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Park Sterling Corp. in Charlotte, N.C., said Thursday that it has agreed to buy Community Capital Corp. of Greenwood, S.C.
March 31
For a growing group of acquisition-minded community banks, fee-based businesses are looking like a more attractive way to bolster revenue and the bottom line than are traditional bank deals these days.
Six banks have unveiled buyouts beyond traditional banking so far this month, with deals involving insurance agencies, trust services and wealth management. That makes May the busiest month so far this year, according to data from SNL Financial.
"It's always more interesting to be in someone else's business," said Charles Roame, managing principal at Tiburon Strategic Advisors in Tiburon, Calif.
Gaining scale through acquisition of fee-based businesses has added allure for small banks these days in light of an increasingly costly regulatory environment and lackluster loan demand.
"Imagine the burden we're placing on the financial system" with the Dodd-Frank Act rules and others, said James Cherry, the prechief executive of Park Sterling Corp. in Charlotte, N.C.
Park Sterling's
"If you already own the whole market, the best you can do organically is grow at the rate of the market," Cherry said. "We need to have more diversified revenue streams and geography."
Park Sterling has had negative returns on average assets and equity for the past three quarters and has been looking at ways to deploy capital since raising $150 million in August, when Cherry joined as part of the new management team.
"Bankers are looking … to build fee income while at the same time building deposits," said Walter Moeling 4th, a partner at Bryan Cave in Atlanta.
Moeling said several clients are considering nonbank deals, including an unnamed community bank looking to buy an internet service provider.
Some analysts are skeptical of such moves. "Both organic and strategic [expansion] involve a lot of time and effort, said Carter Bundy, an analyst at Stifel, Nicolaus & Co. Inc. "Scale helps but doesn't always fix things."
Some bankers remain confident they can make deals work. Gary Olson, the president and chief executive of ESSA Bancorp Inc. in Stroudsburg, Pa., which bought two employee benefit insurance agencies on May 4, said he believes the acquisitions will help ESSA achieve its goal of increasing noninterest revenue to 25% to 30% of its total in the next few years. Its noninterest revenue has already risen to about 15% of its total from 7% in the late 1990s.
"Obviously, we relish noninterest income," Olson said. "Just as important … we found there was a need to provide more knowledge" [to small-business owners] and cross-sell."
Olson said small-business clients have been asking more questions about employee benefits insurance since passage of the Obama administration's health care reform legislation. ESSA's bank bought a book of business from two agents in eastern Pennsylvania, forming ESSA Advisory Services.
Provident Financial Services Inc. in Jersey City plans to retain most if not all of the talent after it completes its deal for Beacon Trust Co. and Beacon Global Asset Management Inc. in New Jersey, which was announced last Thursday. The $6.8 billion-asset Provident agreed to pay up to $10.5 million for the two Beacon Financial Corp. units, pending a financial performance review. It was the first nonbank deal for Provident, whose noninterest income fell 10.5%, to $7.2 million, in the first quarter from a year earlier. Fee income fell nearly 2%, to $5.6 million.
Another advantage of the buyout is that clients coming from the wealth management and trust companies tend to produce more committed, wealthier clients, said James Nesci, Provident's chief wealth management officer. Beyond wealth management the bank is selective about bank and nonbank acquisitions, he said.
"At this moment we believe wealth management provides the best opportunities outside of core deposit services," Nesci said.
