A distinction with a difference

Sarasota-based LandMark Bank of Florida recently found itself in the news for all the reasons that make community bankers cringe, with words like undercapitalized and prompt corrective action.

But a closer look at the details shows that perhaps LandMark isn't as bad off as it might appear.

To be sure, the challenges at LandMark, a $320-million asset institution, are acute: The bank is under a 90-day deadline imposed by federal regulators to raise capital or find a buyer. The order, issued Sept. 17, is especially frustrating because LandMark officials thought they won a significant victory in the capital-raise race when the bank oversold a $15 million private stock offering early this year.

That capital infusion fell through, however, when one investor pulled out due to stringent scrutiny from regulators monitoring the process. The bank terminated the offer Aug. 16, citing not only that investor, but also the uncertainty in the economy from the Gulf oil spill.

All of which essentially leaves LandMark back where it was Nov. 9, when it was first ordered to submit a capital plan. Back then, the bank was ordered to raise its levels to “adequately capitalized,” which, under federal guidelines, means a Tier 1 capital ratio of at least 4% and a total risk based capital ratio of at least 8%.

However, the bank hasn't been required to raise its levels to what's considered well capitalized — an important distinction because well capitalized is a Tier 1 capital ratio of 5% and a total risk based capital ratio of at least 10%. Moreover, a majority of banks in Florida under regulatory order have been told to get to 8% and 12%, respectively, not merely adequately or even well capitalized.

It's also an important distinction because LandMark, with a Tier 1 capital ratio of 4.47% and a total risk based capital ratio of 7.75% as of June 30, is tantalizingly close to obtaining adequately capitalized status.

The bank's new capital-raise effort is already underway. Bank spokesman Frank Knautz declined to comment on the potential benefits to being required to be adequately capitalized, opposed to being well capitalized. Says Knautz: “There are specific regulations regarding comments the bank can make during an offering.”