Another Local Bank Gets Spanked

Mike Braga at the Sarasota Herald's reporting that Community National Bank is teetering under the heavy weight of bad and questionable loans. No one's really sure how many of these institutions are going to go down, but many of us in the industry would prefer this all be over with sooner rather than later. See the link below for the whole article at the Herald.

Another Bank Is Deep Into Trouble

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.

Read the rest here.