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Marine Bank wins a victory as state regulators back off

STORY BY EILEEN KELLEY, (Week of January 26, 2012)

They are places where people are a name and not a number – places where, historically, members of the community could come in, sit down, meet the president, and walk away with a small loan.

But community banks in Florida and across the country are seeing their ranks rapidly dwindle.  Just 200 community banks currently are left in Florida.

Vero has just one, Marine Bank & Trust, headquartered on Beachland Boulevard.

For five days over the course of two weeks, Marine Bank officials and their attorneys fought to defend the institution from the notion that it is failing, or could fail.

Of Florida’s 200 community banks, 40 percent are on the danger list with the Federal Insurance Deposit Corporation.  Marine is not on that list, and its fight in federal court is an attempt to stay off it.

While the judge is not expected to render a decision for several months, Marine won an interim victory last week when the state regulatory agency that oversees state-sanctioned banks decided to drop its charges against Marine Bank.

A hearing had been scheduled for this past Monday. State charges were similar to the federal allegations, claiming Marine Bank was under capitalized and needed to come up with additional capital.

“It’s nice to see that common sense has finally entered the process,” said Marine Bank President and CEO Bill Penney, who believes in the end his bank will survive.

“I believe a growing segment of our population will always choose to do their banking at a local community bank like Marine Bank, where, to borrow a "Cheers" phrase, "Everybody knows your name,’” said Penney over the weekend.

Penney said the bank continues to attract new customers.  “They tell us they are fed up with the impersonal lack of service and never-ending fees from the big banks,” he said. “They do appreciate being a name rather than a number and speaking directly to the decision makers at Marine Bank. The shop local and bank local trend has never been stronger.

“We continue to improve the performance of the bank as our non-performing loans are declining and our capital ratios are increasing,” said Penney. "In fact our capital position right now is adequately capitalized per the regulatory definition.”

Still, when it comes to bank regulators applying tougher standards than years ago, community banks across the country are under siege, say Marine Bank attorneys.

Highlighting the five-day hearing that concluded last week was a last-minute decision by Judge Richard Miserendino to allow Marine Bank to question Thomas Dujenski – the regional FDIC director who oversees Florida’s banks as well as banks in six other states in the region – about his efforts to get Florida banks to roll over and be taken over by other banks if they cannot come up with more capital under stringent deadlines.

When questioned about the higher capital requirements set on Marine Bank, Dujenski often stumbled over his words.  On more than one occasion, the judge took Dujenski to task and told him to pay attention to the question and answer bank lawyer George Igler.  At one point, the judge even took over and began questioning Dujenski.

“He was using buzz words and parroting what he was trained to do,” said Igler after the hearing wrapped up.

The FDIC’s litigators who have taken Marine Bank to task after years of what appeared to be a good-working relationship and issuing the bank healthy marks appeared increasingly irritated as the hearing progressed.

At the start of the hearing, there was no mention of a merger and in fact federal litigators tried to downplay the possibility, saying all the FDIC was trying to do was to help Marine Bank become healthy again.

But Dujenski said during his testimony that raising capital may not be enough.

In a rather casual manner, Dujenski threw out the words, “They could seek a merger.”

When Marine’s attorney Igler asked if Marine Bank should seek a merger, Dujenski then said the bank should look at all of its options.

Marine Bank’s attorneys assailed the FDIC, saying that what were once considered adequate capital ratios by bank regulators are now considered poor.  That approach, the lawyers said, has had a crippling effect on banks across the state and the nation.

For instance, in 2003, three community banks failed in Florida. None failed in 2005 and 2006 when banks were lending at a rapid pace. In 2007, just three failed in Florida.

Not until after the housing crash and recession was well under way did community banks come under siege for not having enough capital. In 2010, 29 community banks failed across the Sunshine State.  Last year, there were a total of 13 bank failures in Florida. The vast majority of all bank failures are community banks.

“The events over the last few years are a reminder that ‘well capitalized’ banks do not really have that much capital in terms of hard dollars, and capital can disappear very quickly in tough economic times,” states a report prepared for a conference of state bank regulators in the fall of 2010.

“Community banks have the added risk of concentrated loan portfolios. While this is a natural phenomenon for community banks, management will need to find more effective strategies for managing capital and funding beyond the levels in the current period. Looking at capital ratios is too static to be helpful in a rapidly changing financial environment.”

As painful as the hearing and FDIC criticism has been to Penney, board members and the bank’s overall reputation, Penney expressed relief that Marine was able to air its side of the story during the hearing.

“All we wanted was an opportunity to tell our story to an independent third party,” he said.  “We finally got that opportunity in the hearing and our story was very compelling. I am very comfortable with our position. We now await the judge’s decision and we are prepared to abide by his ruling.” 

Penney said the bank also will roll out a new capital offering  soon to position itself to prosper as the economy recovers.