Add Team Financial Inc. of Paola, Kan., to the growing list of banking companies that have publicly declared they may fail.
The $807 million-asset company warned investors in a Securities and Exchange Commission filing last week that if it does not raise capital quickly it might be seized by regulators.
That is what happened to the $12.8 billion-asset Downey Financial Corp. of Newport Beach, Calif. It agreed in a September consent order to raise capital or find a buyer by yearend, yet was seized by the Federal Deposit Insurance Corp. on Friday.
Like Team, Downey had warned investors two weeks ago that its future could be in "substantial doubt" if it failed to find investors to help it recapitalize after several quarters of punishing losses on option adjustable-rate mortgages.
Also this month two other California companies, Vineyard National Bancorp in Corona and Capital Corp. of the West in Merced, said they could fail if capital-raising plans fall through.
Vineyard has a deal to sell itself to its chairman, Douglas Kratz, but it hinges on his ability to raise $125 million in private capital. Capital Corp. of the West has applied for a capital infusion from the Treasury Department, but it has not received a response.
Under consent orders signed with regulators in September, Team's two bank units have until early January to meet regulatory capital targets.
But Team said in its Nov. 19 filing that "in the current economic environment, there is significant risk" that the company will be unable to raise capital."Failure to meet the regulatory capital guidelines in the consent orders may result in the initiation by the company's regulators of additional supervisory actions which could include placing the banks into receivership, in which case our ability to continue operations would be extremely doubtful."
Team executives did not return calls for comment Monday, but Daniel Cardenas, an analyst with Howe Barnes Hoefer & Arnett Inc. in Chicago, said Team is "putting it all out there" because it does not want investors to be surprised if it fails. Mr. Cardenas and other observers said that if it appears Team has little chance of raising capital by early January, regulators might step in before then.
Team said in its SEC filing that it expects to record a third-quarter loss of at least $9.8 million, or $2.72 a share. For last year's third quarter it reported a profit of $908,000, or 25 cents a share.
Two days earlier the company had pegged the third-quarter loss at $3.5 million, but it said it discovered that more loans were troubled than it initially thought. It also increased impairment charges on securities.
The provision for loan losses is expected to be at least $4.2 million, up 4,500% from a year earlier.
Team's $577 million loan portfolio is highly concentrated in real estate, with construction loans making up 40% of the total, according to its second-quarter earnings data.
Its impaired loans in the second quarter totaled $23.4 million, but the company said in its most recent filing that at least $11.5 million of additional loans were classified as impaired in the third quarter.
The company said it is "still in the process of assessing certain accounting estimates" and plans to file its third-quarter report as soon as possible.
Team said it needs $3.5 million to get back in good standing with the Office of the Comptroller of the Currency. But given the size of the expected third-quarter loss and continuing credit problems, it likely needs a larger amount to stay afloat, said Michael Iannaccone, managing director of Performance Trust Capital Partners LLC in Chicago.
He said that Team is an unlikely candidate for the Treasury's Capital Purchase Program, and that because it is a deeply troubled company operating mainly in rural Kansas, it is unlikely to get a lifeline from private-equity investors.
"There is cash that is waiting to be invested on the sidelines, but why would you invest in all of the problems and risks that come along with Team?" Mr. Iannaccone said. "I don't really see a way for them to come up with the capital they need."
The rising number of troubled loans has put Team's relationship with the Federal Home Loan Bank System in jeopardy. The company said in the SEC filing that it does not have enough eligible collateral to cover its $118.5 million in borrowings from the Federal Home Loan bank of Topeka. It is trying to substitute collateral from the Federal Reserve Bank of Kansas City to cover its exposure.
Team also said it expects to reach a supervisory agreement with the Federal Reserve Bank of Kansas City, which would likely limit its ability to pay dividends and extend new debt.
Team's shares closed at 52 cents Monday. They have lost about 97% of their value since the beginning of the year.
