Troubled or start-up banks that need a capital infusion should not bother calling Patriot Financial Partners LP in Philadelphia.
The 18-month-old fund has $300 million to invest in community banks, but so far it has deployed only a small fraction of it, because it is being very choosy, said W. Kirk Wycoff, a founding partner. It will consider buying stakes only in established banks in good markets with strong management teams and minimal asset-quality problems.
"We don't do distressed, and we don't do de novos," Mr. Wycoff said.
Patriot announced last week that it has closed the fund after completing the second of two capital-raising efforts this year. Its goal now is to invest $5 million to $25 million in four to six banks or thrifts each of the next four years. It is eyeing both privately held and publicly traded banks with $250 million to $5 billion of assets.
The fund intends to hold on to investments for up to 10 years.
Mr. Wycoff and his co-founder, James J. Lynch, are longtime Philadelphia bankers who have served as chief executives of nine banking companies. They say now is a particularly good time to invest in healthy community banks, because they are starting to win business from large banks that are preoccupied with problem credits and have scaled back lending. Also, with less competition, small banks are getting wider loan spreads, the partners say.
"Loans are now coming to community banks past prime plus 1%, instead of prime minus 1%," Mr. Wycoff said.
He said Patriot has invested this year in three banking companies, including Cape Bancorp Inc. in Cape May Court House, N.J. In January, Cape Bancorp completed a public offering, and it used a portion of the proceeds to buy Boardwalk Bancorp Inc. in Linwood.
Patriot is the newest fund of Independence Capital Partners Inc., a family of private-equity firms. The fund is one of several established lately for the purpose of investing in community banks. Some, like Patriot, are run by ex-bankers, while others were started by more traditional private-equity groups.
There is no shortage of banks that could use capital infusions, but many investment groups are content to stay on the sidelines until the financial crisis begins to subside.
Regulators have responded to their skittishness by offering incentives to encourage investments in the banking sector. The Federal Reserve Board is letting private-equity groups buy larger stakes in banks without requiring them to register as holding companies, and both the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. have established rules to make it easier for nonbanks to buy troubled or failed institutions.
Mr. Wycoff said that Patriot is not interested in distressed banks, because it would get little or no return on its investment while the bank managers take two or three years to fix problems. Also, start-ups take at least that long "to get to critical mass."
Patriot would consider registering as a holding company, but it has yet to do so, he said.
The fund intends to be a passive investor, but Mr. Lynch said that he and Mr. Wycoff expect to work with management teams to help develop strategies for increasing loans and deposits prudently. They also intend to share with bank managers any mistakes they may have made in their careers.
"We're not there to tell them what to do," Mr. Lynch said. "It's more about telling them what not to do."