It only took hours after regulators seized Silverton Bank for the first ripple to surface.
Pinnacle Financial Partners Inc. in Nashville announced Friday evening that it would write off $21.55 million on a loan to Silverton's holding company.
"We think it is best if we've written it off to zero because that is what we believe it is worth," M. Terry Turner, Pinnacle's president and chief executive, said in an interview Monday.
Observers said Pinnacle is just one of many banking companies in a complex web of entanglements with the $4.1 billion-asset Silverton, an Atlanta correspondent bank. The failure's effect will probably range from immaterial hits for some institutions, they said, to potentially fatal blows for a few that were already struggling — particularly since many of the 400 community banks that owned shares in Silverton's holding company are in the Southeast. "So many banks in this region are living on the edge already and are out trying to raise or find capital," said Walter G. Moeling 4th, a partner at Bryan Cave LLP. "But you can only take so many hits … . This may push some over the edge."
Among those exposed are: the other participants in a syndicated $34 million loan to Silverton Financial Services Inc.; the holding company shareholders; and holders of preferred shares, trust-preferred securities and subordinated debt.
Also potentially affected are the banks that bought loan participations from Silverton. They would have to write down those credits if the Federal Deposit Insurance Corp. decides to sell the pieces Silverton retained at pennies on the dollar, which the regulator has done with other Georgia failures.
Moeling said that, in some cases, a bank may have had more than one type of exposure to Silverton.
Though he declined to give names, he said he knew of at least two banks for which "another considerable loss could be the straw" that causes a failure.
Jeff Davis, the director of research at Howe Barnes Hoefer & Arnett Inc., said the charge Pinnacle will take is more than half its pretax earnings last year and nearly half its $45 million reserve. "It's more than a pothole."
Though Pinnacle's capital should withstand the hit, he said, the company probably will delay by a few quarters its plan to exit the Treasury Department's Troubled Asset Relief Program. It received $95 million in capital through the program.
Turner, the Pinnacle CEO, said the Silverton hit will reduce his company's Tier 1 leverage ratio from 9.74% to 9.46%. Pinnacle, which inherited its piece of the syndicated loan from a 2007 acquisition, had been aware of Silverton's problems, he said. "We knew they had been working diligently to recapitalize the bank and working with a handful of possible investors, and we were hopeful that they would have enough time and interest to complete that."
One shareholder in Silverton was the $987 million-asset Florida Community Banks Inc. in Immokalee. Guy Harris, its chief financial officer, said Silverton's failure would not have a huge impact on his company's capital.
"It is not going to impair it any more than it already is," Harris said, declining to disclose how much Silverton stock Florida Community owns. The company is above regulatory minimums for well capitalized institutions, but its total risk-based capital ratio fell 364 basis points last year, to 12.01%.
One positive sign, according to Chip MacDonald, a partner at Jones Day, is that regulators indicated on a conference call with Silverton stockholders Saturday that they might be willing to transfer the lead position on participations to another bank. This could avert the need for writedowns.
Silverton was originally called Georgia Bankers Bank. Two years ago it switched to a national bank charter. Correspondent banking remained its main business and banks its main shareholders, but its expansion into areas like construction lending led to trouble.
