The 152-year-old Beneficial Savings Bank of Philadelphia has its first acquisition deal and is scouting for more - because buying looks cheaper than building.
It is starting small. Last month the $2.3 billion-asset thrift filed with the Pennsylvania Department of Banking to buy the $9.2 million Northwood Savings Bank, also of Philadelphia.
Northwood suggested the deal; its president said compliance costs were squeezing profit margins.
But the timing was right for Beneficial. It has added five branches since the start of last year but was looking to buy small banks and thrifts in Philadelphia and its Pennsylvania and New Jersey suburbs instead.
"We have been doing a lot of branching," said chief executive George W. Nise, but "opening a new branch is getting more expensive - between $1 million and $2 million - so small acquisitions make a lot more sense."
Though the conventional wisdom is that branching is cheaper, the cost of land in developed markets such as the Northeast has forced community bankers to rethink the economics.
One that did is Interchange Financial Services Corp. of Saddle Brook, N.J., which said in June that it was buying a bank in Essex County, N.J., because building there was too expensive.
Northwood's president, John Idler, approached Beneficial after it opened a branch last October near Northwood's sole office. Mr. Idler was worried abo ut compliance with the Bank Secrecy Act and the USA Patriot Act and was looking for an exit strategy.
"I don't think we can bring our institution to compliance," he said, "because it would probably take about 25% of our profit per year."
Because Beneficial and Northwood are both mutual thrifts, no stock or money is to be exchanged. Northwood depositors would become Beneficial depositors, thus gaining a stake in the larger institution. The deal is expected to close early next quarter.
Beneficial opened in 1853 to serve new immigrants. It was founded by a handful of Philadelphia businessmen with the help of John Neumann, one of the city's first Catholic bishops.
The thrift opened its second office 71 years later and its first suburban branch, in Broomall, Pa., in 1960. Since then it has gone through two major growth spurts; in the 1970s it built 13 branches, and since 1997 it has opened a dozen.
Mr. Nise said it has looked at several other acquisition possibilities and is in discussions with a publicly traded company.
Beneficial would most like to acquire institutions in the Philadelphia area, including its New Jersey suburbs, with two or three branches and less than $300 million of assets. About 50 banks and thrifts fit the description, according to the Federal Deposit Insurance Corp.
However, Mr. Nise noted that last year Beneficial created a holding company, Beneficial Mutual Bancorp, so it could issue trust-preferred securities and thereby fund the purchase of a banking company with as much as $600 million of assets.
The holding company structure has also enabled Beneficial to enter new lines of business, such as insurance. In January it acquired Paul Hertel & Co., an insurance brokerage firm in Philadelphia.
Mr. Nise said that though the new structure has advantages, it can be difficult for a mutual thrift to find merger partners. Still, he said, Beneficial has no plans to go public.
"We've talked about a stock institution and decided that a mutual charter serves the community a lot better and we believe in keeping it that way," he said.
