FirstCity Financial Corp., a Waco, Tex., company that buys nonperforming loans from community banks, announced Monday that it plans to charter an industrial bank in Utah so it can begin buying good loans.
American Pioneer Bank would start with $30 million of capital and open for business in mid-2006. It would have its own board, and FirstCity has hired veteran banker A. Hartie Spence to run its day-to-day operations.
James T. Sartain, FirstCity's president and chief executive, said in a conference call Monday that the company has considered buying performing loans but held back.
"Over the years, we've had opportunities to buy performing loans, but we couldn't compete because we didn't have the access to low-cost funding," Mr. Sartain said. "This fills a void we've had."
American Pioneer would also be active in loan participations, he said.
"Any number of banks have told us they would love to sell us" participations, "so I foresee us working with regional, subregional, and community banks," Mr. Sartain said.
American Pioneer would not open any branches or loan production offices. It plans to use brokered certificates of deposit and other wholesale funds to buy its loans.
"This gives us a more predictable income stream and diversifies our business," Mr. Sartain said. "I see this becoming a major part of FirstCity and a complement to our existing distressed-debt business."
FirstCity bought $91 million worth of nonperforming loans from U.S.-based banks and companies in 2004. Through the third quarter of this year it had bought credits totaling $61 million.
Industrial banks are authorized to make loans and take deposits, and are subject to oversight by their chartering state as well as the Federal Deposit Insurance Corp. FirstCity, as American Pioneer's parent, would not be covered by the Bank Holding Company Act or face Federal Reserve Board supervision.
