It's not hard to find a bank under pressure in Florida, but Federal Trust Corp. of Sanford is struggling more than most.
The $690 million-asset parent of Federal Trust Bank has lost money in three straight quarters, its ratio of nonperforming assets to total assets is well above the industry average, and its stock, down roughly 80% in the last year, is trading at less than half its book value.
The executive put in charge of leading the turnaround is Dennis T. Ward, the thrift company's former chief operating officer, who took over as president and chief executive in September. He is also Federal Trust Bank's chairman, president, and CEO.
Federal Trust has hired an investment bank to help raise capital, and Mr. Ward said it is committed to moving away from wholesale funding including Federal Home Loan bank advances and brokered certificates of deposit; shedding problem loans; and shrinking the balance sheet.
And if the company has a lending mantra, it is "There's no place like home."
"We were involved in loans outside of our primary trade area," Mr. Ward said. "And I would say that's as compelling an argument as anything as to how you get into the situation we're in."
Federal Trust's nonperforming assets jumped 295% last year, to $47.5 million, or 6.8% of total assets. The company reported a fourth-quarter loss of $4.7 million, or 50 cents a share, after posting a profit of $741,000, or 8 cents a share, in the year-earlier quarter. It lost $14.2 million for the year, after turning a $3.4 million profit in 2006.
Perhaps the company's most painful lesson is a "fundamental tenet of banking, and that is you should make loans in markets you know," Mr. Ward said.
Federal Trust, whose market area is central Florida, said its troubles stem from a partnership with a real estate company that did business in the Fort Myers area, about five hours away.
In 2004, Federal Trust signed a deal with the mortgage brokerage TransLand Financial Services Inc. of Maitland, Fla. The brokerage generated and underwrote the loans, then sold them to Federal Trust and other banks that in turn funded them.
"We believed all of their underwriting," Mr. Ward said. But much of Federal Trust's chargeoffs and loan-loss reserves resulted from loans generated through its relationship with TransLand.
A group of banks including Federal Trust sued TransLand for allegedly misappropriating funds. The banks said the brokerage serviced the mortgages but in many cases did not remit the funds it received from borrowers. In a settlement reached in November, Mr. Ward said TransLand agreed to liquidate and apportion its assets among the banks.
The first thing Federal Trust needs, its CEO said, is stability in its markets.
"Some markets I think are still declining," Mr. Ward said. "I don't know where the bottom is. But here in central Florida we see that flattening out — inventory seems to be flattening out a little bit. It's not continuing to rise."
Federal Trust has already shed 5% of its assets and has been combing through its loan portfolio. It has identified $55.7 million of real estate-related loans that are current but look shaky.
It set aside $6 million in the fourth quarter to cover loan losses, bringing its total to $16.4 million.
Mr. Ward confirmed Federal Trust has hired an investment bank, but he declined to name the firm or say how much capital the company is working to raise. He would not comment about a possible sale of the company.
Of course, Federal Trust is hardly the only Florida banking company trying to regain its footing after the meltdown in the mortgage markets.
David Bishop, an analyst with Stifel, Nicolaus & Co. Inc., said many Florida banks are "trying to get a handle on what they actually have in terms of the underlying portfolios from a credit-quality perspective.
"A lot of time is being spent on the asset management side of the balance sheet, rather than sales and growth perspective."
Wayne Archer, the executive director of the Bergstrom Center for Real Estate Studies at the University of Florida in Gainesville, said the Fort Myers area will likely be among the last to recover. "If I had to bet, the road looks tougher for southwest Florida than for places like Miami," Mr. Archer said.
Mr. Ward, 56, joined Federal Trust in February 2007 from Regions Bank, where he was the central Florida market president. He has also worked for SunTrust Banks Inc. and National Bank of Detroit in his 31 years in banking.
He was promoted to president and CEO of Federal Trust when James V. Suskiewich was let go after 14 years with the company.
One of Mr. Ward's top priorities is to lower Federal Trust's funding costs. According to Federal Deposit Insurance Corp. data, its cost of funding earning assets at Sept. 30 was 4.59%; the average for thrifts in its asset class was 3.39%.
It had been getting most of its funding from Federal Home Loan advances, and brokered CDs, but is now focused on more retail-oriented transaction accounts, such as checking, savings, and money market accounts.
Wholesale funding, he said, is a great way "to keep your overhead down … but that doesn't build franchise value."
Federal Trust has added five branches in the past two years, nearly doubling its branch network, but Mr. Ward concedes the transition has been tough.
"We've rolled out the sales process, we've put in place the goals and objectives and strategies," he said. "But it's a difficult time to put all that in place and expect significant results given the economic climate."
It remains to be seen how much patience investors will have with the turnaround effort. Federal Trust's stock was trading at just $2.10 late Friday.
The key to winning back investors, Mr. Ward said, is getting a handle on the nonperforming assets.
"For people to be interested in buying our stock they need to see that number down substantially," he said. People need to see "that we are actually capable of making money and that we've got asset quality under control."
