach.

The cost to the FDIC Deposit Insurance Fund for the failure of GulfSouth Private Bank is $36.1 million.  GulfSouth is the nation’s 44th banking failure of the year and the 6th in Florida.