by Brian Bandell (Senior Reporter, South Florida Business Journal)
May 2, 2013, 12:13pm EDT
U.S. Century Bank made a surprising return to profitability in the first quarter as it moved closer to a deal to recapitalize the bank with new investors.
The Doral-based bank remained “undercapitalized,” but it recently signed an agreement from an investor group led by Jimmy Tate and Sergio Rok that would inject $50 million in capital into the bank and purchase most of its problem loans for $90 million. The deal still needs approval from both shareholders and regulators, including U.S. Department of Treasury officials that must decide whether to grant U.S. Century Bank a large discount towards repaying the $50.2 million in taxpayer funds in accepted from the Troubled Asset Relief Program (TARP).
As of March 31, U.S. Century Bank missed 13 consecutive TARP dividend payments for a combined $8.9 million.
The bank’s performance in the first quarter certainly bought more time for the deal to be considered. U.S. Century Bank earned $129,000, compared to a loss of $1.94 million in the fourth quarter. It had $50.6 million in Tier 1 capital, almost the same amount of money it received from TARP.
The improved results occurred despite its net interest income declining to $7.8 million, from $9.1 million in the fourth quarter.
Two main factors helped the bank make it into the black. It reduced its non-interest expenses, such as operating costs, by $1.8 million to $10.5 million during the first quarter, although it still exceeded its net interest income. Its employee count declined by eight, coming in at 252 on March 31.
The other factor was a recovery from the disposal of a problem loan at above its book value. U.S. Century Bank enjoyed a recovery of $1.26 million on a loan balance that was previously charged off. The same amount was withdrawn from its fund to reserve for future loan losses and counted as profit for the bank. Without this, the bank would have lost money in the quarter.
U.S. Century Bank saw an improvement in asset quality in the first quarter, although it remained poor compared to most banks. It had $94.9 million in noncurrent loans, or 12.38 percent of total loans, and $21.6 million in repossessed property on March 31. That’s down from $98.8 million in noncurrent loans, or 12.53 percent, and $25.5 million in repossessed property on Dec. 31.
The bank sold $5 million in noncurrent loans during the first quarter, but another $4.1 million were recognized.
It held $26.7 million in reserve for future loan losses on March 31 to cover 28 percent of its noncurrent loans. Most banks keep a coverage ratio above 50 percent to give them better protection from bad loan charges.
In addition to its noncurrent loans, U.S. Century Bank had $12.9 million in loans past due by 30 to 89 days on March 31, down from $31.4 million on Dec. 31.
The bank was busy modifying previously troubled loans. It had $36.4 million in loans that underwent “troubled debt restructuring” and were current on payments on March 31, up from $24.5 million on Dec. 31. Most of that is commercial real estate.
The amount of non-performing loans at U.S. Century Bank raises a question about the deal with the Tate and Rok group. They’ve offered to pay $90 million for the bank's problem loans, but U.S. Century Bank still has considerably more non-performing loans than that on its books. Selling those loans at that price would cause the bank to write off the difference as a loss, which would offset the capital from the new investors. However, if U.S. Century Bank can sell off or otherwise reduce its amount of non-performing loans before the deal closes, that could solve the problem.
U.S. Century Bank was the 13th-largest bank based in South Florida on Dec. 31 with $1.01 billion in assets. By March 31, it was down to $950 million in assets.
It finished the first quarter with $878 million in deposits and $740 million in loans, down from $939 million in deposits and $762 million in loans at the end of the year.