It's hard to think of a tougher challenge than for a Florida bank to raise capital today. But Bank of Florida Chief Executive Officer Michael McMullan has been here before.
Editor's Note: After the Review went to press on this story, Bank of Florida announced Nov. 19 that it postponed its common-stock offering. In a statement, Bank of Florida Chief Executive Officer and President Michael McMullan said: “Recent negative industry announcements, including unexpected third quarter losses reported by Florida-based bank holding companies that raised capital in the third quarter, have adversely impacted the capital raising environment. Although we had some positive discussions last week, it appears that public investors are back on the sidelines for the very near future.” McMullan says the bank will focus on other undisclosed capital-raising strategies.
If you're going to try to raise money with a secondary stock offering, it better be enough to last through a worst-case scenario.
Consider the challenges facing Michael McMullan, chief executive officer and president of Bank of Florida Corp., a Naples-based company with assets of $1.5 billion spread among three subsidiary banks in Tampa, Naples and Fort Lauderdale.
McMullan is striving to raise at least $71 million in capital in the next few weeks with a secondary common-stock offering. Depending on the price of the stock, Bank of Florida could raise as much as $134.6 million, according to the registration statement filed with the Securities and Exchange Commission. This will be the bank's 10th capital raise in as many years.
Among the hurdles to overcome:
• The bank-holding company's bad loans have grown to nearly12% of total loans;
• Regulators have demanded its subsidiary banks boost capital by year's end or face further sanctions;
• It recently wrote off $62 million in goodwill for earlier acquisitions;
• Its stock has fallen below $1.50 as existing shareholders face dilution of their holdings;
• Francis Rooney, its biggest shareholder, resigned from the board this summer for undisclosed reasons (Rooney still owns 7.2% of the company's stock and couldn't be reached for comment).
Since the company started operations in August 1999, Bank of Florida has incurred cumulative losses of $104 million.
Things could get worse because half the company's total loans are tied to commercial real estate. In a worst-case, “burning-down-the-house” scenario, the company says it could suffer credit losses of as much as $131 million over the next two years. McMullan acknowledges the challenge at hand. “It's all hands of deck,” he says.
Bank of Florida is joining a crowded field vying for investor money. Naples competitor Orion Bank failed to raise capital before state regulators shut the bank Nov. 13. TIB Financial, another Naples competitor, is also seeking to raise capital. Philadelphia-based private equity fund Patriot Financial Partners recently sought regulatory permission to buy up to 19.9% of the stock of TIB Financial, parent of TIB Bank, according to a filing with the Federal Reserve Bank of Philadelphia.
Law restricts McMullan to what he can say to promote the company while the offering is ongoing.
A presentation to investors filed with the SEC recently suggests the current low stock price may be a good opportunity for new investors, however. The stock (symbol: BOFL) recently closed at $1.14, but it traded as high as $20.68 in the first quarter of 2007.
In filings, Bank of Florida says its well-tested team of managers has plenty of experience from previous bank crises to deal with problem loans. For example, McMullan has 35 years of banking experience, including 17 in Florida. “We've worked out problem banks,” McMullan says.
The bank-holding company says it has identified all the bad loans and has established a team of bankers to work with struggling borrowers. On the residential real estate front, at least, the worst may be over because the number of sales has been rising in many Florida markets, McMullan estimates.
“The year-over-year numbers are compelling,” he says. McMullan says commercial real estate didn't reach epic bubble proportions that the residential market experienced.
Meanwhile, the demographics of Florida remain appealing. It is the fourth-largest state in the country with 19 million people and its 2008 economy was the fourth largest in the country and the largest in the Southeast.
In its registration statement, Bank of Florida says it has an opportunity to take business and talented bankers away from larger regional and national banks that have been forced to restrict lending in Florida. It points to the opportunity to grow its deposits in the state as a result of market disruption.
To get through the possibility of a worst-case scenario, the bank plans to use the proceeds from the stock offering to boost capital by $30 million for its Naples bank (Bank of Florida — Southwest), $27 million for its Fort Lauderdale bank (Bank of Florida — Southeast) and $13 million to $14 million for its Tampa bank (Bank of Florida — Tampa Bay).
McMullan says he's heartened by recent successful secondary offerings, such as the one by Stuart-based Seacoast Banking Corp. of Florida in August, and the fact that underwriters Raymond James, Sandler O'Neill, Stifel Nicolaus and Allen & Co. have lined up to sell the offering.