Kevin Cohee – Commercial ‘opportunities’

Boston-based OneUnited Bank has withdrawn its year-old application to change its charter from state to federal and form a bank hold-ing company.

The bank had filed its intention to seek a federal charter with the Office of Thrift Supervision and its current regulators, the state Divi-sion of Banks and the Federal Deposit Insurance Corp.

Officials at the 26-year-old, $645 million OneUnited said the bank’s decision was driven by recent changes in its lending activity that have the potential to run into conflict with policies of the Office of Thrift Supervision, the federal regulator to which the bank would have reported under the new charter.

“[OTS requires] a certain percent of your assets to be backed by real estate,” explained OneUnited’s chief legal counsel, Robert Pat-rick Cooper.

“We’re really going to be careful about the next steps [for the bank], as we want to maximize opportunity for the bank,” he added.

OneUnited Chairman, President and Chief Executive Officer Kevin Cohee said bank officials had been “divided” as to whether applying to OTS for a federal charter was the right decision.

OTS requires its members have a minimum of 65 percent of their loans be residential real estate or consumer loans, he explained. While OneUnited now has about 88 percent of its loan assets in one- to four-family homes and multifamily properties, the bank’s balance sheet is starting to shift toward commercial investing, Cohee said.

“What we’re saying is, ‘now we want to wait it out,'” Cohee said. “We have access to opportunities where we may not be able to meet that 65 percent” regulatory mandate.

Cooper said the bank was interested in forming a holding company because “it provides a flexible vehicle for raising capital” in ways that banks are not able to directly, such as trust-preferred securities.

The chief advantage of trust-preferred securities is that when issued by a bank holding company, they will be treated as capital rather than as debt for regulatory purposes.

Cooper declined to say whether OneUnited has plans to raise capital for the acquisition of other banks or branching into other states, which also can be easier under the auspices of a bank holding company.

Poor Ratings

The decision to withdraw had nothing to do with recent, poor Community Reinvestment Act ratings OneUnited earned from both DOB and the Federal Deposit Insurance Corp., he said.

In 2005, both agencies gave OneUnited an unenviable “Needs to Improve” rating for compliance with CRA, meaning they did not be-lieve the bank was adequately meeting the credit needs of borrowers of all income levels in its market area.

Last year, the FDIC and DOB gave the bank an overall “Satisfactory” rating in Massachusetts. It also earned a “Satisfactory” CRA rat-ing overall from the FDIC, although in Florida, where it also has offices, it earned “Substantial Noncompliance” – the FDIC’s lowest rating. In California, where it has additional branches, the bank earned an “Outstanding” rating.

Regulators have the right to deny banks growth opportunities such as opening new branches or acquiring other banks when their CRA ratings are low.

Florida bank analyst Ken Thomas, who has studied OneUnited’s performance in Florida, submitted a written comment to DOB last Au-gust recommending the agency reject the new charter application or set conditions upon it requiring improved CRA performance.

The application comment period at the state Division of Banks ended in October; the application at the Office of Thrift Supervision was withdrawn via a letter from OneUnited dated June 6.

Cohee said OneUnited was unable to make loans in Florida that would put it in compliance with CRA without jeopardizing its safety and soundness ratings.

“Hopefully [in hindsight] people can see the wisdom” of the bank’s limited residential lending in the South Florida communities where it is located, he said.

The Florida real estate market is experiencing a severe slump and high foreclosure rates.

OTS spokesman Bill Ruberry said the bank’s letter announcing its decision to withdraw its application for an OTS charter was “confi-dential.”

OneUnited officials would not provide a copy to Banker & Tradesman by press time, but Cohee said it merely says the bank is “re-spectfully withdrawing its application.” Cooper said it contains confidential business information the bank, by law, is not allowed to re-lease.

Ruberry said financial institutions select charters and regulators based on their individual business plans.

Those that select OTS often do so because they want more streamlined regulation, he said. For example, a bank might prefer an OTS charter if it has or intends to have offices in multiple states.

OTS-regulated institutions also are subject to federal regulation but exempt from state oversight of their lending activities.

Cohee said both those provisions are attractive to OneUnited. The Office of the Comptroller of the Currency also “has some very com-pelling features” in its regulatory structure, he said, and OneUnited has not ruled out the possibility of seeking a federal charter from that agency in the future.

But for the moment, he said, OneUnited intends to stick with its state charter.

OneUnited is one of just three Massachusetts banks that are minority-owned, and is the nation’s largest black-owned bank.