Patrick Patrick's retirement as president and CEO of Seattle Bank, which was on the financial precipice when he arrived on the scene in September of 2010, has now completed the latest chapter in a career of turning around troubled banks.
Patrick, now 72, figures he'd be interested in another turnaround opportunity and is quite certain there will always be banks in need of turnaround. And he thinks that perhaps what he sees emerging in the industry may continue to produce more of them.
"There will always be troubled banks," said Patrick in an interview following his retirement. "The question is the degree of trouble in determining if they need to bring an outsider in."
It took Patrick less than a year at the helm of Seattle Bank before he put together an unusual team of non-bank people, prominent local business executives who put up $50 million to recapitalize the bank. That provided the capital for Patrick to start bringing the bank back out from under the weight of soured real estate loans that had brought the bank under the thumb by regulators since July of 2009.
Since its establishment as Seattle Mortgage Company in 1944 by Ben Smith Sr. to help veterans returning from World War II to buy homes, the bank had been a highly regarded, family owned financial firm.
It became Seattle Savings Bank in 1999 but changed its name to Seattle Bank in 2009, shortly before the bank and its Seattle Financial Group holding company were placed under a cease-and-desist order and told to create a capital-infusion turnaround plan.
Now that he has turned the bank around and stepped, perhaps briefly, into retirement again, Patrick sees a familiar, troubling pattern re-emerging.
"We're going back to doing the same things we did when the financial industry got into trouble. Because competition is fierce and interest rates are extremely low, some banks are making loans on terms we shouldn't be considering," Patrick added.
Patrick's perspective extends back over four financial crises, with his first opportunity to assume the role of turnaround CEO coming after the savings and loan crisis of the early '80s when, in 1983, he was asked to take the helm at Seattle-based Prudential Savings, which was in danger of being closed.
Two years later, he found himself also overseeing Westside Federal as well, running both thrifts simultaneously for a year before melding Westside into Prudential and, on "Black Monday" in 1988, selling Prudential to Tacoma-based Pacific First Federal.
Thus the role Patrick played at Seattle Bank is one he's been playing over the 30 years, a role that could be characterized as the financial version of an old television western series called "Have Gun, Will Travel" in which the hero went from town to town to resolve problems created by the bad guys.
As I pointed out in a column on Patrick soon after he stepped in at Seattle Bank, in his case the "bad guys" have been those who've taken actions that jeopardized community banks thus putting at risk the important role such institutions have traditionally played in the economic health of their communities.
Not all his assignments have been successful, as his role immediately preceding Seattle Bank, guiding the hoped-for turnaround of Towne Bank of Phoenix, failed as the bank went down four years ago next month, two years after Patrick came in with the bank under the cloud of federal oversight.
"It was the target of one of the first cease-and-desist orders in the country and had one of the highest amounts of non-performing assets I'd ever seen," Patrick said. "In the end it wasn't possible for the turnaround effort to succeed."
As a career-long believer in community banks, Patrick expressed concern about their future in the 2010 interview, and retained that concern in the interview following his Seattle Bank retirement.
"Community banks are the framework of any town or city and the framework is in great jeopardy," he said in the 2010 interview, "even though not one dollar of taxpayer money has been spent on any problems that individual community banks have encountered. Any money that's gone to community banks has come from assessments and insurance premiums."
He has similar concerns still, noting that "many of the new regulations put forth in the past couple years have made community banking much more difficult."
"Sometimes the law of unintended consequences makes the cure worse than the issue," he said. "Without community banks, who is going to help the small businesses that drive our neighborhoods? We can't doubt the sincerity of those who want to provide protection for everything, but there is a point where we create even bigger concerns."
As Governor-elect Jay Inslee puts his administration's leadership team in place over the coming weeks, the state's community bankers hope to persuade him to retain the man who oversaw the state's regulation of financial institutions during their unprecedented turmoil.
If Inslee asks outgoing Gov. Chris Gregoire about Scott Jarvis, whom she appointed director of the State Department of Financial Institutions (DFI) at the outset of her tenure in March of 1985, she'd undoubtedly give an unqualified endorsement.
Brad Tower, president and executive director of the Community Bankers of Washington (CBW) will be suggesting to his members that they urge Jarvis' reappointment. The state-chartered community banks around the state may represent the most economically important sector of industries that fall under Jarvis' oversight.
Part of what Inslee must weigh is the fact that Jarvis, during an almost unprecedentedly challenging time for banks, credit unions and other financial companies, created a firm but caring state regulatory environment. What he created was important not just to the industry he oversaw but also to the economy of the state.
The state's banks and savings and loans were awash in profits when Gregoire plucked James (Scott) Jarvis from the office of the state insurance commissioner, where he was Deputy Commissioner for Consumer Protection, to head the agency that oversees all financial-transaction businesses.
It wasn't long into his tenure that Jarvis, an attorney, came to realize that what he recalls as "extremely high concentrations of lending in land acquisition and real estate development was going to be a problem for community banks if the economy took a turn for the worse."
But he was frustrated by the fact that, as he puts it, "there were no tools in the regulator's tool box to impose enforceable concentration limits nor to compel a profitable and healthy institution to reduce its exposure to a line of lending."
Thus as Jarvis came to know personally many of the bankers who ran institutions he regulated, "I knew who among them was struggling and whose banks, absent infusions of hard-to-come-by capital or an acquisition, would not survive."
"To watch these decent individuals keep a stiff upper lip and act as if all was well when they were among their peers and competitors was difficult," he said, in a comment bespeaking a regulator with a human side. "And it became all the more difficult as time for failure drew near." In the end, 17 state-chartered banks failed.
"I believe that over the last seven years, the environment he has created and people he has surrounded himself with has been one of the greatest assets for community banking in our state, and actually nationally," said CBW executive Tower in a telephone interview.
"While he has been a tough regulator, he's been fair and supportive and has been willing to push back on federal regulators when they were failing to be sensitive to local conditions," noted Tower, whose CBW is viewed as the pre-eminent voice of the state's 60 independent community banks. "Scott has been directly involved in slowing the knee-jerk reaction of the feds to close first and ask questions later."
That ability to work with federal regulators stems in part, likely, from Jarvis' role as legislative committee chair for the national organization of state regulators, where one of his duties is to coordinate the legislative positions of the organization at the federal level.
Pat Fahey, one of the state's most respected bank CEOs, recalls that as he sought to turn around failing Frontier Bank, "Scott was very supportive, even meeting with the governor to see how she might get involved, in seeking to convince the feds to accept a deal we had put together to save the bank."
In the end, fed ineptitude caused investors who sought to put together a deal with Fahey that would have saved Frontier Bank and its parent Frontier Financial Corp. to back away and the bank was shuttered and its assets sold to California's Union Bank.
Fahey is now at the helm of First Sound Bank as chairman, president and CEO seeking to turn it around.
Patrick Patrick, like Fahey, a turnaround banker now involved in bringing back Seattle Bank, where he is CEO, says Jarvis "was the man the state needed in a very difficult time for Washington. He represented the interests of the regulatory system as well as the communities whose banks he oversaw."
Patrick credits Jarvis with "making certain, where possible, that people who had given back to their communities had a chance to continue to do so with their banks."
It's interesting, as well as telling, that Jarvis views his role as DFI director to be fostering policies that not only provide a healthy and predictable regulatory environment, but also promote economic vitality. It's clear he understands that what his agency website describes as "a fair and dynamic lending environment that results from viable state-chartered banks and credit unions" is important to capital formation for small business.
Jarvis' agency, in addition to regulating state chartered banks and credit unions, also regulates a variety of non-bank financial services providers, including mortgage lenders and payday lenders, as well as our state's securities industry.
Tellingly, CBW's Tower notes that "The FDIC has ramped up hiring and paid outrageous amounts to get good people. Scott can't pay market rates for his people so the only way he can keep good people is to create a good working, even a mentorship, environment."
Looking down the road for the industry he's come to understand as well as anyone, Jarvis thinks that as the economy improves "we can expect to see entrepreneurs looking to the state bank charter as the vehicle to create and grow new local community banks."
But he adds that for now, "and perhaps a bit beyond, consolidation remains the more likely path as the economic environment strives to sort itself out and attractive returns on investment remain challenging."
"Though not in the numbers seen in the past, well capitalized proposals, with strong management and sound business plans, will have a place in the Washington community banking environment in the years ahead and should receive federal approval," Jarvis said.
In addition, Jarvis notes, "a number of Washington institutions have recently switched from a federal to a state charter and several more are giving serious consideration to doing so."
"I would like to think that our efforts to be perceived as a fair, competent and knowledgeable regulator and our performance during these almost unprecedented times has something to do with that," he added.