Mortgage company has big plans for tiny Paramount Bank

Paramount Bank is one of the smallest banks in the St. Louis market, but it doesn’t intend to stay at the bottom of the heap for long.

The Hazelwood institution was known as Superior Bank before it was bought in November by Paramount Financial Group, parent of Paramount Mortgage. Paramount injected $5 million of capital, which executives say should allow the bank to grow rapidly.

They plan to beef up online services, sell other banking products to Paramount’s mortgage customers and use the bank charter to significantly expand the mortgage company.

The eventual plan is to merge the mortgage company into the bank, Paramount Chief Executive David Griege said. A bank can lend in all 50 states, but an independent mortgage company must obtain a license in each state where it operates. Paramount is licensed in seven states.

Along with geographic flexibility comes a lower cost of funds. Gathering money from depositors, much of it in checking accounts that don’t pay interest, is much cheaper than borrowing at the prime rate, currently 4.5 percent.

Meanwhile, Paramount Bank offers products that Paramount Mortgage didn’t. Home-equity lines of credit and construction loans are important to the home builders and real-estate agents that Paramount counts on for referrals, Paramount President Ken Niemann said.

Aside from the advantages of its bank charter, Superior had little to recommend itself to potential buyers. Founded in 2004, it was crushed by a wave of bad loans during the financial crisis that hit in 2008. It had lost money for years, and its assets had shrunk by more than half in the past decade.

At $20 million in deposits, it claims just 0.02 percent of a very competitive St. Louis banking market. Since 2010, it’s been operating under a consent order issued by the Federal Deposit Insurance Corp.

The order, which covers management practices and problem loans, will slow the Paramount team’s plans at first, but Griege says the $5 million in new capital helps address the FDIC’s concerns.

“We have every intention of making sure it is profitable in 2018, and we think we will be able to get the consent order dropped sometime this year,” he said.

Niemann, who joined Paramount in April, brought extensive banking experience. He was an executive vice president at Stifel Bank & Trust and, before that, a senior vice president at Pulaski Bank.

Both of those institutions emphasized mortgages to grow rapidly. Pulaski’s assets rose tenfold to $1.6 billion between 1998 and 2016, when it was sold to First Busey Corp. Stifel bought a $125 million bank a decade ago and has grown its assets to nearly $15 billion.

Joe Stieven, a banking analyst who runs Stieven Capital Advisors, said he isn’t familiar with Paramount, but has seen other banks pursue a mortgage-centric strategy. “There are people who do an excellent job in mortgage banking, and there are people who have had challenges in mortgage banking,” he said. “It is a space where you need scale and great operating efficiency.”

Paramount, which originated about $200 million in mortgages last year, sees its newly acquired bank as a means of achieving that scale. Its executives emphasize, though, that the bank’s traditional customers won’t be left behind.

In fact, a stronger balance sheet means Paramount Bank can make business and consumer loans that the old Superior couldn’t. “We are going to do business in North County for sure,” Niemann said. “We are the only bank headquartered in North County, and we know that’s important to people.”