Executives of Old Harbor Bank were so intent on growing the Clearwater institution that they abandoned basic principles of safe lending.
State regulators criticized Old Harbor
for making too many loans to real estate developers, failing to make sure borrowers could repay, and lending customers additional funds so they could keep up with payments.
Examiners say the president, William Short, made loans on the basis of a borrower's reputation rather than his or her financial situation.
Among the borrowers who defaulted on multiple loans from Old Harbor were companies controlled by Tampa developers Harvey and Jevon Estes. Harvey Estes filed for bankruptcy protection in 1991, while Jevon served a 15-month prison term for attempting to avoid nearly $400,000 in income taxes. He was released in 2008.
The brothers, who did not return calls seeking comment, ultimately defaulted on more than $7 million in loans to the bank.
Short could not be reached for comment and two members of Old Harbor's board did not return calls.
But they told regulators in 2010 that the bank's problems had more to do with downturn than with any underwriting deficiencies.
"Management contends that their underwriting of loans was sound, and they never received criticism of any systemic underwriting problems," examiners said in their 2010 report.
Launched in July 2003, Old Harbor wanted to grow fast.
To do so, it made loans to developers and opened branches in Pinellas and Pasco counties.
By December 2008, the bank had eight offices and $190 million in loans on its books.
Examiners say problems arose when the bank kept spending money on infrastructure when it needed it to stem losses from bad loans at the recession's outset.
"The board allowed the bank to be managed by unseasoned executives," regulators wrote in 2010.
In early 2009, it looked as if Old Harbor might avoid failure when directors accepted an offer from investors willing to pump in $20 million of fresh capital.
But Old Harbor's board rejected the deal because there was not "any value" for themselves, regulators said.
Two years later, the bank had another chance to sell to a deep-pocketed suitor — again, directors said no. Within a few months, it was shuttered by the federal government, leaving the American financial system with nearly $40 million in cleanup costs.