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First Priority Bank Is Seized

Herald-Tribune photo by CHIP LITHERLAND

Florida Highway Patrol state troopers stand guard at the front desk at the First Priority Bank location in downtown Sarasota on Friday. First Priority Bank was closed Friday by state regulators, and SunTrust will assume the insured deposits of the failed bank.

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John Hielscher

Sarasota Herald-Tribune

Published: August 2, 2008

Crippled by millions of dollars in bad loans, First Priority Bank was seized and closed Friday by banking regulators.

SunTrust Bank will assume First Priority's insured deposits, and its six offices will reopen Monday as SunTrust.

First Priority becomes the nation's eighth bank failure of 2008, and the first in Florida since March 2004. It is the first state-chartered bank to go under since 1992.

The Bradenton bank's problems speak to the post-boom hangover facing many lending institutions in this region and throughout Florida. Critics have complained that First Priority's former officers and directors failed to properly vet borrowers during the boom, and that they approved an overexuberant expansion at a time when caution was needed.

State and federal banking regulators took over the Bradenton-based bank after the close of business on Friday. The Federal Deposit Insurance Corp. was appointed receiver to liquidate its assets.

The collapse came as little surprise; the bank's bad loans and losses have spiraled since last year.

"The fact that the FDIC is named as receiver, the bank was essentially bankrupt," said Tramm Hudson, a Sarasota banking consultant.

Bank analyst Ken Thomas of Miami wondered what took the regulators so long. "Why wasn't this, pardon the pun, a priority for the FDIC?" he said. "This should have been done a while back."

FDIC spokesman David Barr confirmed that First Priority was one of the 90 banks on the agency's secret "problem list."

The bank was in such bad shape that the FDIC will have to take on almost all of its loans, including $43 million worth that borrowers are no longer making payments on.

Barr estimates the First Priority failure will cost $72 million to the insurance fund, paid for by bank premiums, not taxpayer dollars.

SunTrust paid nothing for the $214 million in insured deposits and offices from Bradenton to Venice. Typically, a bank will pay up to a 4 percent premium for deposits in a government takeover.

The FDIC requested bids this week from potential buyers, Barr said, and SunTrust's offer was the cheapest way to resolve the failure.

Some customers took their chances on First Priority's survival, and they could wind up losing money. About $13 million in uninsured deposits are held in 840 accounts. Those customers must call the FDIC to find out what happens next.

The agency next week will mail out 50 percent of the uninsured balances to those customers.

For other bank customers, it is really business as usual today.

They can continue to write checks, and to use their First Priority debit and credit cards. Loan customers should continue to make their payments. They will automatically become customers of SunTrust, and their accounts will remain insured.

Troopers from the Florida Highway Patrol were stationed at all six bank offices late Friday in case of problems.

The $259-million-asset bank was felled by an aggressive lending strategy that put tens of millions of dollars into the hands of borrowers, including real estate developers, who could not repay.

Some of those customers have defaulted on loans and created problems at other local banks, including one who was indicted this week as part of an $82 million loan scheme.

First Priority's demise seemed apparent in its June 30 financial condition report. It lost $9.4 million in the second quarter, bringing its half-year loss to $12.4 million. It lost $19 million in 2007.

More critically, its capital had evaporated to just $1.5 million, down from $32 million in one year. It no longer had a safety net to absorb more bad loans.

On June 25, the FDIC slapped the bank with an order, known as a "prompt corrective action directive," giving it 30 days to replenish its capital. That order, made public on Friday, said the bank could sell more stock or take in cash from its board of directors and shareholders.

Apparently, neither was accomplished.

The bank dumped founding president George Najmy in February and replaced him with Kevin Hale, a well-regarded Naples banker who was charged with cleaning up the bank's loan problems and finding fresh capital to keep it afloat. It did not happen.

Regulators from the FDIC and the Florida Office of Financial Regulation had closely monitored the bank for months.

"We've had them in and out of the bank on an every-other-day basis," bank spokesman Frank Knautz said hours before the failure was announced.

The bank, which opened in December 2003, lost money in every year but one.

Some stockholders had earlier described the bank as a lender of last resort, where borrowers who were turned down at other banks could find their funding.

Stockholders were wiped out by the failure.

SunTrust looks to come out a winner. It gains new customers with more than $200 million in deposits plus four offices in Manatee County, its smallest market share in the region.

Hudson was glad SunTrust is stepping in.

"They are a very good bank," he said. "This is good for the community of Bradenton, good for the customers and good for the employees."

SunTrust is bound to close some First Priority branches that are near its own.

Some employees may lose their jobs. First Priority had cut its work force by 16 people, or 20 percent, in February.

SunTrust also will pay for about $42 million of cash, cash equivalents and securities.

A subsidiary of Beal Bank of Plano, Texas, will buy $14 million in First Priority assets.

The FDIC is stuck with the rest, including the worst of the loan portfolio.

First Priority officials were not commenting on the FDIC takeover of their bank.

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