When U.S. Century Bank's Cuban-American founders opened the bank 10 1/2 years ago, their vision was to create the largest Hispanic bank in Miami -- and eventually the nation.
The plan stayed on track for a few years until the recession deepened, bad loans mounted and capital was depleted, putting U.S. Century's very survival in jeopardy. Repeated efforts to raise new capital -- and even sell the bank -- fell through.
Until now -- if it all works out.
With a team of local, high-profile investors aiming to inject $50 million into the Doral bank to become majority owners, U.S. Century is on the verge of gaining a new shot at life.
"Were looking to create a well-capitalized, well-run community bank in South Florida, to meet the needs of the small business borrowers and be a one-stop shop to serve their personal and business banking needs," said Jimmy Tate, president and chief executive of Tate Capital, who is leading the investment group, along with Sergio Rok, president of Rok Enterprises and Jorge Perez, chairman and chief executive of the Related Group.
A definitive agreement, drafted last week, is expected to be signed this week.
Existing shareholders, including founders like Sergio Pino -- the largest stockholder with a 10 percent stake -- will continue to have an as-yet-to-be determined ownership in the bank, though their shares will be diluted.
The handpicked group of new investors brings together local Hispanic and Jewish families and friends -- entrepreneurs and business owners spanning several industries.
"I wanted to do it only if we had people within the community that represented the whole community, that were not only prominent but also financially stable people," said Perez.
The investors, who are connected in myriad ways, include Dolphins owner Stephen Ross; Wayne Chaplin, president of Southern Wine & Spirits; Tate's brother Kenny Tate, co-owner of Tate Capital; real estate developer Scott Robins and his father Gerald; George Feldenkreis and his son Oscar, who are chairman/chief executive and president, respectively, of Perry Ellis International; Alan Potamkin, co-chairman of the Potamkin Companies; former ambassador Paul Cejas; Philip Levine, founder of Royal Media Partners; Paul Feinsilver and business partner Jimmy Klotz, owners of FMS Bonds; and Carlos Migoya, a former banker and current chief executive of Jackson Health System.
"We're all in different businesses, we're all friends and we all feel passionate about this opportunity from a business standpoint and to keep a local bank in existence," Jimmy Tate said.
In addition to pumping $50 million in capital into U.S. Century, the group will bring in a partner to pay about $90 million to buy certain loans, including all $98 million of U.S. Century's non-performing loans. The deal will also provide for a negotiated amount of more than $6 million to be paid to the federal government for U.S. Century's $50.2 million in TARP funds, said U.S. Century President and Chief Executive Carlos J. Davila.
If approved by shareholders and regulators, the deal to recapitalize U.S. Century, which has $1 billion in assets and 24 branches, could be completed this summer.
It's a last-ditch attempt at survival for U.S. Century, after C1 Bank of St. Petersburg pulled out of its deal to buy the bank in late December.
"It is going to be a completely new era for the bank," Davila said.
Most significantly, the recapitalization will allow U.S. Century to continue independently -- as one of the only remaining locally owned community banks of its size. Others, like City National Bank of Florida and BankAtlantic have been sold in recent years to foreign owners or larger U.S. banks.
Ken Thomas, a Miami banking consultant and economist, called retaining local ownership "the best possible outcome."
"We just have too many branches where the roots are based elsewhere, and this one will stay here, and that is what is important to me," he said.
The new investors may also help the bank extend its demographic outreach and customer base, because U.S. Century has until now focused on the Hispanic market.
"Institutions go through life cycles," Davila said. "There is a great history at U.S. Century, and it's a great tribute to the people who started this brand and this institution. And now we need new blood, a fresh set of eyes and energy to take this institution forward."
At its inception, U.S. Century founders, homebuilder Pino, attorney Ramon Rasco, Sedanos family members Manolo Herran and Armando Guerra and gun manufacturer Carlos Garcia had grand plans to create a successful bank.
After all, they had already succeeded with Ready State Bank, which was started in 1983 with $3 million and was sold in 1999 for $150 million, making fortunes in the process.
"Once we sold the bank, it was always on our minds that we would do it again," said Pino, during an interview in his office late last year.
So they brought in more well-connected directors: Dade County Bar Association President -- and later Florida Bar Association President -- Frank Angones, Spanish television executive Jose Cancela and lobbyist and Super Bowl Host Committee Chairman Rodney Barreto, adding Herran's son Augustin to succeed his father once he retired.
"This was a dream team," Pino recalled. "We were going to create a great bank."
They named the bank U.S. Century, using the Century name of Pino's companies and housing developments, in which many of the bank's directors had also invested.
They added "U.S." to reflect their goal: to expand the bank nationwide to every city that had a large Hispanic population, Pino said.
The directors invited everyone they knew to buy stock in U.S. Century, raising about $130 million from 441 investors, mostly local Cuban-American business people, lawyers and other professionals.
There were shareholders like Carlos Blanco, who came in through family members, and was mesmerized by the directors' prestige.
"I knew nothing about banking," Blanco said. "They could have started a shoe warehouse for all I cared, it wouldn't have mattered. The pedigree was there."
The directors brought their own businesses to the bank. One day, Pino recalls, he had all his employees open accounts, filling the lobby.
"If I knew a director was doing a deal, why not bring it to your bank?" said Pino, who is no longer on the board. "Why bring business to another institution when we could do it at our institution?"
U.S. Century flourished for a time, growing to $2.4 billion in assets by 2009.
But then, it began a steep decline. Real estate values plummeted, bad loans mounted, losses resulted and the bank's capital became depleted.
Regulators slapped U.S. Century with an enforcement action in June 2011, mandating it to boost capital, reduce its bad loans and return to profitability, among other requirements.
The enhanced regulatory scrutiny, itself, created additional expenses. In the bank's 2012 prospectus for its failed C1 deal. U.S. Century disclosed that in the previous year alone, "the costs to the bank resulting from the consent order and our heightened scrutiny have exceeded $3 million."
Depending on whom you ask, U.S. Century's woes were either the result of the unforeseen collapse of the housing market and the recession -- or the culmination of an over-emphasis on real estate lending and insider loans -- or some combination of both.
Pino's view is that the bank's problems mirrored that of the global economy. He said he has no regrets.
"Our business was to lend money, and we had guidelines and we exceeded the guidelines to be more conservative."
As of June 30, 2012, 88 percent of the bank's total loan portfolio were loans secured by Florida real estate. Of $713 million in commercial real estate loans, $173 million or 24 percent were nonperforming loans.
"In prior years, we focused on commercial real estate lending, which has resulted in a large concentration of commercial real estate loans," the C1 prospectus said. "Accordingly, we may have assumed greater lending risks than banks which have a lesser concentration of such loans and tend to make loans to larger companies or consumers."
For Thomas, the Miami banking consultant and economist, U.S. Century's decline reflects issues related to the economic, financial and housing crises.
"If that was the only bank that got in trouble I would say it was something that had to do with the bank and its management," he said. "But because there were so many problem banks, and so many banks that failed -- in 2010 [Florida] led the nation in bank failures -- it is clear that it was much more than just that bank."
Indeed, regulators never shut down U.S. Century, though they could have, Thomas points out.
"If it was as poorly run and as bad as all the critics say, the bank would have been taken over a long time ago," he said. "There were banks that were stronger financially than U.S. Century, yet they were taken over by the government, because they did not have the intrinsic value this franchise had -- two dozen branches, in good markets ... and a strong infrastructure that made [the bank] valuable."
But some shareholders take a different view. In recent months, shareholders have filed two lawsuits -- one a class action, and one a derivative action -- against current and former bank directors and officers, alleging mismanagement and malfeasance. The suits seek to recover losses that allegedly were incurred because of improper actions by the directors and officers.
The suits cite the bank's large volume of insider loans and other dealings, including that one third of the bank's 24 branches are leased from current or former directors.
Davila, who joined the bank in August of last year, said that U.S. Century has modified terms of its loans to past directors Pino and Barreto. Pino, for example, provided more collateral and agreed to a rate increase. Davila said that all loans to insiders are being paid on schedule.
"We have not lost money, we don't anticipate to lose money, and the loans are up to date," he said.
On May 2, the lawsuits will go to mediation, with all parties, including U.S. Century's insurers, represented.
Miami attorney Thomas Tew said he has been retained as special counsel to the bank "to assist in working on various scenarios that might lead to a settlement of the litigation and the closing of the new financing."
Meanwhile, U.S. Century has worked to reduce its overall non-performing loans from $230 million at year-end 2011 to $98 million at the end of 2012, through loan work-outs and packaged sales to individuals and institutional buyers. As a result, the bank increased its capital ratio from about 4 percent at year-end 2011 to 4.6 percent at the end of 2012. But it is still far below the 8 percent regulators mandated.
And the bank, which has reduced its staff through attrition to 260 from 295, has yet to return to profitability. For 2012, U.S. Century lost $10.1 million, compared to a loss of $79.7 million in 2011. The 2011 results included $70.3 million in provisions for loan losses, compared to $1.9 million in loan loss provisions in 2012.
In recent years, under the weight of regulatory pressure, the bank explored multiple avenues to survive, including "possibly recapitalizing the bank, selling Century common stock in public or private offerings, selling branches and related assets, finding a strategic merger partner and considering other strategic alternatives," the C1 prospectus disclosed.
Numerous attempts failed.
In 2009, the bank sought to raise $20 million in a private offering from existing shareholders but could only raise $2 million, according to the prospectus.
In June 2010, U.S. Century hired Keefe, Bruyette and Woods, which contacted more than 130 potential investors, including 11 "strategic acquirers," the prospectus said. A total of 57 non-disclosure agreements were sent, and 43 were executed. By October 2010, Keefe and the bank's management team held 10 meetings with potential private equity investors in New York. Six "strategic acquirers in the financial services industry" performed on-site due diligence and met with the bank's management, the prospectus discloses.
But no formal offers were made.
In April 2011, the bank hired another investment bank, Nomura Securities International, to help raise capital. And in June 2011, discussions began with a potential new management team, to be backed by two private equity firms that would each put in 24.9 percent of a $250 million recapitalization. Nomura reached out to 42 more potential investors, 19 of which signed non-disclosure agreements, according to the prospectus.
But in September, 2011, one of the private equity firms backed out, so efforts began to replace its 24.9 percent equity share. By November 2011, the proposed new management team also walked away from the deal.
The bank's problems continued. After making its first scheduled payment on $50.2 million in TARP funds, U.S. Century failed to make eight more scheduled quarterly payments. As a result, the Treasury Department appointed an observer to the bank's board of directors.
Finally, hope was ignited when C1 Bank agreed to buy U.S. Century at the end of August, with plans to inject $100 million in capital into the combined bank.
Yet shareholders were to receive just $2.5 million from the sale, or about 1.7 cents on the dollar. As part of the deal, the bank said it also would pay $6.27 million to the federal government to settle its TARP debt.
Despite much dissent among shareholders, a majority approved the sale at a November meeting -- with two armed police officers present.
But C1 called off the deal in December, 12 days before it was due to be completed, largely because the banks could not meet certain pre-merger conditions, such as closing before the end of the year, as well as other contractual requirements.
The next step
Now, U.S. Century is looking to the future with its proposed recapitalization. Davila said that this deal will be better for existing stockholders than C1's.
Next comes signing the definitive agreement and getting shareholder and regulatory approvals.
"We've been in communication with all the regulatory agencies, and we're a little ahead of schedule and very happy so far with the result of all the meetings," Tate said.
Tate and Rok -- who have known each other since high school -- and Perez have a proven track record in buying, stabilizing and monetizing distressed assets, working as a team for the past 4 1/2 years.
They have bought more than $600 million in assets during that time, including the note on the Omni Center property, which they bought for $100 million and sold within months to Genting Group for $161 million.
Though perhaps not as well known as Perez until now, Jimmy, 49, and Kenny Tate, 61, are third-generation real estate developers. Their father, Stanley Tate, has been a developer in South Florida since the 1950s and was named chairman of the Resolution Trust Corp. by former President Bill Clinton. Over the years, Jimmy and Kenny have worked in various aspects of distressed property, debt and mortgage workouts.
And Rok, 51, whose company is the largest commercial property owner in downtown Miami, has direct experience in banking. His family was the majority owner of TransAtlantic Bank, and he sat on the board of directors and on bank committees until TransAtlantic's sale in 2006.
The plan is for Tate, Rok and Migoya, a former banker, to join U.S. Century's board.
"The new group will bring strong knowledge and expertise," Davila said, "and it will further and enhance the knowledge and expertise we have within the bank."
Once U.S. Century's recapitalization is completed, it will add more consumer products and services and diversify its loan portfolio further beyond real estate, he said. The bank also plans to eventually add additional branches in Broward County.
"This bank has gone through a lot and unfortunately not all good," said Rok. "I think its going to take this type of investment group and leadership to bring this bank back to where it should have been and where it needs to go. It's going to be a lot of work."
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