Key West Citizen - 03/17/2010
Federal regulators have issued a directive that Key West Bank must be merged or acquired by another financial institution because it is so severely undercapitalized, mostly as a result of mortgage defaults.
The corrective action directive issued Feb. 22 by the Office of Thrift Supervision gives the bank 30 days to raise more capital or be acquired before it is placed into receivership. The office is a primary regulator of all federal and many state-chartered thrift institutions.
Marva Green, chairwoman of the bank’s board of directors, said it already has voted to accept the receivership if a buyer cannot be found by next week’s deadline. She said the bank has been contacted by a couple of financial institutions, but declined to name them.
She said the bank’s board will remain in place until another bank takes over.
With one branch on Whitehead Street in Key West, the bank still has good liquidity and there is no danger to deposits, which also are insured by the Federal Deposit Insurance Corp., Green said.
Documents from the Office of Thrift Supervision characterized the bank as “critically under-capitalized” and not in compliance with standards required by the Home Owners Loan Act.
Key West Bank also has not been able to comply with stipulations laid out in a cease-and-desist order issued in November 2009. Findings in that document state that Key West Bank was operating:
• Without an adequate business plan;
• With a heavy reliance on short-term, potentially volatile deposits as a source for funding longer-term investments;
• With inadequate allowance for loan and lease losses;
• With an excessive concentration of interest-only and nonresidential real estate loans; and
• With inadequate earnings to fund growth and augment capital, among other deficiencies.
Green said the downturn in the real estate market is mainly to blame for the bank’s under-capitalization.
“What has brought us to this place is the unrealized losses because of the drop in the real estate market,” she said, “and people able to pay their mortgages that have decided to do a strategic default. That means you’re able to pay your mortgage but you decide that, because the market value of the real estate is less than the mortgage, you decide to walk away and leave it with the bank.”
Chief Financial Officer Gary Sechen said the bank had $5.9 million in mortgage-related losses in 2009. President and CEO Phil Hogue is out of town and could not be reached for comment.
Key West Bank has roughly $88 million in assets and $67.6 million in deposits, Sechen said.
It is the third local financial institution to face sanctions from federal regulators in the past year.
The Keys Federal Credit Union board voted to place the credit union in voluntary conservatorship with the National Credit Union Administration in September 2009. The regulatory agency has declined to comment on the current state of the credit union, which dissolved its board and terminated a number of its chief executive officers after the takeover.
In November, Orion Bancorp branches throughout Florida, including locations in Key West, Marathon and Islamorada, were seized by regulators and the bank was acquired by IberiaBank of Lafayette, La.
