Sunshine State Community Bank, Port Orange, Florida, Collapses

Sunshine State Community Bank, Port Orange, Florida, was closed today by the Florida Office of Financial Regulation, which appointed the FDIC as receiver.

Sunshine was a five branch bank which opened in mid 2000.  During the real estate boom of the early 2000’s, the Bank rapidly expanded its assets, growing from $20 million in 2000 to over $160 million in 2006.

Florida was one of the states that experienced the biggest collapse in real estate values as the housing bubble collapsed.  The result was catastrophic for Sunshine as loan defaults soared.  Sunshine had a troubled asset ratio of 319% based on the latest financial statements.  Banks with a troubled asset ratio of greater than 100% usually fail and Sunshine was no exception in this regard.  Sunshine Bank received a Cease and Desist Order on September 21, 2009, citing “unsafe or unsound banking practices”.

Sunshine troubled asset ratio - courtesy

The FDIC, acting as receiver, sold failed Sunshine to Premier American Bank, N.A., Miami, Florida.  Premier Bank will assume all deposits of Sunshine on which it will pay the FDIC a premium of 0.50%.

All five branches of Sunshine will reopen as usual on Saturday as branches of Premier Bank.  Depositors of Sunshine will have full access to their money over the weekend by writing checks or using debit cards or ATMs.

Sunshine State Community had total assets of $125.5 million and total deposits of $116.7 million at December 31, 2010.  Premier Bank agreed to purchase all assets of failed Sunshine Bank without entering into a loss-share transaction with the FDIC.  Typically, the FDIC offers loss protection on a failed bank’s assets in order to attract bids by potential buyers.  The lack of a loss share agreement may indicate heightened aggressiveness in bidding for failed banks based on a perception of recovery in real estate values by the acquiring banks.

Sunshine State Community Bank

Premier American Bank has made three previous acquisitions of failed banks, including Peninsula Bank in June 2010, and Florida Community Bank and Premier American Bank in January 2010.  Premier American Bank was newly chartered in 2010 and is a subsidiary of Bond Street Holdings, LLC, Naples, Florida.  Bond Street Holdings was allowed to establish a new national bank for the express purpose of purchasing failed banks.  Bond Street was capitalized with over $400 million raised from private investors.

As the FDIC struggled to find healthy banks suitable or capable of acquiring failed banks, it has allowed private investors to acquire failed banks.  Private investment groups are expecting a handsome return on their investment if property markets and the economy recover.  In addition, the FDIC provides generous loss protection to the private purchasers of failed banks through loss-share transactions.

Premier American has now acquired over $1.6 billion of failed bank assets from the FDIC.   Losses on the acquired assets are very limited due to loss-share transactions with the FDIC on previous acquisitions.  Premier American has become one of the largest banks in Florida by acquiring failed banks.  Premier is probably one of the safest banks in the country as well, due to its initial capitalization and loss protection agreements with the FDIC.  At some point, when Premier decides to go public, the original investors will likely reap a huge return on their original investment.

The closing of Sunshine will cost the FDIC Deposit Insurance Fund $30.0 million.   Sunshine is the 15th bank to fail this year and the second banking failure in Florida.

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