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Sinclair Bank and Trust ...First uninsured wholesale bank charter granted to local couple

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by Paul Flemming

SBJ Staff

Sinclair Bank and Trust, an affiliate of Springfield's Sinclair Financial Group, was chartered in Maine Aug. 10 as the nation's first uninsured wholesale bank.

The new category of bank, begun with $1 million in equity, is owned by Susan and Damian Sinclair, along with two other investors. The bank has five employees, including President Dave Post, who Damian Sinclair said headed New Mexico's bank examiners prior to taking this position.

"We've been working for four years watching state laws for a vehicle to complement this business (Sinclair Financial Group) and allow it to expand in a regulatory environment that we could live with," Damian Sinclair said.

The bank charter means "we'll be conducting business the same way in more places and business in different ways in the same place, with different products."

The Universal Bank Charter Act was signed into law in June 1997. H. Donald DeMatteis, bank superintendent in Maine's Bureau of Banking, said the Maine act takes the provisions of proposed federal legislation and makes it law in his state.

"In a sparsely populated, geographically remote state, if you're not first, you'll often end up last," DeMatteis said. And even when first out of the gate "your differential status doesn't last for long." Already more than six states have requested copies of the Maine legislation to consider adopting the changes, he said.

The law creates a single charter for commercial banks, savings banks and savings and loan associations. Among its other provisions, the law makes possible what DeMatteis called niche banks: nondepository trust companies, merchant banks and uninsured banks.

Sinclair Bank and Trust is chartered as an uninsured bank. DeMatteis said that, as such, it is prohibited from accepting deposits in the way commercial banks do. A minimum deposit of $100,000 is required, and the depositor must be an accredited investor with a net worth of $1 million or an annual income of $200,000 for two straight years.

"It's the relatively sophisticated individual that qualifies, one who can understand the nature of the investment," DeMatteis said.

Sinclair was the first to apply for the new charter. No other companies have applied. "To some extent, people will be watching Sinclair" to measure its success, DeMatteis said.

Sinclair Financial Group is a 5-year-old consumer-finance company, funding its lending with time certificates uninsured by federal regulators. Damian Sinclair said SFG has assets of $50 million and about 100 employees in its new building off South Fremont Avenue.

Advantages of the new Maine charter include more flexibility and opportunity for growth, Damian Sinclair said.

Though the company has consumer loans to residents of more than 40 states, SFG's certificates collateralized by those loans may be sold only to Missouri residents as the company is now registered; finance companies must register in each state where they wish to sell the certificates.

Having the bank guarantee the securities grants registration exemptions from federal and individual state regulators.

Immediately, Damian Sinclair said, the company's activities will be in states surrounding Missouri, such as Arkansas, Illinois, Texas and Oklahoma. He said in time the Maine-chartered bank will book all the loans SFG now makes and SFG will service those loans.

The Maine bank is not the only area of expansion for the Sinclairs. Sinclair Real Estate Company began May 1 and now has one broker and four agents. Damian Sinclair said the real estate company is looking to hire five more agents.

The venture came about as Sinclair Financial Group started a new real estate finance program. Damian Sinclair said the product requires as little as 3 percent down payment on a home and the approval process reflects an "investigative approach" rather than relying strictly on credit scores.

He said the program targets loans not typically done by banks.

"If somebody has really great income and two years ago they went through a divorce and their credit fell apart, but they have a very good explanation for that" then they might qualify in a case that a credit-score based loan approval process would reject them, Damian Sinclair said. "We give them the ability to tell their story."

The program makes first mortgages with rates between 8 percent and 12 percent, he said. The company also gets its yield through points on sales, primarily from the seller. Damian Sinclair said $1.78 million in real estate loans were booked in August, though not all of them are from sales in Springfield.

Sinclair Credit Group of Canada started in February and is based in Winnipeg, Manitoba. The wholly owned subsidiary has eight employees, and Damian Sinclair said it has made $8 million in loans in 1998.

"When times are good, our business is tough. When times are tough, times are great for us," Damian Sinclair said. "As the economy has tightened, not only did our business improve, but we're expanding."

He said SFG's portfolio of auto and household goods loans has a delinquency rate of 6.7 percent and its real estate loans have a delinquency of less than 1 percent. Those figures tend to remain constant, he said.

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