Centennial Bank: We May Not Have Survived This on Our Own: Bank President Says Bad Loans Might Have Sunk Marine Bank Wednesday, January 21, 2009 Florida Keys Keynoter, Marathon, Fla. By Margaret Menge Jan. 21--There was news on the television every day of another bank going under, but in the fall of 2008, the stock price of Home BancShares was having the time of its life. The Arkansas-based bank holding company, the parent of Centennial Bank (formerly Marine Bank), had just been named to the Sandler O'Neill Sm-All Stars Class of 2008, and was considered one of the top 33 small banks and thrifts in the country. The stock price ended the day on Sept. 19 at $29.75 -- the highest close since Home BancShares went public in 2006. But the stock price fell about 20 percent this month after Home BancShares announced that it was about to report a loss of $9.4 million for the fourth quarter of 2008. Ninety percent of that loss, the bank said, was from bad real estate loans in the Florida Keys, where about 30 properties, some worth several million dollars, had to be written off. "I don't know what we would have done, because I think this is much more than anyone would have expected. Much more of a downturn." -- Hunter S. Padgett, president, Florida region of Centennial Bank. Hunter S. Padgett is president of the Florida region of Centennial Bank, working out of the central office in Marathon. The write-down on real estate, he says, was substantial. So substantial that if Marine (now Centennial Bank) were not under Home BancShares, the bank would right now either be going under, merging with another bank, or working with federal and/or state regulators on some kind of restructuring. "I guarantee you if we had our same loan problems, we probably wouldn't have survived. We probably would have merged with somebody," Padgett told the Keynoter at the end of last week. What used to be Marine Bank now has about $16 million in bad loans, according to Padgett, most of them commercial, and some construction loans. He says the bank has done little in the way of residential loans over the years, serving only as a conduit, arranging home loans for customers through Fannie Mae and Freddie Mac. Padgett says the bank is now having to take a hard look at its lending decisions, and how it has made them, and has had to "clean up" some of its problems. "Our lending habits have changed significantly," he says. Padgett is now working on loan workouts to negotiate with borrowers to try to recover the bank's money. He says he's often seeking the advice of executives at Home BancShares like John Allison, chairman and chief executive officer. And Padgett has also gotten help sent down from Arkansas. Meresa Lankford, whose title is vice president and credit administrator, came to the Keys late last year from Home BancShares to take over work on many of the troubled loans here. Lankford previously was vice president and manager of loan review at Home BancShares, and also worked in Little Rock, Ark. as an examiner for the Office of the Comptroller of the Currency, part of the U.S. Department of the Treasury. Padgett says the bank has done "autopsies" on loans that have gone bad, and has discovered things in the underwriting process the bank shouldn't have been doing. He says no longer will the bank use a second mortgage as collateral, for example, because if the value of the property declines 30 percent, that second mortgage is stripped of its value. He says the bank learned in 1991 and 2001 to insist on what's called a "personal guarantee," so that a borrower has a personal stake in the loan, and cannot simply walk away, while keeping his personal financial situation intact. Padgett says it's difficult to say now whether Marine Bank would have survived on its own, facing the kinds of losses it's facing. But with Home BancShares as a parent, and the other banks in the chain strong, he says there should be no long-term repercussions. Marine Bank was acquired by Home BancShares in June of 2005. What is now Centennial Bank of Florida makes up about 15-20 percent of Home BancShares, based in Conway, Ark. ----- To see more of the Keynoter, or to subscribe to the newspaper, go to http://www.keysnet.com. Copyright (c) 2009, Florida Keys Keynoter, Marathon Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA. NASDAQ-NMS:HOMB, NYSE:FNM, NYSE:FRE, A service of YellowBrix, Inc.