Business First Bancshares in Baton Rouge, La., is poised to play catch-up when it comes to fee revenue.
The $4.2 billion-asset company
Jude Melville, Business First’s president and CEO, said he is keen to keep building out the business. For him, wealth management is advice-driven, thus difficult to commoditize, and it adds a new dynamic to Business First’s revenue model.
Community banks “need to think about ways to diversify” away from an historical dependency on loans, Melville said. “If you can serve your business clients at various stages of their life cycle, then you’re going to be a better partner. This just makes sense.”
Low interest rates and tepid loan demand have suppressed earnings at many banks with less than $10 billion of assets. Net income at those banks fell by 5% in 2020 from a year earlier, including a 1.2% decline in net interest income, according to the Federal Deposit Insurance Corp.
Business First avoided that fate largely through its
Still, Melville is aware that his company needs to close a gap with similar-sized banks in fees as a percentage of revenue. Fee income made up 14% of its revenue last year, or roughly half the 29% average for banks with less than $10 billion of assets, according to the FDIC.
While Melville declined to say how much Smith Shellnut Wilson will change Business First’s composition of fee income, he said it will help the company make up some ground on peer banks. Assets under management will jump from $235 million to more than $3.7 billion after the deal closes.
“We expect this to be immediately accretive,” Melville said. “We feel like in the second quarter it will add incrementally and hopefully just grow after that.”
Business First, which recently raised nearly $53 million by issuing subordinated debt, has made other moves to diversify revenue.
The company last fall hired Jesse Jackson, a banker at Texas Capital Bancshares in Dallas, to lead a new financial institutions group inside its bank. While at Texas Capital, Jackson helped build a national correspondent banking business that serves more than 400 community banks.
Melville said he pictures the financial institutions group, which was created to facilitate loan participations, working with Smith Shellnut Wilson to create a stronger value proposition for potential correspondent bank clients.
“A little more than half of SSW’s business is with other community banks” in areas such as liquidity management and portfolio modeling, Melville said. “Being able to leverage those [new businesses] together — we see that as a big opportunity.”
Smith Shellnut Wilson can also advise commercial banking clients who’ve sold their businesses.
“When an entrepreneur sells a company and is not yet embarked on another opportunity, what do you do with the liquid assets they might have generated,” Melville said. “We didn’t have an answer. Now, we do.”
“If you can serve your business clients at various stages of their life cycle, then you’re going to be a better partner,” Melville added.
Wealth management has become a popular area of expansion for banks seeking more fee income.
The $116 billion-asset SVB Financial Group in Santa Clara, Calif., agreed in January to
The $19 billion-asset City National Bank of Florida in Miami has created a new private banking brand, City National Private, to offer more services to business owners and high-net-worth families and individuals. The bank recently hired Steven Hayworth, a former CEO at Gibraltar Private Bank & Trust, to lead its private banking and wealth management businesses.
Melville said he sees Smith Shellnut Wilson as a relatively low-risk acquisition. The firm has advised Business First on its investment portfolio since the bank was formed 15 years ago.
“We have a deep, long standing relationship, which obviously makes you feel good about stepping off into something that’s a pretty big investment,” Melville said.
Smith Shellnut Wilson, which was founded in 1995, had been undergoing a management shift, with co-founder and CEO Frank Smith handing off some day-to-day responsibilities to his son, Frank Smith III, and Will Johnson, another top executive.
“Since there’s a change, it made sense to talk about how we can maximize opportunities to both parties,” Melville said.
“From the cultural perspective, this type of business is a perfect fit for us because we consider ourselves partners and advisers to our corporate clients,” Melville added. “If you were to ask me what’s the line of business that should most naturally fit our bank, this is what I’d come up with.”
