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A growing number of multibank holding companies have decided that cutting costs is more important than having a local face in certain communities.
June 14 -
Even after adjusting for tax differences, S Corp banks generally outperform their C Corp peers.
June 1
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Peoples Bank of Alabama, the larger of Altrust's two banks, opened in 1977 and expanded to more than 24 branches in north Alabama, including the Birmingham suburbs. When management decided to enter Gadsden, Ala., in 2008, they decided to establish a new charter, says Chris Sawyer, president of Peoples Bank.
Altrust made the initial investment in Generations Bank and, as it grew, management raised additional capital from local sources. Management could have raised more capital for the $68 million-asset Generations and once considered cashing out of the bank, Sawyer says. Instead, Altrust decided to merge it into the $522 million-asset Peoples Bank.
The company is awaiting regulatory approval for the consolidation. American Banker spoke with Sawyer about the reasons for the consolidation. The following is an excerpt from the interview.
Why did Altrust decide to combine its bank charters?
CHRIS SAWYER: We decided to combine when growth at Generations Bank slowed The holding company also sought the advice of the investment banking community and they realized that bank valuations over the next few years would be fairly suppressed, even for a high-quality bank such as Generations Bank.
The short answer is that, due to the impact from the recession, additional capital wasn't needed. Generations Bank had excess capital that wasn't going to be used, so the directors decided that greater value could be gained for our shareholders with the merger of the two charters. The goal is to improve both capital and operating efficiency.
Our overall marketing strategy was also a major consideration. Peoples Bank has initiated a major e-banking strategy and it would have been too expensive for Generations Bank to implement that on its own. The merger of the two charters makes it possible to deliver an enhanced online, mobile, ATM and phone banking platform for both banks.
Had management previously discussed whether to consolidate the charters?
The directors had not considered it prior to 2013.
What are the main benefits of having separate charters?
It's good to have multiple charters if the individual banks have very different business models. In other words, one might focus on commercial lending or wealth management, versus a bank that has a very strong retail banking model. It can also help to have more than one charter if their markets are very different, or if distance is an issue between the two, such as operating in several states.
Having separate bank charters can allow each bank to better manage their entities based on their expertise. Other bankers have also told us that it helps regulators better understand the major differences in the two charters.
Multiple charters can also provide an entrepreneurial advantage. Separate charters allow for greater local involvement and investor interest. It can be another means for an S corporation holding company to raise capital, by using a C corporation bank that it controls to add additional investors, without adding new S corporation shareholders. [This allows the holding company to
How important was expense control in the decision to consolidate?
A cost-benefit analysis is important to determine if the benefits of separate charters still exceed the costs of maintaining two or more charters. Altrust conducted a cost-benefit analysis and found that it wasn't in the best interest of shareholders going forward to have two charters.
