Urban Partnership Bank has spent nearly a year finding ways to continue ShoreBank's mission of banking the underserved while also avoiding the failed bank's fate.
Executives at Urban Partnership, a Chicago bank formed to buy ShoreBank's deposits and assets from the Federal Deposit Insurance Corp. last August, say those 10 months were well spent. Now the $1.4 billion-asset bank is ready to lend.
"We had this vision of what we wanted to create, but we needed to install the disciplines that would ensure the long-term viability of our bank," said William Farrow, Urban Partnership's president and chief executive, in an interview last week. "It obviously needs to be safe, it obviously needs to be sound, but it also needs to serve our community."
Urban Partnership is supported by roughly $140 million of capital from a consortium of big banks and foundations that banded together in an attempt to save ShoreBank, a high-profile community development bank that was often called the darling of the Clinton administration, which extensively touted the financial institution.
ShoreBank was hit hard by the real estate bust. While the bank had hoped that the consortium's capital would help it secure additional funding from the Treasury Department, that didn't happen. Instead, ShoreBank failed, and Urban Partnership emerged from its ashes.
Farrow said Urban Partnership's board spent several months examining was to renovate the bank's culture.
"We have the advantage of being able to create a completely different playbook," Farrow said. "This is a fresh start."
For instance, Farrow's management team changed the credit administration process. ShoreBank previously had been a "one-stop shop," where one team would handle everything from identifying the borrower to originating the loan, said Levoi K. Brown, the bank's new director of commercial real estate.
Now, a loan at Urban Parternship must go through several teams before it is approved and funded.
"There were no checks and balances in the process," Brown said. "We spent a lot of time putting in the proper controls."
Farrow said the bank's relaunch features a customer education component.
"We want to have a full discussion about risk with everyone involved," Farrow said. "We are not doing a service to our customer or our community if we are facilitating them being in a bad situation in a few years."
Earlier this month, Urban Partnership made its first loan: a working capital loan to the Jewish Council of Urban Affairs, a social justice organization. The bank has also developed three real estate products that it is getting ready to introduce, Brown said.
Banking consultants said the time that Urban Partnership invested on the front end is important and serves as a valuable lesson for all acquirers of failed banks, but particularly in instances where the buyer is not an existing bank.
"The first job post failure is figuring out who you want to be, by re-examining everything. A new bank has that opportunity," said Michael Cwiok, a managing director in KPMG LLP's advisory practice. KPMG advised Urban Partnership, but Cwiok declined to discuss ShoreBank specifically.
A new bank has "to figure out how to operate so that they don't fall on the same mistakes as the failed bank," he added.
Cwiok said banks often spend six months to a year on such work. "You need that amount of time to get the lay of the land and completely review everything before you are ready to start lending again," Cwiok said.
Chip MacDonald, a partner at Jones Day, also said that is smart to avoid rushing into lending. "It makes infinite amount of sense to take your time in doing this," he said. "It is not unlike starting a de novo."
Beyond an overhaul to its process for administering credit, Urban Partnership has remodeled other parts of the business. ShoreBank was predominately driven by real estate. Farrow said he wants the loan portfolio to be 45% real estate loans, 45% commercial loans and 10% consumer loans.
"When you drive down the streets of our communities, they are lined with small businesses and a lot of nonprofits that provide critical services and are in need of banking relationships," Farrow said. "One of the things we have found as we've started to solicit business is that there is a real pent-up demand."
The bank has also been making changes to its branch structure by shedding loan offices and big bulky branches and replacing them with "microbranches," or full-service offices that are less intimidating.
"The old bank really didn't have a branch network, so we are developing one with our new prototype," Farrow said. "We want our customers to be comfortable in them."