Robert P. Pincus is at it again.
The longtime Washington banker has attached his name and money-raising prowess to Fidelity & Trust Bank, a 16-month-old commercial bank that Pincus hopes to turn into a significant lender to local business.
Pincus became chairman of Fidelity a week ago,just two days after his non-compete agreement with his previous employer expired. He's leading an effort to raise the capital Fidelity needs to execute its growth strategy and expand beyond its one branch in downtown Bethesda.
It's the third time that Pincus, 58, has set about building a bank. His first, D.C. National Bank, where he was chief executive, was one of the best-connected commercial lenders in Washington before it was bought by the old Sovran Bank (later to become part of Bank of America) in the late 1980s. In 1991, he became chief executive of Franklin National Bank, which grew from $45 million to $802 million in assets by the time it was bought by BB&T Corp., a major North Carolina bank, in 1996. He stayed with BB&T as the bank's top regional executive until 2002, and agreed not to compete with BB&T for three years after his departure.
Pincus's record as a serial bank entrepreneur, building community banks and then selling them to larger institutions at hefty premiums, reflects a strategy that has paid off for local investors over the last 20 years, said Lew Sosnowik of Sosnowik Securities in Rockville, a longtime trader in local bank stocks.
Most community banks concentrate on lending to owners of small and medium-sized businesses, who often feel they are pigeonholed, if not ignored, by the mega-banks. Large banks rely heavily on a loan underwriting process known as "scoring," boiling down a borrower's creditworthiness to a computer-generated number. Community banks rely more on relationships, references and character to underwrite loans. They offer direct access to the bank's top decision makers and plenty of personal attention, which has powerful appeal for local business executives.
Pincus isn't the only one to have realized this. Since 2000, eight banks have been chartered in the Washington area, including Fidelity, according to the Federal Deposit Insurance Corp. All these banks are chasing small and medium-sized customers.
Starting a new community bank has its risks, typically losing money for the first three years. A few large problem loans, bad investment strategies or a fired chief executive's severance can wipe out a year's profits.
"New banks still find ways to lose money," Sosnowik said.
Success can mean a significant payoff. The most recent example came in January, when Community Bank of Northern Virginia, a 12-year-old Sterling bank, agreed to be sold to Baltimore's Mercantile Bankshares Corp. for $212 million, about 3.5 times its book value. And Mercantile is only one of several large banks that have publicly said they want to buy into the Washington market.
But Pincus and Fidelity's management team, all of them Franklin veterans, say they are not in this to sell to a larger bank in a few years. "We want to build a business," he said.
After leaving BB&T, Pincus became chairman of the private equity team at Milestone Merchant Partners LLC, a Washington merchant bank. But he spent much of the past three years raising money for charities and relaxing with his wife and young son, who's now 8, at their second home in Sun Valley, Idaho. Pincus sustained serious nerve injuries in a nasty fall eight years ago that continue to vex him. Though his health is good, he says, he can't maintain the pace he used to as a chief executive.
"After 18 years as a CEO I have no interest in ever being a CEO again," he said last week. "But I want to remain an entrepreneur. I want to build things."
Pincus said he agreed to take the non-executive chairman's role at Fidelity in large part because its chief executive is his protege, Barry C. Watkins, 36. They met when Watkins joined Franklin as a credit analyst in the early 1990s. Watkins stayed on with BB&T as a senior manager in its Washington area commercial lending group until April, when he joined Fidelity as chief executive.
Fidelity was formed in 2003 by the owners of a mortgage company, Robert R. Fiallo and Robert N. Tyson Jr. Although the mortgage company is now a subsidiary of the bank, it remains much larger than its parent, with 270 employees and offices in the Washington area, North Carolina and California. The bank has 25 employees.
"Right now it's a mortgage company with a bank," Pincus said. "We want to turn it into a bank with a mortgage company."
After a $3 million private placement of stock for the bank last year, Fidelity has about $16 million in capital. That wouldn't allow the company to grow much beyond its current $205 million in assets.
Pincus said Fidelity is preparing another private placement of stock but would not provide details. Watkins said the goal is to raise enough capital to increase Fidelity's loan-to-borrower limit to $5 million. Watkins said Fidelity's target commercial customer has less than $50 million of revenue.
With $36 million in capital, Fidelity in theory would be able to grow its assets to $475 million, from the current $205 million, Watkins said, so long as the bank doesn't lose vast amounts of money along the way.
Fiallo's and Tyson's ownership stake after the offering will be cut about in half, Watkins said. The two founders said they will stay focused primarily on mortgage banking, with Tyson heading the mortgage company and Fiallo as president of the bank's holding company, Fidelity & Trust Financial Corp.
Once Fidelity has a broader and more diverse ownership base and some results under its belt, it will probably register to go public like most banks, Sosnowik said.
Although Sosnowik praises Pincus as "an alchemist" who's known by everybody in the local market, the veteran banking investor cautions that Fidelity will have to take customers not only from the large banks but from the other small, aggressive competitors as well.
"Locking horns with the Bank of Americas of the world is easy," he said. Fidelity "is going to be locking horns with a different group of people, like Eagle Bank, Virginia Commerce, WashingtonFirstBank and Adams National Bank. It's going to be very much more difficult competing with those guys because they're all already out there."
DiamondRock to Go Public
DiamondRock Hospitality Co. registered to sell up to $172.5 million of common stock to become a publicly traded company.
The Bethesda real estate investment trust was formed by a group of former Marriott International Inc. managers. Marriott, Arlington investment bank Friedman, Billings, Ramsey Group Inc. and a group of FBR's clients kicked in the seed capital to start DiamondRock last year. The company buys hotels that are managed by Marriott and are under its brand, and Marriott gives DiamondRock a first look at certain investment opportunities, mostly in new or existing upscale hotels. The registration statement didn't say if any existing DiamondRock shareholders will be selling any of their stock in the offering.
DiamondRock will use proceeds from the offering to pay down its debt and acquire or upgrade hotels.
The IPO registration is the fourth local real estate company to plot a public offering in the last year: Fieldstone Investment Corp., a Columbia mortgage banking firm, began trading last month. JER Investors Trust Inc., a mortgage investment company affiliated with the J.E. Robert Cos., and Columbia Equity Trust Inc., a commercial property REIT affiliated with the Carr family empire, both registered to go public last month.
Baker Leaving Carlyle
James A. Baker III, a former secretary of state who served in senior positions in the Reagan and first Bush administrations, will retire as "senior counselor" from Carlyle Group next month.
Baker joined Carlyle in 1993. Between being a corporate lawyer and taking on various missions for Republicans, he helped Carlyle tap investment markets in Asia and the Middle East. He also advised the corporate buyout and venture capital firm in its government, defense and aerospace buyout business.
Terence O'Hara's e-mail address is email@example.com.