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Charlie Conoley never wanted to be a banker, much less start his own bank.
But the high unemployment days of the early 1980s pushed the then-engineer graduate into the industry. And an offhand comment at a party in 1998 led to a meeting with a consultant who helped bankers start their own banks.
Now, more than a decade into founding Bradenton-based Horizon Bancorp Inc., Conoley is doing something else he never thought he would do: Fight federal regulators in an all-out battle for bank survival.
The tussle, between publicly traded Horizon and the Federal Reserve, has both local and national implications.
Locally, if Horizon loses the fight and regulators shut it down, it would become the 13th Gulf Coast-based community bank to fail since 2008. The $200 million-asset bank has 46 employees who work out of three branches in Manatee County and a fourth branch in Hillsborough County.
The national implications of a Horizon failure are also surprisingly large, especially for a community bank that lost $7.4 million last year and isn't even in the top 20 in assets for Gulf Coast community banks. That's because through a series of shrewd moves Conoley made nearly a decade ago, Horizon has become one of the leading originators of U.S. Department of Agriculture loans in the Southeast.
Indeed, the bank is so good at the unglamorous yet complicated niche, it was one of 20 lenders nationwide invited to attend a national conference in Dallas late last year on how to obtain more USDA loans. “It's not like another bank could start [these loans] tomorrow and be effective,” says Conoley.
The Federal Deposit Insurance Corp., meanwhile, handed Horizon a prompt corrective action order on March 4. The order cited the bank's losses, nonperforming loans and low capital levels. It required Horizon to raise its capital levels or find a buyer within 45 days — a timeline that ends April 19.
The dispute between Horizon and the Fed stems from that order. Specifically, the bank's disagreement with regulators is over accounting methods used to figure out loan-loss reserves.
Conoley says that number should be based on Securities and Exchange Commission guidelines, since the bank is publicly traded. He thinks it should be about $3.5 million, which is the amount the bank started to raise last September.
The prompt corrective action from the Fed doesn't specify an amount the bank needs to raise, but Conoley believes it's more than $5 million. The bank president has appealed the order through the Fed's Atlanta office.
“We don't think that order is valid,” Conoley says. “It's almost like extortion.”
Federal Deposit Insurance Corp. spokesman David Barr declined to comment on the bank or the case, citing agency policy to not publicly discuss active cases. Officials with the Fed in Atlanta couldn't be reached for comment.
If that wasn't enough, Horizon just recently solved another priority crisis: A $1.1 million past due loan it had with Parrish-based 1st Manatee Bank.
Conoley grew up in Indiana and graduated from Purdue University. He originally intended to become an engineer. “I never thought I'd be a banker,” he says.
But in 1981, the rust belt had 15% unemployment levels. So Conoley went back to school, to Indiana University, where he earned an MBA in accounting. He took a job at a failed bank in his home state, where he was a grunt in the loan workout department.
Conoley soon moved to Florida. He worked his way up in the credit and asset departments at Barnett Bank, in Bradenton and in Miami. He returned to the Gulf Coast after deciding Florida's East Coast wasn't for him.
In Bradenton, Conoley joined American Bank, which is now part of Milwaukee-based M&I Bank. He worked his way up there, too. Only this time when he rose to senior management, he began to think he could do it better than his superiors.
Then, at a cocktail party in 1998 with some friends, Conoley chatted about his own ideas for how to build a community bank. One of those friends knew a banking consultant who specialized in helping de novo banks. Within weeks, Conoley had a meeting with that consultant.
And by 1999 Horizon was a reality. Conoley and his partners decided to take the somewhat unusual step of forming a publicly traded company when they launched Horizon. Conoley says he did that because he needed qualified stock to appease regulators and all of his personal funds for the bank were tied up in retirement money.
Conoley knew the arrangement was risky. “It's still a big risk now,” he says.
Horizon was launched with more than $5 million. It raised $10 million over the next five years, mostly from board members and people Conoley calls friends of the bank.
When Horizon made it to its second year, Conoley decided to enter the world of USDA loans. He had worked on SBA loans with American Bank, and a contact he had there suggested he look into brokering and buying USDA loans, which come with a higher yield than SBA loans.
But USDA loans have certain restrictions and guidelines. The loans are only given in areas or cities with less than 50,000 people and must be for recognized businesses that pledge to hire locally. It's a complicated mix.
SBA loans, by contrast, can be obtained by an array of companies or entrepreneurs.
“[The government] doesn't' want fly-by-nights or startups,” says Conoley. “It wants established companies.”
When Horizon first started doing USDA loans, Conoley and one other banker handled the work. The duo only did loans in Florida where they could drive to the client and back to Bradenton in a day.
Now the bank has four staffers for the loans. They travel to Georgia and Alabama for clients, in addition to work in Florida.
The bank's USDA loans department is still operating amid the capital crisis and the fight with federal regulators, Conoley says. The rest of the bank is also functioning and on March 24 — 20 days after the Fed's 45-day or else action — Conoley reported there hadn't been a run on the bank.
Still, there was a time not too long ago, in November 2008, when Conoley thought he had had the solution to his capital shortage. He thought the answer was TARP, the federal bailout program for banks.
Conoley, speaking in February at a forum for community bankers hosted by U.S. Rep. Vern Buchanan, R-Longboat Key, instead lamented the lost opportunity.
“At the time [in 2008] I thought I was qualified,” Conoley told Buchanan. “But then I had an overzealous regulatory examiner and I was no longer qualified.”
Conoley sought $5 million from the government back then. He now seeks roughly the same amount of capital, only this time he will look to get it from local investors.
Conoley's confidence in his ability to raise that capital matches his certainty that regulators erred in their order against Horizon.
“I hope I'm still sitting here in a few months,” Conoley says. “When we get through this hurdle it will make us a more valuable bank down the road.”
Horizon Bank President and Chief Executive Charlie Conoley has spent a lot on his big problem the past six months: Keeping federal regulators at bay.
But while doing that, one of Conoley's little problems — a $1.1 million loan he had with Parrish-based 1st Manatee Bank — went on a big growth spurt. The loan was three months past due on March 31. The result was an unusual game of chicken between friendly competitors.
On the one side was Horizon, which borrowed the money from 1st Manatee in December 2008. Horizon sought the loan to cover itself after its previous lender, Atlanta-based Silverton Bank, began to face its own regulatory pressure.
On the other side was 1st Manatee, an institution founded by veteran local banker Thomas Hodgson in 2007. The bank loaned Horizon the money, Hodgson says, with the assumption that the economy would be in recovery mode by the end of 2009 and the loan would be paid back in full.
But Horizon's troubled loans and capital shortage prevented the bank from paying back the loan. “I put them in a bad spot,” Conoley told the Review on March 24. “I'm getting the feeling they have totally lost patience with me and I can understand that.”
Hodgson acted on those feelings March 29, when he attempted to liquidate Horizon's collateral on the loan: More than 1.5 million shares of the bank's stock. Hodgson says he planned to literally sell the shares out of 1st Manatee's office, despite the regulatory hurdles a buyer would have to go through to make that purchase.
Horizon sued to stop the sale. The shares are owned by the bank's publicly corporate entity, Horizon Bancorp Inc.
The suit was dismissed within a day when both banks came to a compromise: 1st Manatee agreed to halt the stock sale and Horizon made the first of two payments.
The first payment was for $44,000. A second payment of $60,000 is due April 19. Despite the looming battle with federal regulators, Conoley says he still intends to pay back 1st Manatee in full — a belief shared by Hodgson.
Says Hodgson: “We have all the faith and confidence that [Horizon] will make it and we will get paid.”
Horizon Bank
Company: Horizon Bancorp Inc.
Headquarters: Bradenton
CEO: Charlie Conoley
FY 2009 net revenues: $-7.4 million
Stock symbol: HZNB
Recent stock price: $0.78
52-week stock-price range: $0.41-$9.25
Price-earnings ratio (trailing 12 months): N/A
Dividend: N/A
Market capitalization: $1.38 million
Source: Google Finance
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