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Jul 12, 2009 (Pittsburgh Post-Gazette - McClatchy-Tribune Information Services via COMTEX) -- CNYL | Quote | Chart | News | PowerRating -- Directors and large shareholders of Johnstown-based 1st Summit Bank are the majority owners of a failing Florida bank that's under sharp orders from federal regulators.

The Office of the Comptroller of the Currency has given Community National Bank of Sarasota County until Friday to either raise millions in new capital or merge with or sell itself to a healthy bank. The OCC directive, issued last month, came after the Venice, Fla., bank failed to remedy unsafe and unsound lending practices identified in a March 2008 written agreement between regulators and the bank.

Regulators found more of the same this March, prompting them to issue a directive they say is designed "to resolve the bank's problems at the least long-term cost to the Deposit Insurance Fund." The directive orders Community National's directors to "immediately take all necessary steps to correct each violation of law, rule, or regulation" cited in a report OCC sent to the bank in late March.

Records Community National filed with Florida's secretary of state in January list Joseph R. and Allana M. Kondisko and William G. and Jeanne W. McKelvey as directors of the bank. The four acquired a controlling stake in Community National in 1997 and still own a majority of the bank's shares, Mr. Kondisko says. Employees own about 20 percent of Community National, he adds.

The Kondiskos and McKelveys also are investors in 1st Summit, where Mr. Kondisko and Ms. McKelvey serve on the board of directors. Mr. McKelvey, other family members and related entities own nearly 11 percent of the bank's shares, according to 1st Summit's annual report.

"[Community National] doesn't have a relationship with 1st Summit. Nothing goes back and forth between them," Mr. Kondisko said.

He is president of K Management Group, a Greensburg real estate management company. William McKelvey is president of McKelvey Oil, a Johnstown company that provides heating oil and related products as well as heating, air conditioning and plumbing.

"Their investment [in Community National] has been completely separate from our bank," said 1st Summit President Elmer Laslo.

Mr. Laslo also said there were no business dealings between 1st Summit and Community National.

The McKelveys did not respond to calls and an e-mail seeking comment.

Financially, the two banks have little in common.

1st Summit, which has assets of $547.1 million, reported profits of $1.3 million for the first quarter and $4.8 million for 2008, according to reports the bank filed with the Federal Deposit Insurance Corp. It has received a four-star rating from Bauer Financial Group, a Coral Gables, Fla., firm that rates the soundness of financial institutions.

Bauer's highest rating is five stars. It doesn't give any stars to Community National, which has assets of $95.6 million. The bank posted a loss of $6.4 million in the first quarter, reflecting a $5.7 million provision for losses on loans and leases. The deficit was nearly double the 2008 loss of $3.3 million.

"The real estate market collapsed down here. Most of the banks in Florida have the same problem," Mr. Kondisko said.

Under the March 2008 agreement, signed by the Kondiskos and McKelveys, Community National was found to be in "troubled condition" and was ordered to hire a senior lending officer. OCC also ordered the bank to establish an effective method for reviewing its loan and leases, including identifying delinquent items, credit-related violations of law, rule or regulation, and loans and leases that do not conform with bank policies.

Failure to address unsafe and unsound practices and Community National's "critically undercapitalized" condition prompted last month's directive. OCC's marching orders restrict the compensation of senior executives and require that transactions with current or former directors, stockholders, senior executives and members of their families be submitted to regulators for review. They also require directors to assess whether current management is competent or should be replaced.

Whether Community decides to sell stock to raise capital, find a merger partner or sell itself, it can only proceed if OCC doesn't object.

Based on the directive, Community National would have to raise about $7 million in new capital to meet federal standards for tier 1 capital, basically the value of a bank's stock and retained earnings. Those requirements include raising enough new capital to elevate Community National's tier 1 capital from 2.6 percent of the bank's risk-adjusted assets to at least 12 percent.

The ratio compares a bank's capital with its assets after adjustments are made to reflect the risk of those assets (cash and government securities being the least risky, loans and standby letters of credit being the most risky).

"We're working with a couple of people right now, and we think we will have it done," Mr. Kondisko said. "There's no certainties in this world, but I believe we'll have it done."

Len Boselovic can be reached at lboselovic@post-gazette.com or 412-263-1941.

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