Middle Atlantic community banks that need correspondent banking services have no shortage of options; there are bankers’ banks based in Maryland, Pennsylvania, and Virginia, and the nation’s largest bank for other banks opened a Maryland office two years ago, mainly to help small banks make loans that exceed their limits.
Now more competition is coming to the region. Pacific Coast Bankers’ Bank in San Francisco and its sister capital markets group are set to open a joint office Tuesday in Washington. The office would be the Pacific Coast’s 14th, and its first on the East Coast.
Steven Brown, the president and chief executive of the bankers’ bank and its parent, Pacific Coast Bankers’ Bancshares, said it is setting up shop in Washington because “it’s a good market and we were able to find talented folks there” who have relationships with community bankers.
The 10-year-old Pacific Coast also plans to set up shop in the Northeast and open a second office in Chicago in the next three months, and it has set a goal of having 20 offices throughout the country within the next three years.
The aggressive expansion outside of its home turf highlights a growing trend among bankers’ banks. They were created largely to provide correspondent services to community banks within defined geographical boundaries, but those lines have become increasingly blurred as some growth-minded bankers’ banks have moved into new markets.
Chris Nichols, the CEO of Pacific Coast’s capital markets unit, Banc Investment Group, said that his unit and the bankers’ bank itself are expanding their scope of products and their geographical reach because they are finding that many small banks would prefer to use bankers’ banks for correspondent services, rather than large and regional banks that are also competitors.
Banc Investment Group, the capital markets arm of the company, offers wholesale products and services such as loan purchases and sales, fixed-income securities, federal funds purchases, brokered deposits, and consulting.
In recent years Pacific Coast Bankers’ Bank also has added such products as an online loan pricing tool and a credit-stress model that clients can use to shock the concentrations of their commercial real estate and construction loan portfolios.
Between the two units, “we now have more than 60 products and services that community banks can use to better compete with larger banks,” Mr. Nichols said.
Two other bankers’ banks that have been expanding aggressively are The Bankers Bank in Atlanta and TIB-The Independent Bankers Bank in Irving, Tex.
The $2.2 billion-asset Atlanta bank has offices throughout the Southeast, as well as in the Middle Atlantic parts of the Midwest and the West. Most of its offices are loan production offices, where the bank participates with community banks in loans larger than their limits.
The $1.7 billion-asset TIB operates in nine states, and in June it acquired a California bank charter to convert a loan production office in Huntington Beach into a full-service branch to capture “impound” business — the holding of funds in escrow for banks in organization — in the nation’s most active state for start-ups.
The aggressive growth of these bankers’ banks is understandable, according to John Blaylock, the associate director at Sheshunoff & Co. Investment Banking in Austin.
“As community banks need to adapt to the changing technology and the changing landscape” of the industry, “bankers’ bank products also have to change in order to remain competitive,” Mr. Blaylock said. “And with that, the bankers’ banks have to get to a certain size in order to offer those services, so their growth will just continue.”
Eventually there will be some consolidation among the 21 bankers’ banks, he said; most likely, small ones will band together to compete with the more aggressive large ones.
Mr. Brown said that Banc Investment Group and the bankers’ bank will offer all their products and services in all their new markets, but most likely they will emphasize their services for start-ups on the two coasts and funding products in the Midwest.
Banc Investment Group also publishes an online newsletter that includes not only the latest yields, rates, and industry news, but also advice on such things as improving bank performance, loan pricing techniques, and increasing small-business lending.
Since the unit’s creation in 2003, the rollout of about two dozen products, and the opening of 11 additional offices in the West, its parent’s assets have more than doubled.
Bart Hill, the CEO of the $700 million-asset San Joaquin Bank in Bakersfield, Calif., says it has been a Pacific Coast customer for more than a decade. Through interest rate swaps, his bank has been able to offer fixed-rate loans to commercial borrowers and compete with big banks on loan deals, Mr. Hill said.
After San Joaquin makes the loans, Pacific Coast swaps the fixed rate with a floating rate to lessen the risk of rate changes, he said. Currently about $100 million of San Joaquin’s $600 million loan portfolio are fixed-rate loans.
Mr. Hill said that a TIB banker has already come calling — “one was just sitting in my office yesterday” — but for now he is satisfied with Pacific Coast’s service.
Scott Goldstein, the chief financial officer of the $78 million-asset Summit Bank in Eugene, Ore., said it has been with Pacific Coast since 2003, when his bank was just forming and the bankers’ bank held its funds in escrow.
Though Mr. Goldstein has not been approached by other bankers’ banks, he likely will call them to compare products and services. “It’s good to have a somewhat crowded marketplace,” he said. “That helps competition, and generally that’s a good thing.”
