A new type of correspondent bank is set to open in Charlotte this fall.
The founders of United Partners Bank are shooting to open its doors around Nov. 1 with $35 million of capital and $50 million of loan participations on its books. Related Links
But also sprouting up around the country is a new crop of hybrid correspondent banks like United Partners.
Though the new hybrids often look and act like bankers' banks, they do not meet the legal criteria. Bankers' banks must be mostly owned by banks and are not permitted to lend directly to the general public.
For example, the $880 million-asset Nexity Bank in Birmingham, Ala., a publicly traded entity, provides correspondent services similar to those of a bankers' bank but also accepts deposits from the general public online. (Nexity also was established by a former employee of The Bankers Bank.)
The $65 million-asset Maryland Financial Bank in Towson was formed by individuals and more than 30 financial institutions. It provides many services traditionally associated with a bankers' bank, but it also has a state commercial charter.
Banks that act like bankers' banks but do not operate under the same rules have caught the attention of the Bankers Bank Council, a trade group that represents most of the nation's bankers' banks.
It is pushing for legislation that would prevent any financial institution except an authentic bankers' bank — those with at least 75% bank ownership and those that provide services only to financial institutions — from calling itself a bankers' bank, said Jon Evans, the council's chairman.
The concern, Mr. Evans said, is that hybrids could end up competing directly with community banks. Or, because their primary obligation is to individual shareholders, they could be sold, potentially leaving their bank customers without correspondent services.
United Partners is seeking a North Carolina commercial bank charter, as opposed to a more restrictive bankers' bank charter. One reason it is doing so is that it wants an opportunity to sell stock to the public, said Rose Washofsky, who would be the bank's president and chief executive. It also wants the commercial charter so that it could lend directly to a bank's customers "on an invitation basis only," she said.
The start-up will target community banks in the Carolinas, Virginia, and West Virginia with assets up to $2 billion. It plans to focus primarily on participating in loans that might otherwise exceed a partner bank's lending limits, though its organizers say that, if asked, it will lend directly to banks' customers.
United aims to have $120 million of assets by the end of its first year and about $575 million by the end of its fifth year. Its organizers plan to get about 90% of those assets from loan participations in the community bank network, which is to be funded entirely with wholesale deposits.
Other business lines include arranging organizational lines of credit for start-ups, setting up stock purchase loans to organizers, and providing holding companies with loans.
If it grows at the rate it expects, United would quickly dwarf the $160 million-asset Community Bankers' Bank in Midlothian, Va., which would compete directly with United for loan participations in the area.
However, Bill McFadden, Community's president and CEO, said the arrival of United Partners would not necessarily mean more competition for his bank.
"It is the same group of guys working for somebody else," he said. "So I don't know that it makes things all that much different for us. … It's not part of our business model to become a multibillion-dollar correspondent bank."
Still, Community, which has a wider product selection than United plans, is considering adding more capital as part of a plan to increase its lending limit to become more competitive.
Community currently has a legal lending limit of about $1.5 million. If United succeeds in raising the $35 million it needs to open, it will have a roughly $5 million limit.
United Partners does not intend to expand beyond its organizers' specialty.
"We don't have plans to add services," said Greg Reynolds, who would be an executive vice president at United and its senior lending officer. "We are focusing on lending because that is our background, and that is the most profitable piece of the bankers' bank product model. We want to focus on what we know and what we are good at."
United Partners' organizers once made up the bulk of the Charlotte-based lending team of The Bankers Bank in Atlanta, the largest bankers' bank in the country, with $2.2 billion of assets. They left The Bankers Bank in January to start their own bank, but their plans were delayed when the Atlanta bank sued, claiming the former employees stole trade secrets and staff.
The organizers countersued, claiming the Atlanta bank was trying to suppress the start-up's formation. The suits were settled last month, paving the way for United's formation. The settlement terms were not disclosed.
The lawsuit "did slow us down a little bit, but we still raised $9 million with that hanging over our heads," said Jon P. Ellis, who is to be United Partners' chief operating officer. "We feel well received by the market."
