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Exclusive: Feds discourage smaller banks

Hundreds of failed institutions force philosophical changes.

May 29, 2012


When Naples-based Orion Bank collapsed under a huge pile of bad debt in 2009, it left a big hole in Southwest Florida’s lending industry.

But Orion’s implosion – and the failure of six other local banks after real estate prices went through the floor starting in 2006 – was only the first part of a trend that would transform the landscape of the local lending industry.

Now, bankers say, the market’s dominated by bigger, better-capitalized players that are better able to deal with the tough new federal regulations and massive paperwork demands that followed the excesses of the boom.

Only Orion saw its executives punished criminally: CEO Jerry Williams is scheduled for sentencing June 12 on federal bank fraud charges while two other executives and a borrower are serving federal sentences for related transgressions.

But the rest of the industry is feeling the effects as regulators ratchet up the requirements to make sure the cycle doesn’t repeat.

“The requirement of more capitalization to ‘strengthen’ the banking industry, that’s forcing a lot of hands,” said Mark Morris, a former bank president who’s now a real estate agent with Sands Commercial Group at VIP Realty in Fort Myers.

Now, he said, “You’re seeing the disappearance of the true community bank. The smallest community bank is going to be a billion dollars.”

But the trend may be inevitable, said Gary Tice, chairman and CEO of Naples-based First National Bank of the Gulf Coast. “It’s a result, quite frankly, of the economy and what happened to banks — and regulators aren’t going to let that happen again.”

Lafayette, La.-based IberiaBank was dealt most of Orion’s deposits and assets by the Federal Deposit Insurance Co. and customers at Orion’s 23 branches became Iberia’s. Two months ago, Iberia acquired Florida Gulf Bank.

At Orion, Short said, the first reaction of many depositors was to take their money and run when the change occurred, said Keith Short, the bank’s Southwest Florida market president.

“A part of it was that Orion being nonpublicly traded was less transparent,” Short said. “A lot of clients didn’t know what was happening. They couldn’t really find out was going on with their institution.” But, he said, depositors came back as they checked out publicly traded Iberia.

Short noted that Iberia came into this market during “dark days, particularly for Lee County.”

But as the area slowly recovers from the recession, he said, stronger banks with the ability to lend money will be an integral part of that. Iberia has a loan portfolio of $7.5 billion.

Morris said better-capitalized banks are necessary but that he has qualms about too much consolidation.

He recalled going into a London bank in the mid-1980s. “It was a big city bank but there were only four or five big banks in the country.”

He noticed that “there was one desk with eight telephone lines” while an American bank would have had eight desks with one line each.

At a certain point, Morris said, “All you’re doing is paying and receiving. You’re not providing any service.”

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