BOCA RATON, Fla., Nov. 14, 2008 (GLOBE NEWSWIRE) -- Sun American Bancorp ("Sun American")(Nasdaq:SAMB), the bank holding company for Sun American Bank, responds to an article published on November 14, 2008 by the South Florida Business Journal addressing Sun American Bancorp's default under its loan agreement with Silverton Bank. The article contained a number of inaccuracies which are clarified below.
On January 7, 2008, the Company replaced the two notes due to Independent Bankers Bank with a new $8,000,000 line of credit from Silverton Bank. The new line matures January 2010; interest is set at Prime Rate minus 1.00% and the line is secured by 99.97% of the outstanding Sun American Bank stock.
On September 25, 2008, the Company received a notice of default with right to cure from Silverton Bank, notifying the Company that it was out of compliance with three loan covenants contained in the loan agreement as follows:
1. Non-performing assets shall not exceed 2.25% of gross loans. The
Company was at 3.91% at September 30, 2008.
2. The Company shall maintain a debt service coverage of at least
1.25%. The Company had a loss in the nine month period ended
September 30, 2008.
3. The Company shall maintain regulatory approval to pay dividends
from the Bank to Sun American Bancorp. The Company does not meet
the State regulatory requirements to pay dividends because it has
an accumulated deficit.
In accordance with the loan agreement, the non-compliance with the loan covenants represents an event of default. Silverton Bank has given the Company a sixty day period to cure these defaults. The Company is actively working to cure the events of default. In the event that the defaults remain uncured, Silverton Bank shall have remedies available to them including calling for repayment of the loan.
Silverton Bank has not communicated to the Company, what, if any, further action it intends to take in the event that the Company is unable to cure the defaults in the time frame contemplated in the loan agreement.
The loan is current and performing. The loan is with the holding company, Sun American Bancorp. Accordingly it does not affect or impact the capital ratios or liquidity of Sun American Bank. It nominally impacts the capital ratios of Sun American Bancorp to the extent of interest expense recorded.
The article indicates that the company's allowance for loan loss at $7.6 million represents only 39% coverage of the $19.4 million of nonperforming loans which is less than the expected 50% coverage. The comment does not factor in the $3.5 million of charge offs that the Bank took against these loans in the quarter. With charge offs considered the coverage for these loans is 57%.
Sun American Bancorp was contacted by the South Florida Business Journal only four business hours prior to the deadline for the article and was unable to respond within this limited time frame.
As Michael Golden, Chairman of Sun American Bank, stated in the Company's third quarter press release, "Pre-tax income for the third quarter, excluding provision for loan losses, stock option expense, and OREO expenses, was $488,000, compared to a loss of $49,000 in the third quarter of 2007. Pre-tax income for the nine months of 2008, excluding provision for loan losses, stock option expense, and OREO expenses, was $1.5 million, compared to $766,000 for the same period in 2007, an improvement of 96% in core operating earnings. We believe this is an indication that our core operating performance remains sound despite the toxic real estate market."
Mr. Golden further commented that, "Capital preservation is a primary focus of the Bank during this period and that we are, and intend to remain, well capitalized despite higher loan loss provisions. We continue to have challenging times and more than likely the challenges will remain with us in South Florida into 2009. We feel the actions the U.S. Treasury has taken will eventually kick in and our region which has always been one of the strongest will rebound and perform above average as it has in the past. It is a matter of remaining focused and staying strong with our convictions that we have the right business model. This too shall pass and Sun American will be a stronger and better Community Bank in the South Florida Market."
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