To boost fee income and build its commercial lending business, a Connecticut thrift is buying a majority stake in a diversified financial services firm.
Essex Savings Bank, with $130 million of assets, last week announced plans to buy 60% of John W. Rafal & Associates, also of Essex.
Terms of the deal were not disclosed. The firm, which would become a subsidiary of the thrift, offers investment, brokerage, estate planning, and life insurance services. It manages $700 million of assets held by more than 700 clients and 185 pension, profit-sharing, and 401(k) plans. It also counts 25 charitable organizations as clients.
"They have clients who are high-net-worth entrepreneurs and small businesses," said Gregory R. Shook, an Essex Savings vice president who worked on the transaction. "Those are businesses we would like to make loans to."
Commercial loans currently make up only 5% of Essex Savings' portfolio.
Awash with capital, community banks nationwide are looking for deals to boost revenues. In buying an asset manager, institutions like Essex Savings can turn that cash into a revenue-generating division overnight, said John S. Carusone, president of Bank Analysis Center, Hartford, Conn.
"This is a quick way to get into the trust business," Mr. Carusone said. "Essex is acquiring a professional book of business, giving it size and critical mass immediately."
As of December, Essex had a capital ratio of 11.01%, compared with the statewide ratio for thrifts of 9.58%, according to the Federal Deposit Insurance Corp. Having so much cash on hand made it possible for Essex Savings to buy a larger company, Mr. Shook added.
The deal is expected to close by yearend, pending regulatory approval.
If the deal is approved, Essex Savings would be the first state- chartered thrift in Connecticut to control a financial advisory company.
Though he has not yet seen the merger application, Connecticut Banking Commissioner John P. Burke said he has talked to Essex Savings and is "supportive" of the thrift's plan.
"We believe that banks need to diversify their product lines and income sources to meet the competition found in today's financial services industry," he said.
