Bankers' bank executives have spent much of the last month telling people that Silverton Bank was not one of them, and that its failure was not a harbinger for the sector.

But bankers' banks have their own problems, which could be amplified by one of the crucial differences between them and Silverton.

The sector has a larger exposure to construction and development loans than the banking industry overall. Silverton's problems arose when it began writing its own loans, but bankers' banks, by definition, take a back-seat role in syndicated credits. That makes it harder for them to get a handle on loan quality.

Given the situation, bankers' banks say they are focusing squarely on keeping capital levels as high as possible. Silverton's failure also created an opportunity for banker's banks to recruit its former community bank customers — as depositors and shareholders.

"Silverton had all but abandoned the traditional bankers' bank model, in exchange for a more expansive and aggressive business model," said Camden Fine, a former bankers' bank president and now the president of the Independent Community Bankers of America. "Some of the other, true bankers' banks may be facing some trouble ahead. There will likely be some scraped knees and bruised shoulders, but I don't see another failure of a true bankers' bank on the horizon."

Originally named Georgia Bankers Bank (and later just Banker's Bank), Silverton changed its name, business model and regulatory designation two years ago. Regulators seized the Atlanta institution May 1.

Because of the history, "we are being painted with the same brush" in the press, said L.D. McDonald, the president and chief executive of the $407 million-asset Midwest Independent Bancshares Inc. in Jefferson City, Mo. "There is an important distinction that must be made. Silverton failed because they forgot their mission."

Matt Anderson, a partner with Foresight Analytics LLC, agreed that the 20 bankers' banks are in fairly good shape. In the first quarter their total risk-based capital ratios greatly exceeded the baseline for well-capitalized institutions, ranging from 12.5% to 34%, with most being somewhere in the mid or high teens, according to Foresight data.

But he said they could have problems down the road, considering the amount of construction and other commercial real estate loans they hold.

Construction and development loans made up 15.2% of bankers' banks' portfolios in the first quarter, compared with 7.3% for all banks across the country, Anderson said. Since problem construction loans have led to the demise of dozens of community banks this cycle, bankers' bank capital ratios could be tested.

"All the bankers' banks have capital levels that would put them in the well-capitalized or well into the well-capitalized categories," Anderson said. "But if your problem assets go up sharply or rapidly, high capital ratios won't keep you all the way out of trouble."

McDonald said that since Midwest Independent is a participant in syndicated loans, "we have to work through a lead bank, so we don't have direct access to the customer." Instead, "we have to depend on the lead bank to get appraisals and income statements."

In response to that, "we have made a concerted effort to keep our capital as high as possible," he said. "It is our best method to protect ourselves from downturns."

Midwest Independent doubled its number of shares available late last year, to 200,000. It is preparing a prospectus that will be sent to its customers and shareholders.

Jim McKillop, the president and CEO of Independent Bankers' Bank of Florida in Lake Mary, said that it has picked up $150 million of deposits this quarter, and that it expects those depositors, as well as any bank seeking credit, to take an ownership stake.

"The Silverton failure is leaving those banks in a difficult situation, and we are doing our best to work with those banks — as long as they want to build relationships," McKillop said. "We do not want, nor can we abide, any banks that want some of our credit capacity but are unwilling to share in the overall book of the business. The relationship has to be symbiotic. In pieces, I can't help them."

Pacific Coast Bankers' Bank in San Francisco is also courting Silverton customers. "They are just trying to figure out all the options they have," said Steve Brown, Pacific Coast's president and CEO. "I would say initial inquiries have been strong."

Brown said his institution is not as focused on picking up shareholders to increase its capital base. Pacific Coast was one of the few bankers' banks to get an infusion from the Troubled Asset Relief Program. McDonald said most bankers' banks avoided that program for the same reasons many community banks did: fear of government meddling. Brown said Pacific Coast took the $11.6 million of funds as a measure of "abundant caution, to make sure the capital bucket was full."

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