A $6 million investment that a Richmond private equity fund made in a Florida bank has gone up in smoke.
Progress Bank of Florida has been dragging down the value of locally based Community Bank Investors of America’s fund for more than a year. CBIA invested in what it believed were undervalued community banks with the idea of taking a seat on the bank’s board, turning things around and reaping a profit.
But when the $110 million Tampa-based bank became the 134th U.S. bank failure this year, CBIA’s hopes for a turnaround were dashed.
“I wish we could have saved it,” said Larry Fentriss, one of CBIA’s two founders and now former chairman of the shuttered bank.
CBIA’s fund invested half of its $12.4 million to buy a 25 percent controlling stake in Progress Bank. According to CBIA’s 2009 annual report to shareholders, which was obtained by BizSense, the fund originally spent $6.2 million for 345,795 shares or about $18 per share of Progress. As of Dec. 31, those shares were worth $1 each, a $5.8 million loss on its initial investment in a little over two years.
As of Friday, those shares were worthless.
The bank was closed by the Florida Office of Financial Regulation and then taken over by the FDIC as a receiver.
Another Tampa bank, Bay Cities Bank, then purchased Progress’s assets. Regulators in August warned Progress that it needed to find a merger partner or to sell itself to another bank. Read the BizSense story here.
Fentriss said his fund worked hard to find a way to salvage the bank before regulators took it over. He said $3 million in fresh capital could have kept the doors open, but they just couldn’t get the money.
“We tried to work deals with multiple parties. We tried bank funds, other banks, wealthy individuals,” Fentriss said. “Once the banks realize the FDIC is involved, they work with them because it’s a better deal.”
Progress Bank is far from alone in the struggling Florida bank sector. It was the 27th bank failure in Florida this year, the most of any state in the union. It lost 13 banks in 2009.
Tim Anonick, the other CBIA founder and Progress’s former vice chairman, said the market in Florida was atrocious.
“It’s an unfortunate situation for our shareholders, customers and employees,” he said. “But you know, it’s a sign of the times. Especially down there.”
The failures have been driven by Florida’s real estate market, one of the worst in the country since the housing bubble burst. Progress lost $1.8 million through the first six months of the year, according to FDIC reports. It lost $8.1 million in 2009 and had tens of millions of dollars in non-performing loans.
“We saw the collateral go down 90 percent on some of our loans,” Fentriss said. Particularly on commercial loans, Fentriss said, underwater borrowers and property owners simply gave up.
“The guy just hands you the keys,” Fentriss said of some borrowers.
CBIA is now eager to move on and let its other investments make up for the loss the fund suffered on Progress.
“I’m pretty confident we can do that,” Anonick said.
Including Progress, CBIA spent a total of $10.6 million of the fund to invest in four banks including Norfolk-based Bank of the Commonwealth, Inland Community Bank in Los Angeles and Gateway Federal Savings Bank in the San Francisco area.
The CBIA fund as of year’s end had lost $8.3 million, almost three-fourths of its value. At that time, the Progress investment accounted for $5.8 million of that loss.
Fentriss said CBIA has received calls from its investors who have had a lot of questions about what the Progress failure means for the fund.
The FDIC’s protocol for bank closures leaves shareholders as the last in line in getting repaid from any leftovers.
“Shareholders are the lowest priority, so it’s not likely they’ll get anything back,” said LaJuan Williams-Young, a spokesperson for the FDIC. “There won’t be anything left to share with them.”
The two branches of Progress Bank opened yesterday as branches of Bay Cities Bank.
Michael Schwartz covers banking for BizSense. Please send news tips to [email protected].
A $6 million investment that a Richmond private equity fund made in a Florida bank has gone up in smoke.
Progress Bank of Florida has been dragging down the value of locally based Community Bank Investors of America’s fund for more than a year. CBIA invested in what it believed were undervalued community banks with the idea of taking a seat on the bank’s board, turning things around and reaping a profit.
But when the $110 million Tampa-based bank became the 134th U.S. bank failure this year, CBIA’s hopes for a turnaround were dashed.
“I wish we could have saved it,” said Larry Fentriss, one of CBIA’s two founders and now former chairman of the shuttered bank.
CBIA’s fund invested half of its $12.4 million to buy a 25 percent controlling stake in Progress Bank. According to CBIA’s 2009 annual report to shareholders, which was obtained by BizSense, the fund originally spent $6.2 million for 345,795 shares or about $18 per share of Progress. As of Dec. 31, those shares were worth $1 each, a $5.8 million loss on its initial investment in a little over two years.
As of Friday, those shares were worthless.
The bank was closed by the Florida Office of Financial Regulation and then taken over by the FDIC as a receiver.
Another Tampa bank, Bay Cities Bank, then purchased Progress’s assets. Regulators in August warned Progress that it needed to find a merger partner or to sell itself to another bank. Read the BizSense story here.
Fentriss said his fund worked hard to find a way to salvage the bank before regulators took it over. He said $3 million in fresh capital could have kept the doors open, but they just couldn’t get the money.
“We tried to work deals with multiple parties. We tried bank funds, other banks, wealthy individuals,” Fentriss said. “Once the banks realize the FDIC is involved, they work with them because it’s a better deal.”
Progress Bank is far from alone in the struggling Florida bank sector. It was the 27th bank failure in Florida this year, the most of any state in the union. It lost 13 banks in 2009.
Tim Anonick, the other CBIA founder and Progress’s former vice chairman, said the market in Florida was atrocious.
“It’s an unfortunate situation for our shareholders, customers and employees,” he said. “But you know, it’s a sign of the times. Especially down there.”
The failures have been driven by Florida’s real estate market, one of the worst in the country since the housing bubble burst. Progress lost $1.8 million through the first six months of the year, according to FDIC reports. It lost $8.1 million in 2009 and had tens of millions of dollars in non-performing loans.
“We saw the collateral go down 90 percent on some of our loans,” Fentriss said. Particularly on commercial loans, Fentriss said, underwater borrowers and property owners simply gave up.
“The guy just hands you the keys,” Fentriss said of some borrowers.
CBIA is now eager to move on and let its other investments make up for the loss the fund suffered on Progress.
“I’m pretty confident we can do that,” Anonick said.
Including Progress, CBIA spent a total of $10.6 million of the fund to invest in four banks including Norfolk-based Bank of the Commonwealth, Inland Community Bank in Los Angeles and Gateway Federal Savings Bank in the San Francisco area.
The CBIA fund as of year’s end had lost $8.3 million, almost three-fourths of its value. At that time, the Progress investment accounted for $5.8 million of that loss.
Fentriss said CBIA has received calls from its investors who have had a lot of questions about what the Progress failure means for the fund.
The FDIC’s protocol for bank closures leaves shareholders as the last in line in getting repaid from any leftovers.
“Shareholders are the lowest priority, so it’s not likely they’ll get anything back,” said LaJuan Williams-Young, a spokesperson for the FDIC. “There won’t be anything left to share with them.”
The two branches of Progress Bank opened yesterday as branches of Bay Cities Bank.
Michael Schwartz covers banking for BizSense. Please send news tips to [email protected].
Buying banks with large mortgage portfolios in non-recourse states, wow. Its hard to imagine CBIA was able to raise ANY money with an investment strategy like that. Well, maybe not. 90% of the private equity community still seems to think real estate is a good investment due to all the smoke coming from the NAR.