Back from the brink and ready to get back to lending
Porter Bancorp in Louisville, Ky., is looking for a fresh start with a new name that reflects its local roots.
The $1 billion-asset company, which spent years cleaning up a balance sheet riddled with problem loans, is now operating as Limestone Bank. It has also asked shareholders attending its May 23 annual meeting to approve changing its corporate name to Limestone Bancorp.
Porter has come a long way to get back on track. It struggled from dangerously low capital and significant credit issues after the financial crisis, resulting in regulatory orders from the Federal Reserve Board, Federal Deposit Insurance Corp. and the Kentucky Department of Financial Institutions.
The company, which aggressively tackled its credit and capital problems, was recently released from those orders, allowing the newly christened Limestone to get back on offense, said CEO John Taylor.
“We’ve been on a journey over the last five to six years to restore the bank and the company to financial health,” Taylor said. “The rebranding is a way for us to tell our story of who we are and where we are going.”
The company chose limestone, the rock that covers more than half of the state’s surface, according to the University of Kentucky’s geological survey.
Porter’s turnaround is an example of strong leadership and governance, industry observers said. In early 2013, nonperforming assets made up 15% of the bank’s total assets. Five years later, that ratio stands at just 0.88%.
The company has improved its risk profile and is focused on organic growth and cost control, although Taylor wouldn't rule out a return to M&A. The company's last bank acquisition closed in October 2007.
“I think everything has to be on the table relative to continuing to gain scale, but it’s important that we demonstrate day in and day out that we can actually improve organically the quality of the banking franchise,” Taylor said. As potential sellers appear, an acquisition is "something that we have to consider and be prepared for.”
With a clean bill of health, Porter can get back to the "business of banking," said Charles Vice, Kentucky’s commissioner of the Department of Financial Institutions. With the enforcement actions lifted, the bank has more resources available to invest in lending and attracting deposits.
“This is definitely a wonderful success story of a board ... taking actions to put the bank in a position to succeed, and also a management team coming in and taking appropriate actions to resolve a very difficult situation,” Vice said.
Porter’s downfall was “a perfect storm” Vice said, noting that Kentucky’s slow recovery from the financial crisis amplified the company’s “questionable risk-selection practices.”
Porter hired Taylor, a former community bank CEO and regional president for PNC Financial, in July 2012.
Taylor was handed no small task. The company brought in new leadership and overhauled its board, while also investing in infrastructure. Porter put in a new risk management system, centralized operations and diversified its deposit base.
“While you are fixing a bank, you have to invest in it so when you get it fixed, you have forward momentum,” Taylor said.
The company, which exited the Troubled Asset Relief Program in 2014, has raised capital on multiple occasions, including a $15 million private placement in March with Patriot Financial. The private-equity firm also led a $27 million recapitalization of Porter in 2010.
Kirk Wycoff, Patriot's managing partner and a Porter director, did not return a call seeking comment.
Porter chose the right executive to address its challenges, said Ballard Cassady, president and CEO of the Kentucky Bankers Association.
Taylor "is the kind of guy you need when you do this type of turnaround,” Cassady said. “This is not his first one. He’s one of those guys who can step into a situation, assess quickly where problems are and start drilling away.”
The company has also changed its culture by emphasizing employee responsibility for managing risk.
“We're a totally different company in terms of culture, risk, infrastructure and the ability to deliver for customers,” Taylor said. “Limestone is the brand that helps us tell that story much more powerfully.”
In addition to changing internal practices and structures, Taylor established positive relationships with regulators, Vice said. An ability to raise capital also gave the bank’s leadership team and regulators time to work through the problems.
“No rushed decisions were being made on the bank or the regulators’ part,” Vice said. “Now the balance sheet looks dramatically different.”
While earlier capital raises were defensive in nature, funds from the latest placement should help the company expand.
Porter is eager to add quality loans that fit its new risk profile, while also becoming more efficient, Taylor said.
First-quarter profit rose by 15% from a year earlier, to $1.9 million. Total loans rose by 12% to $724 million, while the efficiency ratio fell to 76% from 81% a year ago.
“Our efficiency ratio is not yet to peer, and we aspire to be better than peer,” Taylor said. “We need to manage our expenses while growing our revenues the right way.”
Porter has ample opportunities to grow now that the regulatory orders are gone, said James Stevens, a lawyer at Troutman Sanders, adding that the fresh capital should also allow management to increase the size of the bank’s balance sheet.
“To me, the future looks pretty bright,” added Stevens, who has not worked for Porter. “They have some scale and a long-term management team that’s experienced in these markets.”