Virginia Investor Places Big Bets on Small Banks

Article excerpt

Byline: Paul Davis

If you run a good bank, expect a call from Ken Lehman.

A former securities lawyer, Lehman evolved into a serious bank investor over the last decade and, after surviving the financial crisis, seems poised to leave his stamp on the financial sector.

His holdings have commanded attention lately, including a 41% stake in First Capital Bancorp (FCVA) in Glen Allen, Va., and a 29% stake in Liberty Bell Bank (LBBB) in Marlton, N.J. He is also a director and corporate secretary at Virginia Commerce Bancorp (VCBI) in Arlington, Va., which agreed last month to sell itself at a healthy premium.

But Lehman doesn't view himself as an activist investor intent on shaking up the system. Rather, the media shy moneyman portrays his positions as votes of confidence. Small banks with good management can beat the odds, he says.

"What makes a good community bank is the relationships it has with its customers," he says. "I find that a bank's relationships with customers get more tenuous as the bank gets bigger."

Community bankers should familiarize themselves with Lehman. Why? Because Lehman, who screens his own investments, often reveals his plans to make big investments in phone calls directly to chief executives.

"Ken called me out the blue one day" in late summer 2011, says John Presley, CEO of the $543 million-asset First Capital. "He had noticed that our ...underlying finances looked very attractive. He had also been calling CEOs of other companies that had popped up on his screen."

Lehman's big play on Liberty Bell also took the $174 million-asset bank by surprise. "We're learning about him pretty much like anyone else is," Kevin Kutcher, the bank's president and chief executive, says. Kutcher's first encounter with Lehman took place a few weeks ago when the investor called to talk banking.

"I got a favorable first impression," Kutcher said of the 40-minute conversation. "He's certainly familiar with our history and the players in our markets. We're looking forward to meeting him."

Lehman was drawn to bank investing while at Luse Lehman Gorman Pomerenk & Schick, a law firm he co-founded in the early 1990s. Over time, he began focusing more on the underlying financials of his legal assignments. By 2002, he was ready leave the firm to focus solely on investing.

Lehman was "a great advisor because he loved the finance side of things," says John Gorman, a partner at the firm. "We were doing a lot of legal work for M&A and capital raising when he realized he had a real knack for understanding the value in investments."

A look at Lehman's investment history would indicate that his modus operandi involves making money when a bank sells. From 2003 to 2005, he co-founded three banks; each sold within four years of their debut. But Lehman, and those who know him, says he is not a quick-flip artist.

"He's driven by shareholder value," says Bill Boyan, a managing director at Sandler O'Neill who has known Lehman since he worked in Luse Lehman. "He's in favor of running an institution over the long haul if you can show him that it can create value on an organic basis. …