Thursday, January 3, 2019

In Memoriam:
Florida Community Bank, N.A.

It's uncommon for someone to mourn the disappearance of a banking company.  It is probably even rarer to eulogize one.  

But yesterday, FCB Financial Holdings, Inc., the parent company of Florida Community Bank, N.A. (FCB) - a $12.4 billion, 51-branch Florida bank - became part of Synovus Financial Corp. of Columbus, Georgia.  The $2.9 billion acquisition was announced on July 24, 2018.  The transition of FCB customers, systems, and trade name is expected to occur in the second-quarter of this year.

What made FCB Financial Holdings, Inc. special, was not only the company's very talented management team and a visionary board of directors, but also the distinctive place it will occupy in the history and evolution of the Office of the Comptroller of the Currency's (OCC's) national bank chartering policies.

You see, the original name of Florida Community Bank's parent company was Bond Street Holdings, LLC.  It was through Bond Street Holdings, LLC, on January 22, 2010, that an OCC national bank "shelf charter" was put into use for the very first time.

 OCC Approves First Use of “Shelf Charter” to Acquire Failed Bank
 WASHINGTON — The Office of the Comptroller of the Currency announced today it has approved the first use of a “shelf charter” for the acquisition of a failed bank, allowing Bond Street Bank, National Association, to acquire a Florida bank that was placed in receivership today.

The “shelf charter” is a new mechanism that involves the granting of preliminary approval to investors for a national bank charter. The charter remains inactive, or “on the shelf” until such time as the investor group is in a position to acquire a troubled institution. By granting the preliminary approval, the OCC expands the pool of potential buyers available to buy troubled institutions, and in particular the new equity capital available to bid on troubled institutions through the Federal Deposit Insurance Corporation’s bid process.

Bond Street Bank, National Association, was granted preliminary approval as a shelf charter on October 23, 2009. Today, the OCC granted final approval for the bank to establish Premier American Bank, National Association, which acquired Premier American Bank, a state-chartered bank that was closed today by the Florida Department of Financial Services, Division of Banking. The final approval is subject to various conditions to ensure the safe and sound operation of the new bank.

The national bank "shelf charter" was then considered a novel use of OCC's bank chartering authority to help meet the need to deal with a large (and growing) failing bank pipeline and to address a scarcity of failed bank bidders --- both situations being unfortunate consequences of the financial crisis that started in 2007.

As the financial crisis unfolded, bank failures were piling up:

2008:    25
2009:   140
2010:   157
2011:     92
2012:     51
2013:     24

Many, perhaps a majority, of existing banks were sidelined from the FDIC failed bank auctions, since they were nursing their own financial wounds from the effects of the financial crisis.  They were generally thinly capitalized relative to their risk profiles and/or were operating under disqualifying regulatory enforcement actions, or simply did not want to participate in the auctions given the prevailing financial conditions.

How Did it Work Out?

Bond Street Holdings, LLC had a $740 million war chest, largely private equity capital, that was ultimately deployed to capitalize eight failed bank acquisitions and two traditional acquisitions in Florida.  Along the way, the bank permanently adopted the trade name of one of its failed bank acquisitions - Florida Community Bank.

That inorganic growth, coupled with ongoing organic growth initiatives, created one of the largest banks headquartered in the State of Florida in the space of only nine years.

At the outset, the bank supervisory challenge for the OCC was how to properly supervise this new breed of national bank.  Knowing that Bond Street Holdings, LLC had an impressive cache of available capital to deploy, the overarching bank supervision objective was to help ensure that this new national bank didn't contract a case of institutional indigestion from this "all-you-can-eat" buffet of failing banks.

The bank supervisory emphasis was on promoting smooth acquired bank integrations; establishing a scalable and effective enterprise risk management architecture; and monitoring the bank's strategic direction (as being a successful bidder at a FDIC failed bank auction is more opportunistic than otherwise).

The blessing, during the time I spent with them as their regulator, was bank management and a Board of Directors who were on the same wavelength with the OCC.  Although there were occasional disagreements, it was the shared goal of operating a safe, sound, and prosperous bank that framed those discussions.

Now that this first national bank "shelf charter" has ridden off into the sunset, it's good to reflect on our experience.  What made it work in this case, I attribute to a form of philosophical kinesthesia.  That "sixth sense" of experienced bankers and seasoned regulators knowing how far to take things, without taking them too far.

In this case, the combination of a creative and prudent national bank chartering policy, solid ground-level bank supervision, private-sector initiative, top-notch banking talent, and ample capital combined to create a positive and beneficial end-result.  A solid win-win for all concerned and an undeniable success for a then-novel use of OCC's bank chartering authority.

A Template for the Future?

The OCC has a similar opportunity with the proposed national bank fintech charter.  While the legal and regulatory policy framework is important (and a critical prerequisite), the quality of execution will be the key to the fintech charter's ultimate success or failure.

As the late H. Joe Selby, a national bank examiner and once Acting Comptroller of the Currency, told me (in his signature condescending tone), "Mr. Lindhart, remember: Operations is policy."