Lender seeks to allay concern
Though Coast Bank officials are downplaying the financial turmoil brought to their business by a floundering Southwest Florida home builder, there are strong indications that the problems will grow in coming weeks. Most of the $110 million in troubled construction loans that Coast has on its books were made to out-of-state investors -- people more likely to walk away from their obligations to the bank. The fear for Coast's future was bolstered late Wednesday when the bank announced that it had hired Sander O'Neill & Partners, a New York-based investment bank, to review the company's options.

But signs point to mounting problems over loan deals
By MICHAEL BRAGA
BRADENTON -- Though Coast Bank officials are downplaying the financial turmoil brought to their business by a floundering Southwest Florida home builder, there are strong indications that the problems will grow in coming weeks.

Most of the $110 million in troubled construction loans that Coast has on its books were made to out-of-state investors -- people more likely to walk away from their obligations to the bank.

The fear for Coast's future was bolstered late Wednesday when the bank announced that it had hired Sander O'Neill & Partners, a New York-based investment bank, to review the company's options.

Coast Chairman James K. Toomey, who made the announcement rather than Chief Executive Officer Brian Grimes, said that all options were on the table: a sale, a merger or to remain independent.

Meanwhile, customers who bought homes are becoming more and more convinced that they were defrauded by a group of home-building, mortgage and real estate companies that lured them into risky real estate investments in various Florida developments during the market's boom years.

The companies involved in the deal include Seashore Real Estate, a South Carolina company that helped recruit real estate investors across the country; Construction Compliance Inc., a financially struggling St. Petersburg-based home builder that promised to build homes in Southwest Florida; American Mortgage Link, a Tampa-based mortgage company that both recruited and prepared mortgage documents for home buyers; and Coast Financial, the parent company of Coast Bank that ultimately financed the loans.

"They are all intermingled," said Joanne M. Inglese, a New Jersey resident who bought a home from CCI.

Other investors tell the same story: their credit was used to pay the building of a house. Between the broker, the bank and the builder, the house was to have been financed, built and then sold at a profit as part of an investment package.

The idea was so appealing because it required little or no upfront cash. Investors were to get a slice of the gross sales price for the use of their credit.

Only it didn't work that way after Florida's high-flying real estate market collapsed. CCI has now stopped work on the houses. Subcontractors have not been paid. They have slapped millions of dollars in liens on the home buyers.

Coast has been the most publicly visible face of the deal gone sour, only the bank's managers have not had much to say.

Grimes has said that he will not be prepared to answer questions until Coast has completed an internal investigation.

He could not be reached Wednesday for comment.

But his $676-million-asset bank issued a statement earlier this week saying that it has more than adequate capital to handle its predicament. The statement said the 482 loans it made to customers of CCI are well collateralized.

"The bank has signed loan agreements with the owners and has collateral securing each of these loans," the statement said. "Under the loan agreements, the owners are responsible for repaying the loans."

Coast's stock price rose 7 percent after the bank released its statement on Monday, closing at $9.30 on Tuesday. But investors hammered the shares again on Wednesday, pushing them to an all-time low of $8.04. More than 1.28 million shares traded hands, 23 times the three-month average.

Shares are down 50 percent from when the bank first revealed its problems to shareholders.

Not down for good

Trouble at CCI surfaced two weeks ago, when customers began complaining that they had been bombarded by liens filed by the St. Petersburg homebuilder's unpaid subcontractors.

Then last week, Coast Bank filed a report with the U.S. Securities and Exchange Commission saying that the potential collapse of an unnamed homebuilder could have a material impact on the bank's financial performance and could possibly threaten the bank's collateral.

Though Coast has declined to name its struggling partner, it is clear from dozens of conversations with the bank's customers and their lawyers that the unnamed home builder is CCI.

Neither CCI's chief executive, Jesse Battle III, nor his son, Jesse Battle IV, could be reached for comment.

The company sent a letter to customers this week that says that CCI has temporarily suspended operations.

"This does not mean we have permanently closed our doors as some rumor-mongers have suggested," says the letter signed by CCI vice president Jason Ingram.

"To the contrary, we are presently working with more than one entity to come up with a strategy for putting all our employees, subcontractors and suppliers back to work, completing all homes under contract and satisfying all financial obligations."

But the builder's customers, subcontractors and their attorneys are skeptical about CCI's ability to make good on those promises.

Fernando Cacoilo, the owner of Jodfer Land Service, started clearing and grading home sites for CCI two years ago, and the demand quickly consumed his small business.

Now he finds himself short $1 million.

He has filed 186 liens against CCI home buyers for bills of $3,000 to $15,000.

"Fifty percent of my work was from CCI because they just kept pushing, pushing, pushing," Cacoilo said.

CCI kept him busy, but the company never paid a bill in full, Cacoilo said.

Other subcontractors were strung along the same way, he said.

"As long as we kept getting a check every week, we were all OK," he said. "My dumb ass didn't pay attention to the billing."

Before the work stopped, CCI principals were driving Hummers, and construction supervisors new pickup trucks, Cacoilo said.

All the contact from customers that Cacoilo has had makes him wonder where the money went.

"I keep getting calls from homeowners that I liened: 'CCI drew $127,000 on my home, and all I got is dirt with a pad on it,'" he said.

That seems to be a widespread pattern, said Sarasota attorney Alan Tannenbaum, who expects to represent 40 or 50 buyers who will try to get their money from Coast Bank. One buyer he represents said $115,000 of the construction loan was spent and "minimal" work done.

"Typical underwriting procedures would not have allowed for that amount in the first draw," he said.

Tannenbaum said that Coast's loan agreements did not require the bank to notify the borrowers when CCI withdrew money.

Banks can set up an array of controls on cash from construction loans. The most conservative approach would require a borrower to sign off on each disbursement.

In a case where the borrower gets no notice, Tannenbaum said compliance is up to the bank's officers and field inspectors.

"Boy, they really need to be strict in their procedures to make sure liens get taken care of."

Team work

CCI customers say that both Seashore and American Mortgage Link marketed CCI properties to potential investors around the country.

American Link then helped customers prepare mortgage documents and forwarded them on to Coast.

"Seashore solicited a ton of people," said Thomas Carrero, a Port Charlotte attorney already advising more than 20 CCI customers. "They referred to CCI as their preferred builder."

When contacted by the Herald-Tribune earlier his week, Seashore executive Carl Cirinelli denied that his company was connected to CCI or Coast Bank, but documents and CCI customers tell a different story.

Both Seashore and CCI Home Mortgage are listed as "associated businesses" in American Mortgage Link's corporate records.

Peter Chicouris, a St. Petersburg Realtor and CCI investor, said a host of CCI loans were placed with Coast Bank by Tampa-based mortgage broker John R. Miller of American Mortgage Link.

Erik Matthews, another CCI investor, said his loan package was sent to him from American Mortgage Link.

After signing the documents, Matthews and his wife were instructed by American Mortgage to forward any notices related to the loan to Phillip Coon, Coast Bank's residential lending manager and executive vice president.

Neither Miller nor Coon could be reached for comment.

Local bankers say that Coon has a reputation as a successful residential lender -- a "deal maker" who has cranked up programs at the former American Bank and more recently at Coast. Both banks wound up with loan problems for their aggressive growth strategies.

Damage done

Meanwhile, Coast has been trying to repair damage done by the fallout from its struggling homebuilder partner.

Besides Sandler O'Neill & Partners, the New York company that specializes in bank mergers and acquisitions, Coast also has retained Rick Denmon, a securities attorney with Carlton Fields in Tampa.

Local competitors said Coast Bank also is shopping for a public relations pro to spin the situation to stockholders and the media.

In effort to assure customers and shareholders of its financial strength, the bank said in its Monday statement that it had total capital to risk-weighted assets of 15.91 percent as of Sept. 30, which is well above the 10 percent regulatory standard for a well-capitalized bank.

That percentage is a ratio of the bank's $454 million in risk-adjusted assets and its $52 million in capital, according to analysts at Bauer Financial Inc.

But Coast's problems continued to be manifest in its falling stock price and a loss of customers. Several Manatee County bankers said Wednesday that they have opened new deposit and loan accounts for former Coast patrons worried about the bank's financial condition. "They were concerned about their money," said Steve Jonsson, president of Flagship National Bank of Bradenton.