A lot of people who run small banks love to gripe about regulatory and competitive costs.
Brian Thompson is not one of them.
The chief executive of the $1.4 billion-asset Commerce Bancshares in Worcester, Mass. says dwelling on misfortune is not a winning operating strategy.
Finding a niche that requires skill, not scale, is a successful approach, he says. So is buying another bank with a similar way of doing business at a reasonable price.
Those are the aims of Commerce's $26.5 million all-cash deal announced this week for Mercantile Capital in Boston. Mercantile, with nearly $200 million of assets, is a three-branch lender and would be Commerce's first acquisition in its 57-year history.
The deal should help the profitable and privately held Commerce keep thriving as a small player in a market that increasingly favors big banks, Thompson says. Large banks may be able to absorb regulatory costs easier. They do not have the market cornered on execution, he says.
"That is the responsibility you have: You need to operate successfully," Thompson says. "What we do is find a way to make that [market dynamic] work for us. We don't wake up and complain about it because that doesn't get you anywhere."
Commerce shows that diversity does not depend on scale, he says.
Mercantile would extend the 13-branch Commerce into two new markets: Boston, and lending to the people that buy Boston taxi medallions. It is a specialized lending niche that complements Commerce's two boutique credit lines: Classic car and small aircraft loans.
A lot of Commerce's roughly $125 million of aircraft loans and $50 million of classic car loans are extended to people around the country that have their deposits elsewhere, Thompson says.
They are not just seeking Commerce out for the best interest rate, he says, but because buying a plane can be tricky. He and his chief financial officer, William Burke, have years of experience in the market. The two helped run an institution that specialized in aircraft lending called Essex Bancorp. before joining Commerce in 2004. Niches can be a valuable competitive weapon, he says.
"You can differentiate yourself because you have scarcity of knowledge," he says. "Having different business lines, it kind of helps to do that. It also allows you to get paid for your experience."
Mercantile is a sensible purchase for Commerce because its operating bank, Commerce Bank & Trust, has a lot of customers in Boston, Thompson says. It is also a relatively small and has shareholders willing to accept cash. Commerce is paying nearly twice the value of Mercantile's tangible book value, which is in line with what other small banks in good shape have been selling for in the Northeast.
Commerce's chairman and primary owner since 1993, local entrepreneur David Massad, neither wants to overpay nor dilute the franchise's equity, Thompson says.
Being tightly held has freed Commerce from the buy-or-be-bought mentality plaguing a lot of other community banks with just around $1.4 billion of assets, he says.
Thompson says it only bought Mercantile because the opportunity came along: Mercantile was shopped by Sterne Agee & Leach and Commerce was pegged as a likely buyer by its advisor, Sandler O'Neill & Partners.
Commerce is not eager to become a serial acquirer, he says. Its profits rose 33% last year, to $11.8 million, on loan and deposit growth. Nor does it intend to sell.
"We don't have the same type of pressure that you might if you were a public company," he says. "We have pretty much a sole owner. He's proud of the bank. So we don't feel any pressure at all to look at options for ourselves."
The deal, announced Wednesday, is expected to close in the third quarter.
Mercantile specializes in commercial real estate loans, its website says.
The combined company would have $1.6 billion of assets and 16 branches in central and eastern Massachusetts, including three in the Boston metro area.