Herald-Tribune: Defunct Builder Costs Florida Bank Millions
The parent of Coast Bank of Florida will post a $17.3 million loss for 2006 as it tries to recover from a major loan crisis. The company said Friday it has added $21 million to its loan-loss reserve, $14 million of which is tied to 482 loans it made to customers of a defunct home builder.  After an "exhaustive" review of those loans, which originally totaled $110 million, Coast now believes it stands to lose $14 million at most.

"This is what the board estimated was the absolutely worse-case basis from this portfolio," said Tramm Hudson, a special adviser to Coast Financial Holdings Inc.

The board added $7 million to the loan-loss reserve to cover potential losses from the rest of the bank's loan portfolio, he said.

The result is a $13.1 million charge that comes off the bottom line.

The 2006 loss of $17.3 million, or $2.65 per share, is a stunning amount for a company of Coast's size.

The loss will erode Coast's capital base and drop it from a "well" to an "adequately" capitalized bank in the eyes of federal regulators.

The decline in capital sets Coast's book value at $8.78 per share, a key number for investors and possible buyers of the company.

Coast has hired investment banker Sandler O'Neill to explore "strategic alternatives" that could include the sale of the company.

Setting aside money for loan losses and taking the big financial hit is an important step toward addressing its problems.

"We believe that the allowance we recorded will adequately provide for any losses arising from these construction-to-permanent and related loan portfolios, while maintaining an adequately capitalized bank," said interim chairman Michael Ruffino.

Sarasota attorney Alan Tannenbaum, who represents dozens of Coast clients, said "it appears the bank is moving closer to reality as to what their exposure is," though he believes that exposure is probably higher.

The bank could lose money from borrowers who walk away from their loans, those who convert their construction loans to permanent loans, or those who want the bank to reduce the value of the loans, he said.

Coast revealed in January that those 482 loans were in jeopardy after the home builder stopped construction.

Bank officials have not named the builder, but its customers have identified it as Construction Compliance Inc. of St. Petersburg.

CCI was building homes in south Sarasota and Charlotte counties. Many of Coast's borrowers were out-of-state speculators who hoped to build and flip the homes for a quick profit.

Coast Bank filed a report with regulators last month stating it lost $4.15 million in 2006, the worst loss in its seven-year history.

The bank will file an amended "call report" reflecting the revamped numbers.

Coast Financial will submit its financial report to regulators on March 15, Hudson said.

Hudson said the $21 million loan-loss provision was a "prudent" response to its loan problems.

"We have been working very closely with bank regulators as the company addresses these issues," Ruffino said.

Coast has lost money in five of its seven years in business. The company went public in late 2003 at $12 per share, but the stock has been hammered since the loan crisis became public.

Coast fired Philip W. Coon, the head of residential construction lending who put the CCI deal together. Also fired was his wife, Melissa, who was head of retail lending.

The bank holding company's shares, which trade on the Nasdaq, were selling for $7.50 at the close of regular trading on Friday, up 7 cents.

Coast announced its loss after the markets closed.