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By Francis X. Gilpin

Associate Editor

Ten years ago, John W. Puffer III saw big things ahead for the Temple Terrace bank he co-founded.

"We're actively exploring opportunities for expanding," Puffer told the St. Petersburg Times. "There's an opportunity in this market for a large community bank, one with $200 million to $300 million in assets."

Terrace Bank hasn't been it.

In 1995, Puffer gave up a long career as a board-certified real estate lawyer, primarily with the old-line Tampa firm of Shackleford Farrior Stallings & Evans PA, for fresh adventures in community banking.

"Probably more than anything, I'm an entrepreneur at heart," Puffer says now. "I love creating a business."

By his own measurement, though, Puffer's first decade at it would have to be considered a disappointment.

His bank stood at almost $136 million in assets on Dec. 31. Deposits at Terrace Bank actually decreased by more than $7 million in 2004, although Puffer attributes that to a year-end, holiday-induced fluke. Still, as of last June, the bank's share of deposits in the Tampa Bay area market was down versus a year earlier.

Net income has risen steadily since a 2001 slip. Terrace Bank recorded its first $1 million-plus profit last year.

But Puffer, the bank's chairman and president, realizes he cannot continue to stand pat and expect to keep pace with friskier competitors.

So the 62-year-old lawyer-turned-banker is reinventing Terrace Bank. "I feel that not having been a lifetime banker is an opportunity because I don't come with any pre-conceived ideas of how a bank should operate," says Puffer. "For better or for worse, I'm not burdened with that."

The reinvention started with a new name. Now known as Pilot Bank, the former Terrace Bank is adding three new offices this year. Those will include the first one outside of Hillsborough County.

Not only that, but all of the seven eventual offices will look different from most banks. "Your typical bank branch reminds me of an East European store before the fall of Communism, where somebody's behind a cage," says Puffer. "So we're eliminating the traditional teller line."

Neither Pilot Bank nor its Tampa-based holding company, Pilot Bancshares Inc., has the resources to pull it off all at once.

Thus, in April, the holding company is expected to announce a private stock offering.

"We've now reached the point where, to grow further, we'll have to raise additional capital," says Puffer. "That's what we're planning to do in the very near future."

About 300 buyers lined up the last time that the bank sold stock. That was in 1987, when Puffer and other local business owners and professionals organized what was then called the Terrace Bank of Florida. Most of them, such as neurosurgeon William O. DeWeese and retired University of South Florida spokeswoman Ann McKeel Ross, are still Pilot Bank directors.

The organizers raised $3.3 million, about half of what state regulators normally require for approval of a de novo application today.

Terrace Bank was doing well enough by 1995 that it acquired a neighborhood competitor, the University State Bank. Around the same time, however, the bank lost its president to a rival.

Puffer says the Terrace Bank board asked him to step into the breach.

By then, Puffer had departed Shackleford Farrior, in an exodus of partners that included the venerable Byrne Litschgi. Puffer worked at the Tampa offices of a couple of out-of-state law firms, but professes no dissatisfaction with his legal career. "I loved practicing law and taking care of clients," he says. "That's really what I do now."

In fairly quick succession, Terrace Bank bought University State and a Lakeland general-aviation loan broker called National Aircraft Finance Co.

Puffer, a licensed pilot since his teens, says community banks generally stay away from the aircraft market for reasons he cannot understand. "I knew it was great collateral," he says. "It was about the only consumer collateral that has appreciated over time. The pilots themselves tend to be very committed. They place a high priority on paying for their airplanes."

National Aircraft Finance does have to seek business outside of its primary geographic market and has closed loans in every state except Hawaii. But bankers inexperienced in aviation don't realize that the liens on the aircraft are all filed in one place, Oklahoma City.

"There's an irrational component to it as well," says Puffer, who co-owns three planes himself. "Some people tend to equate their personal fear of flying with the risk involved in making loans."

The aviation subsidiary of Pilot Bancshares had a record 2003, according to the holding company's latest annual report. Although not a huge profit generator, National Aircraft Finance's loan production jumped 35% to $48.8 million in 2003.

"The proof is in the performance," says Puffer. "We've had virtually no losses, over about 12 years of being in the business."

The bank hasn't grown quite as fast. Last year, Terrace Bank's assets increased by only about 1/10 the rate of comparably sized American banks.

Terrace/Pilot Bank has emphasized commercial lending, which could explain why some results have been choppy.

Non-current loans, as a percentage of the total portfolio, were higher in 2004 than Terrace Bank's peers, as that category was in 2001 when net income fell. Puffer says one large delinquent loan can wreak havoc with a small community bank's ratios.

But Terrace/Pilot Bank historically has been conservative and maintained a high loan-loss provision. "We'd rather have it there when we need it," says Puffer, who adds that the bank has seldom had to tap the loss reserves.

Eschewing a conscious growth strategy until now, the bank has focused on creating an infrastructure that would support expansion someday, says Puffer.

Two of the three new offices are opening in April, one in Westchase and the other in Brandon. The third office, the first outside of Hillsborough, will be ready later in the year in downtown Lakeland.

Along with solid personnel, Puffer says Pilot has installed advanced technology to support the Internet cafe-style offices he is introducing.

"They'll be an open concept," he says. "Instead of somebody behind the teller line, waiting for the customer to walk across the floor, our employees will be, much like they are in a retail store, on the floor near the door, greeting them and engaging them in conversation."

Puffer says he copied the design from an Oregon bank and believes only Seattle-based Washington Mutual Inc., which has a thrift operation pushing into Bay area retail banking, has attempted anything similar locally.

Coffee and personal computers will be in abundance. Cash dispensers should eliminate the need for employees to worry about balancing teller drawers at the end of the day. "More time available to focus on the customer rather than focusing on the money," says Puffer.

John W. Puffer III

Title: Chairman and president, Pilot Bank, Tampa

Background and education: Born and raised in Miami, Puffer took bachelor and law degrees at the University of Michigan. He resides in South Tampa.

Experience: Puffer practiced real estate and general corporate law until a bank he helped to found needed a president and he stepped in.

Other interests: Puffer inherited a love of flying from his father, a commercial airline pilot who flew fighter planes during World War II. His pilot's license comes in handy when he travels to his second home in Montana. A history buff, Puffer is trying to read biographies of all 43 U.S. presidents and says he has finished eight of them to date.