September 24, 2010 – Florida has experienced more banking failures than any other state in the nation. Today’s failure of Haven Trust Bank Florida becomes the nation’s 126th banking failure and the twenty-fourth in Florida. Almost 20% of the nation’s total banking failures have now occurred in Florida. The only two other states with more than ten banking failures are Illinois with 15 and Georgia with 14 (see Banking Failures Spread to 28 States).
Haven Trust Bank Florida, operating under a consent order with State and Federal regulators since early 2010, was closed by the Florida Office of Financial Regulation which appointed the FDIC as receiver. The consent order had required Haven Trust to raise critically needed capital and reduce nonperforming loans. In March 2010, President and CEO Matt Greene stated that “Our team is well on its way to meeting all requirements of the order and returning the bank to good standing”. Similar to many other small undercapitalized banks, Haven Trust was unable to meet the requirements of the FDIC consent order.
The FDIC, as receiver, entered into a purchase and assumption agreement with First Southern Bank, Boca Raton Florida to assume all deposits and purchase essentially all of the assets of failed Haven Trust Bank.
Although Haven Trust Bank Florida operated as a separate institution under a different banking charter, the bank had close ties to Haven Trust Bank, Duluth, Georgia, that was closed by regulators on December 12, 2008. Haven Trust Bank Florida, was founded in 2006 and five of its 11 founders also held management or board positions at Haven Trust Bank, Duluth, Georgia.
Both banks targeted primarily Indian and other Asian small business owners and both banks had almost 30% of their total loans in risky acquisition, development and construction loans. Both banks also fueled asset growth through aggressive soliciting of brokered deposits at high rates of interest.
Excessive funding with brokered deposits is considered risky since this “hot money” can rapidly be withdrawn if another bank offers a higher interest rate on deposits. In addition, a large inflow of brokered deposits is often used to rapidly expand lending without proper evaluation of risk. The FDIC has since instituted regulations limiting the interest rates that can be paid on brokered deposits in order to limit the risks of rapid asset and loan growth associated with brokered deposits.
Haven Trust Bank Florida was started in 2006 at the peak of the Florida real estate bubble and lent aggressively, growing assets to $184 million by June 30, 2009. As Florida real estate values crashed, nonperforming loans overwhelmed Haven Trust Florida. At June 30, 2010, Haven Trust Florida had a troubled asset ratio of 346% compared to the national average of 15%.
The same strategy of rapid asset and loan growth at the failed Haven Trust Bank of Duluth, Georgia lead to massive losses for the FDIC Deposit Insurance Fund. Haven Trust of Georgia had total assets of $572 million when it was closed by regulators. The assets were of such poor quality that the FDIC was able to sell only $55 million of assets to the Branch Banking & Trust, which acquired failed Haven Trust of Duluth. The FDIC was stuck with the remaining $517 million of Haven Trust assets on which losses were estimated at $200 million – an astonishing 38% loss.
Haven Trust Bank Florida had $148.6 million in total assets and $133.6 million in total deposits at June 30, 2010. First Southern Bank did not pay a premium to the FDIC for Haven Trust’s deposits. Although First Southern Bank acquired essentially all of Haven Trust’s assets, they are protected from loss under a loss-share agreement with the FDIC on $127.3 million or 85% of the purchased assets.
First Southern Bank, founded in 1987, has five branches and is privately owned. First Southern Bancorp, the holding company for First Southern Bank, had received $10.9 million from the US Treasury’s TARP bailout fund. First Southern repaid the loan in full in June 2010, after raising $400 million of investor capital. Herbert Boydstun, chairman and CEO of First Southern Bancorp, stated that “Through their significant commitment of resources, our investors demonstrated their confidence in our strategy, which also envisioned the repayment of our TARP funds. Our capital levels are exceptionally strong, and that provides comfort during these uncertain times”.
The loss to the FDIC Deposit Insurance Fund for the failure of Haven Trust Bank Florida is estimated at $31.9 million. The FDIC noted that compared to other alternatives, the acquisition by First Southern Bank was the least costly resolution method.