U.S. Century Bank ()
A plan to prop up a struggling Doral-based bank appears to have been thwarted by an unexpected and unlikely factor: Miami’s fledging real estate boom.
U.S. Century Bank received $50.2 million in federal Troubled Asset Relief Program bailout money in 2009 but has since suffered significant losses. The bank said Wednesday that a deal led by local real estate investors to buy a 75 percent stake in the bank has been scrapped.
The transaction, inked in April, would have seen developers Jimmy Tate and Sergio Rok partner with other South Florida businessmen to inject $50 million into the bank. The investment was considered a must for U.S. Century, which is designated undercapitalized by federal regulators.
After a twice-delayed deadline to close the deal expired Dec. 31, the investor group decided to walk away rather than negotiate another closing date.
Various players in the scuttled transaction presented notably different versions of why the agreement fell through. But both noted a desire to capitalize on Miami’s frothy real estate investment landscape played a role in creating irreconcilable differences.
‘Balls In The Air’
Carlos Davila, U.S. Century’s chief executive, said it was mostly “deal fatigue” by investors inexperienced with the dynamics of dealing with heavily regulated financial institutions that ultimately killed the transaction. In particular, Davila said the investors were unwilling to wait out the drawn-out approval process of regulators vetting the proposed sale.
U.S. Century, which has $1 billion in assets, has been operating under enhanced oversight by the Federal Deposit Insurance Corp. since 2011 under a consent order the bank accepted that year.
“We’d been pending approval from the FDIC for six months,” Davila said. “For a group of investors that hasn’t been in the business of buying a bank historically, six months can look like a very long time.”
Tate, who had been leading the scuttled deal, disputed that characterization, noting the long timeline and various extensions were not necessarily what caused the agreement to collapse. More to blame was what investors had seen inside the bank during due diligence.
“There were a lot of balls in the air, unresolved issues,” Tate said, “As a condition to close, certain thresholds needed to be met, and other issues needed to be solved. I think the board kept trying to extend [the closing deadline] for a period of time to see if the issues were resolved. But collectively we realized there was no way that would happen within a short period of time.”
According to the South Florida Business Journal, which first reported on the collapse of the recapitalization deal, investors were concerned with losses in the bank’s real estate loan book, which they perceived as possibly getting worse. U.S. Century also failed to sell off its nonperforming loan portfolio, which had been one of the preconditions of the deal.
‘Back To Real Estate’
That’s where South Florida’s frothy real estate picture appears to have complicated the deal. Davila told the Daily Business Review that the bank resisted disposing of the loans in a fire sale to satisfy terms of the recapitalization deal because they are likely to have an upside in the rising market.
“We had offers for all the assets,” Davila said, “Having said that, we had a few and far between assets that we had decided not to sell if the offer didn’t make sense for the bank.”
The buoyant real estate picture wasn’t only affecting the deal from U.S. Century’s side, however. Tate said tying up the recapitalization money became increasingly unattractive, given the returns the money could have yielded if plowed into the South Florida market.
“There was a lot of opportunity lost over the past year,” Tate said. “It’s time to redeploy our thoughts and time and money back to real estate.”
Both Tate and Davila spoke cordially of each other’s efforts, and each noted they were “disappointed” and “sad” the deal failed.
“We have the highest regards for the bank team and wish them well,” Tate said.
Now, as Tate and his fellow investors turn their attention back to their core business, U.S. Century will be looking for new recapitalization opportunities.
By Wednesday afternoon, Davila said the bank had received “between 5 and 10″ investment offers. Davila noted that while, as a community bank, U.S. Century would prefer a local buyer, “our primary responsibility is to raise capital, and within that objective we have to listen to each proposal that is shown to us.”
Davila said private equity shops, regional banks and large national institutions knocked on U.S. Century’s door this week, although he declined to identify specific suitors.
Part of the sales pitch Davila is practicing on interested parties has to do with how much better the bank could be performing if it were better-capitalized and not as strictly micromanaged by federal regulators.
In the latest quarterly report as U.S. Century reported a $1.7 million loss, federal filings suggested the bank had to pay the FDIC $5.6 million in deposit insurance assessments. The exact amount is confidential but can be deduced from other line items. That number represents an expense worth nearly 60 basis points of the bank’s asset base. The FDIC levels insurance assessments on banks depending on their level of capital, and charges well-capitalized banks rates as low as 2.5 basis points of assets.
In the last quarter, U.S. Century also spent $909,000 on unspecified “consent order expense.”
“When a bank is under consent order, the FDIC rates are higher, but I look at that as an opportunity,” Davila said. “If you are a private equity firm looking at our bank, that’s a huge opportunity.”
Davila also said news accounts suggesting the bank’s credit portfolio was worsening were inaccurate.
“Some of the comments that are coming from other sources is more an issue of perception not backed by fact. Once we publish our year-end numbers, the facts will be clear,” he said. “All of our delinquency and quality indicators are significantly improved.”