It may look like Big Brown is banking's latest competitor, but worry not. Atlanta-based United Parcel Service Inc. is spending approximately $78 million in stock to buy First International Bancorp of Hartford, CT, but isn't actually entering the banking business.

UPS plans to jettison the banking charter of the $322 million-asset First Interstate and stop taking insured deposits. But it will keep its portfolio of structured finance and commercial loans, the bulk of which carry government guarantees against default. And all of First International's 200-person staff, including chairman and chief executive, Brett N. Silvers, will stay on board to keep running the business, which will become a wholly owned subsidiary of UPS Capital Corp.

Silvers calls First International the "first global small-business lender." Doing business in about 40 countries through 14 overseas offices, its customers are primarily small and medium-sized manufacturers, distributors and wholesalers with annual sales between $1 million and $50 million. Its top loan size is $10 million, and its managed loan portfolio stood at $1.2 billion at the end of September, the latest date available.

Two-thirds of that portfolio is guaranteed or insured by U.S. government agencies and others. First International makes particularly heavy use of loan programs offered by the Small Business Administration, U.S. Department of Agriculture and Export-Import Bank of the United States. Those programs allow the bank to manage a loan book that's larger than its balance sheet implies.

UPS will put 10% of the stock issued in the merger into an escrow account to cover any shortfall in First International's loan book during the first year after the deal closes. Silvers doesn't foresee any significant credit problems. Not only do most of the bank's loans carry federal guarantees, but the portfolio has a "pretty stable quality and profile," he says, with plenty of geographic and industrial diversity. "Our niche is smaller, privately owned companies that have been around for a while," he adds.

Those services don't include deposits. The company will sell all of First International's $260 million in deposits and convert to Connecticut-chartered non-depository bank. "For us, the deposit base has always been a source of funding," Silvers says, and over time it had become less important. (First Interstate sold its last retail branch in 1999.) That will reduce its cost of funds because UPS Capital has a triple-A-rated balance sheet.