Lee Bell quoted in the Tampa Bay Business Journal

Friday, February 19, 2010
Where asset quality diminishes, Patriot Bank shores up holdings
The anatomy of being 'well capitalized'
Tampa Bay Business Journal - by Margie Manning Senior Staff Writer

While asset quality issues rapidly deplete capital at banks throughout Florida, Patriot Bank reversed the trend.
Patriot has raised roughly $3.5 million in additional capital and is nearly halfway to its total goal of $7.5 million, said Larry Starnes, president and CEO. The new capital has propelled the bank into territory regulators consider well capitalized with an 11.76 percent total risk-based capital ratio, compared with 8.14 percent on Dec. 31.
The bank attracted strong investor interest in part because it took aggressive steps to set aside money for loans that it suspected might go bad.
Patriot examined every credit in its portfolio, then hired a consultant to take a second look. A final vote of approval came when state regulators, as well as those from the Federal Deposit Insurance Corp., wrapped up exams at the bank a couple of weeks ago and did not ask Patriot to add anything to its existing reserves, Starnes said.
“The biggest fear people have in investing in community banks is the bank will fail because of loan problems that erode the capital,” Starnes said. But since Patriot already has reserved for expected losses, “what we have now in capital is solid.”
Diversification helps Bay area
Too little capital can be fatal because banks fail when they are in danger of running out of cash to meet their financial obligations. Regulators have closed 16 banks in the United States so far this year, including two in Florida. Last year, 140 banks failed nationwide, 14 of them in Florida.
Thirty-six Florida banks were less than well capitalized as of Dec. 31 and four were considered critically undercapitalized, a report from The Carson Medlin Co., an investment banking firm, said. An increase in nonperforming assets, generally past due loans and foreclosed real estate, ate into capital, the report said.
Statewide, the ratio of nonperforming assets to total assets climbed to 4.31 percent, up from 4.19 percent in the third quarter. The Tampa Bay area fared better than most of the state with an average 3.29 percent ratio of nonperforming assets to total assets in part because the area has a more diversified business base and is less dependent on real estate development than other areas, said Paula Johnannsen, managing director in Carson Medlin’s Tampa office.
Banks statewide were aggressive about moving questionable loans into the nonperforming category in the last quarter of 2009, said Lee Bell, leader of the business advisor group at Saltmarsh Cleaveland & Gund and shareholder in charge of the CPA firm’s Tampa office. Some banks were required to do so by regulators, while others did so in preparation for regulatory exams, Bell said.
Saltmarsh has released its own asset quality report showing the ratio of nonperforming assets to total assets at Florida banks was 5.89 percent as of Dec. 31, down from 6.1 percent on Sept. 30. Bell said the drop reflects the banks that failed and were eliminated from the calculations.
Path to progress
Patriot Bank, established in 2004 with a single office in Trinity, reorganized in April when Larry Starnes was named president and chief executive officer. Starnes, formerly Pasco, Hernando and Citrus counties president of Wachovia Bank, is part of a new management team at Patriot that also includes CFO Tom Wokurka and David Key as chief credit administration and risk officer. The bank now has five offices in Pasco and Pinellas counties.
During 2009, the bank increased its core deposits by 40 percent and its loan portfolio by 27 percent, ending the year with about $133 million in assets. New cash management and checking products produced a bump in fee income, and Starnes expects the first quarter of 2010 will be profitable. The hard work that went into the turnaround has paid off in a successful capital offering, he said.
The bank is offering existing and new shareholders units for $6, about a 40 percent discount to book value. Each unit is made up of one share of common stock and one share of preferred stock. The preferred stock, which pays a 10 percent dividend, can be converted to common stock at any time and automatically converts to common stock if the bank is sold or after five years.
— Margie Manning