SEAN MAHONEY
‘Excess deposit insurance’

Over the last seven months, a group of veteran bankers has been raising capital with plans to create the Bay State’s newest community bank. Last Thursday, one of the bank’s organizers testified in Boston before the Board of Bank Incorporation to explain why Patriot Community Bank will benefit the Woburn and Lexington area.

John O’Donnell, who will serve as president and chief executive officer of the proposed Woburn-based Patriot Community Bank, told members of the BBI there are several reasons why a community-based institution is necessary in that market area.

“We believe that there is a need for a locally owned and operated bank in the primary service area of Woburn and Lexington and the secondary service area of Arlington, Bedford and Medford,” O’Donnell said. “These communities have a large number of high-technology companies and a significant number of manufacturing and service companies that need a locally owned and operated bank with a commercial and retail focus.”

Patriot Community Bank plans to offer an “important benefit” to its business customers: excess deposit insurance.

“Excess deposit insurance is extremely important to small businesses that generate cash revenues and that may routinely have deposits in excess of the amount insured by the [Federal Deposit Insurance Corp.] in their transaction accounts,” O’Donnell said. “Massachusetts is the only state with a successful excess deposit insurance system and it is available to all state-chartered savings banks and co-operative banks.”

Patriot Community Bank, represented by Sean Mahoney and Stanley Ragalevsky, attorneys at Boston-based law firm Kirkpatrick & Lockhart Nicholson Graham, argued that the institution will serve a public good.

“While there are a number of bank offices in the area, there are very few locally based decision-makers,” Mahoney said. “Moreover, there currently is no institution headquartered in the area that offers its customers excess deposit insurance. For these reasons, we believe that the application supports a finding that the public convenience and advantage will be promoted by the approval of the application.”

Patriot Community Bank is seeking a state, rather than federal, charter because it would allow the bank to offer the excess deposit insurance.

Other public benefits listed by the bank include the creation of jobs, bankers who are active in the community and provision of greater customer alternatives. The bank initially would employ approximately 12 staff members.

O’Donnell said the bank’s incorporators have been planning for the bank’s creation since January. The proposed bank expects to achieve an asset base of approximately $88 million in total assets, with $63 million of the assets in loans, within the first three years of operation. Deposits, O’Donnell said, are projected to be approximately $78 million with no borrowed funds during the same time span.

“We plan to sell excess loan originations into the secondary market,” O’Donnell said.

O’Donnell also described a more conservative financial plan in the event of an economic downturn. Under that situation, the bank would originate approximately $45 million in one- to four-family mortgage loans per year with the majority of the loans to be sold into the secondary market.

“The resulting difference between the two plans is the level of income and balance of capital without a significant effect on the long-term success of our proposed bank,” O’Donnell said.

There is $6.5 million in capital already committed to the bank. All of the bank’s non-management directors will be investors in the bank and capital is being raised through a private offering.

“By not having outside investors, we believe that we can minimize many of the pressures that could threaten our proposed bank’s independence,” O’Donnell said.

Steven L. Antonakes, Massachusetts commissioner of banks, inquired at the hearing about the expected timeframe to raise the remaining capital. Under the state charter requirements, the bank would need $8 million in startup capital. O’Donnell said the remainder should be raised this fall. Antonakes also asked when the bank expected to be ready for business assuming the bank’s application is approved. Jan. 1, 2006, is the target date for operation, according to O’Donnell.

The bank will be based in Woburn and there are no plans for expansion until after the initial three years. O’Donnell refused to disclose the possible office location in Woburn because a lease has not been signed yet. Community members are aware of the bank’s intention and O’Donnell said he has received a positive response from citizens and businesses in the area.

Following the hearing, O’Donnell said he and other bank organizers were approached at the beginning of 2005 by area business people who told them there was a need for another community bank in the Woburn and Lexington market.

“We want to provide another option to the consumer,” O’Donnell said. “We will do a better job of serving the customer.”

‘Selling the Idea’

The bank will offer a range of commercial and consumer deposit products. Commercial customers will be able to choose from checking and savings accounts. Consumers will be able to choose from among checking, savings, money market, certificate of deposit and IRA accounts. Commercial and consumer loan products will also be part of the bank’s offerings. Fixed- and variable-rate residential mortgages, including construction loans and mortgages for owner-occupied and investment properties will be available. Business loans will include real estate and asset-based loans. The bank plans to offer customers Internet and telephone banking, as well as one ATM at the bank branch during initial operations. However, customers will have access to other ATMs via network affiliations.

Working alongside O’Donnell at Patriot Community Bank will be principals Anthony J. Patti, Annette J. Hunt and Kevin M. Dean.

Patti, with 20 years of banking experience, will serve as the bank’s chief financial officer, treasurer and information technology officer. Hunt initially will be responsible for retail administration, human resources and security. Most recently, Hunt served as senior vice president at Medford Co-operative Bank. Dean, who will be responsible for residential lending and consumer loan servicing functions, has 23 years of experience in residential lending and consumer compliance. O’Donnell, who has 20 years of community banking experience, primarily in commercial lending, said he will head up the commercial lending side of the proposed bank in the initial stages. Eventually, the bank intends to hire a senior commercial loan officer. This is expected to occur within the first year of the bank’s establishment.

O’Donnell admitted it is difficult to “sell the idea” of the bank to investors without having a brick-and-mortar institution to showcase. However, opening a de novo bank where a need exists is important, he said. As mergers and consolidation continue to reshape the banking landscape, a handful of de novo banks have cropped up in recent years in Massachusetts, such as Leader Bank in Arlington and Commonwealth National Bank in Worcester. O’Donnell said customers are looking for those types of newly formed institutions because they tend to offer more personalized service and can adjust to consumers’ needs.

“The consumer is looking for de novo banks,” he said.

O’Donnell said that because the bank’s footprint is within Paul Revere’s famous ride to warn people “the British are coming,” the name “Patriot” was decided upon for the new institution.

When describing what the bank’s intentions, O’Donnell said Patriot Community Bank will act as a traditional bank and “take deposits and make loans” to both businesses and individuals.

The public comment period on the application to organize the new cooperative bank ends at 5 p.m. on July 15.

Jennifer Jope may be reached at jjope@thewarrengroup.com.