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Business Observer Friday, Dec. 17, 2010 10 years ago

Different Directions

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The founder of a local seized bank ponders what could have been, while a banker new to the Gulf Coast muses about what's next.
by: Mark Gordon Managing Editor

REVIEW SUMMARY
Bank. Bank of the Ozarks, Bradenton, Little Rock, Ark.
Industry. Banking
Key. Bank of the Ozarks, which recently took over Bradenton-based Horizon Bank from regulators, hopes to expand in Florida and the Southeast.
At a glance. Click here for more information on Bank of the Ozarks.



The Sept. 10 failure of Bradenton-based Horizon Bank was a mere blip in the larger vortex of struggling community banks nationwide.


But the Horizon implosion resonated locally for two key reasons. One, it signaled the end of the fight for Horizon's embattled founder, Charlie Conoley. Conoley was one of the few Gulf Coast bank presidents to speak out publicly against what he considered overzealous regulatory oversight of his bank.


The failure also paved the way for Little Rock, Ark.-based Bank of the Ozarks to make its Florida debut. The $3.2 billion-asset publicly traded bank is one of the largest institutions to enter the Gulf Coast during the recession.


“I'm pretty excited about what we have in Florida,” says Bank of the Ozarks Chairman and CEO George Gleason. “We are finding things to be as expected or better.”


In an October interview, however, Conoley struck a defiant tone. He held steadfast to a belief that the bank only needed more time to work out capital and loan issues, and that it didn't pose any danger to customers. He says the bank was instead shuttered mostly because government officials wanted to get rid of any community bank that looked shaky so they could be seen as problem-solvers.


“I still have a hard time viewing this as a failed bank,” says Conoley. “I view it as a hostile takeover. A very hostile takeover.”


Added Conoley: “It didn't really matter what we did. They were going to fail us no matter what.”


A spokeswoman for the Florida Office of Financial Regulation, which compiled the Sept. 9 order to close the state-chartered bank, says the agency only takes action when its analysts deem it necessary. The OFR referred the case to the Federal Deposit Insurance Corp., which closed the bank and oversaw the transition to Bank of the Ozarks.


“OFR does not comment on the specific cases in regards to any accusations made by the bank executives,” OFR Communications Director Flora Beal wrote in an email to the Business Review.


The OFR's report on Horizon, however, pointed out several dire circumstances at the bank, including a Tier 1 capital level under 2% as of Aug. 31, a figure well below adequately and well-capitalized levels. Plus, the OFR report states the bank's total capital as of Aug. 31 was $5.34 million, or 1.15% of total assets, “making the bank imminently insolvent” under Florida law.


Now, more than three months since Horizon was shut down and Bank of the Ozarks took it over, Conoley and Gleason look ahead in different directions. Conoley even has a new job: He was hired by Parrish-based 1st Manatee Bank to run the institution's USDA loan unit — one of his fortes with Horizon. He started with 1st Manatee Dec. 13.



Hogs and Gators


Gleason, an Arkansas native with a southern drawl to match, would like to see Bank of the Ozarks go in the direction of growth, on the Gulf Coast, Florida and the rest of the Southeast.


It's on its way, too. The bank recently scouted branch locations in the Sarasota-Bradenton market and the Tampa area, says Gleason, although he declines to elaborate which bank or specifically where the company has targeted. Gleason points to a deal the bank recently closed in the metro Dallas area to buy three Wachovia/Wells Fargo branches as proof the bank is serious about branch network expansion.


Gleason also says Bank of the Ozarks hasn't ruled out more bids for FDIC-seized institutions, both in Florida and in other states it covets, including Virginia, Tennessee and Oklahoma. The bank entered South Carolina and Georgia earlier this year when it bought other failed community banks in those states.


The Horizon deal, say analysts, was particularly good for Bank of the Ozarks, which didn't pay a premium for the $164.6 million in Horizon deposits. Plus, the bank's loss-share transaction agreement with the FDIC, on $150.4 million in Horizon assets, covers the bank for at least 75% of any losses on inherited loans.


Gleason says Horizon's assets are better than he and other bank executives thought, and he thinks there's opportunity to do more loans in the Bradenton area, despite the economy. He says Bank of the Ozarks, however, won't follow Horizon's strategy of pursuing USDA and SBA loans.


“Our goal is to build long-term relationships with customers that come back year after year without other banks or agencies having to service the loan,” says Gleason. “[USDA and SBA] transactions always tend to have complications. The more partners, the more cumbersome.”


Bank of the Ozarks' relationship-over-transaction strategy seems to have worked, at least in one respect: The bank, which has 875 employees in 86 offices spread through seven states, has produced record profits nine years in a row and 12 out of the last 13 years.


Gleason, recently named a 2010 Community Banker of the Year by American Banker, bought a controlling interest in the bank in 1979, when he was 25 years old. The bank had 28 employees and $28 million in assets back then.


Gleason practiced law in Little Rock for a few years prior to banking, where he worked with a young attorney named Hillary Rodham Clinton at the Rose Law Firm. “Everyday there was an absolutely extraordinary experience,” Gleason says.



A fight looms


Conoley, meanwhile, would like to put the Horizon experience behind him.


It's a tough task, considering the failure not only put him out of a job, it also cost him $500,000 of his own money.


Conoley says his compensation with 1st Manatee will be significantly less than he made with Horizon. But the tradeoff is he will get to do basic banking and loan work, not fight regulators. “This will be a lot less stressful,” says Conoley, in a Dec. 13 interview with the Review.


And Horizon is not yet dead and buried.


Shares of the bank's parent company, Horizon Bancorporation Inc., still trade over the counter (symbol: HZNB.OB.) The price has fluctuated from three cents a share to 39 cents a share since the bank was closed, with some days of high trading volume mixed in with at least 30 days of no activity.


A fight between the bank and the FDIC also looms, over what could be $1.6 million Horizon Bancorporation receives in income tax refunds from the Internal Revenue Service. In a Nov. 24 Securities and Exchange Commission filing, Horizon says the FDIC, the bank's receiver, has staked a claim to the money. But the company, according to the filing, believes “only a portion, if any, of such refunds should [go back] to the bank.”


Conoley says Horizon's board of directors, mostly Bradenton-area entrepreneurs, is handling the matter with the FDIC. Conoley, still one of the company's major shareholders, prefers to focus on his new gig with 1st Manatee — although the Horizon defeat is never far from his mind.


Going back to work will also help ease the pain, Conoley hopes. And in the first few weeks after the closure, Conoley relied on his friends and family, who picked him up with a steady stream of phone calls.


“I sobbed like a tired old woman the first weekend,” Conoley said in October. “I was pretty down, but I got a lot of calls. That really helps the ego when you are down in the dumps.”


Political banking


Arkansas-based banker George Gleason made a decision to switch from law to banking early on in his career, when he was 25 years old.


But not before Gleason worked closely in a law practice with future First Lady Hillary Clinton for seven months. Gleason, chairman and CEO of Bank of the Ozarks, actually met Hillary and Bill Clinton when he had each one as a professor at the University of Arkansas Law School in the mid-1970s. Gleason's bank entered Florida in September when it took over Bradenton-based Horizon Bank from federal regulators.


Gleason's first job out of law school was with the now-famous Rose Law Firm in Little Rock, where Hillary Clinton was working on a study of the federal speedy trial statute through a grant. Gleason worked on the project with Clinton and although he says she was clearly smart, he didn't predict where she would go in life.


Gleason says he hasn't spoken with either Clinton in a few years, but he has met with the couple socially since they left the White House a decade ago. “We aren't on the same political spectrum,” says Gleason, “but I consider them friends.”

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