Opposite often attract, but not always.
Banks struggling to add loans are looking for the niche players. The banks that are finding loans on their own want to buy others flush with liquidity. Lenders dependent on spread income are on the prowl for fee generators.
But First Business Financial Services (FBIZ) wanted a match that looked a lot like itself. It found it on Friday the company in Madison, Wis., announced it would acquire the Aslin Group, the holding company of Alterra Bank in Leawood, Kan.
"There are 7,000 banks in this country, but not 7,000 that look like First Business," Corey Chambas, the chief executive of First Business , said in a conference call. "It is more like 70."
The company has been on the lookout for prospective deals for a few years now, Chambas says, but it was somewhat constrained by its desire to find a bank similar to itself.
The method bucks trends across the industry, but it reflects the M&A challenge for business-focused banks. Those players are looking to build long-term value for their shareholders but dont want to sacrifice their niche business model in the process.
Cullen/Frost Bankers, in San Antonio, is poised to close on the acquisition of its mini-me, WNB Bancshares in Odessa, Texas. Meanwhile, Peter Benoist, the CEO of Enterprise Financial Services (EFSC) in St. Louis, has made similar comments about his unwillingness to dilute his companys focus on commercial and industrial lending.
As implied by its name, the $1.3 billion-asset First Business is a commercial lender. It has just three banking offices in Wisconsin and a smattering of offices for its asset-based lending and equipment finance businesses between Denver and Detroit. C&I loans make up 31% of its total loans, and commercial real estate loans are 34% of the total; its funding is heavily weighted toward brokered deposits that it uses to match the maturities on its loans.
The $223 million-asset Alterra Bank has a single branch, its C&I and CRE loans make up 37% and 27% of its loan book, respectively, and it is also largely funded through certificates of deposit.
"This deal is pretty in line with what theyve laid out in terms of what they were willing to do. It is like a little brother to these guys," says Daniel Cardenas, an analyst at Raymond James. "They are a pretty methodical group. I would imagine theyve had this bank circled for some time."
The company expects the $30.1 million cash and stock deal to provide an immediate increase to earnings and is projecting per-share accretion in the "high single digits" in 2016. The accretion, however, will not be a function of cost cutting First Business is projecting it can cut 8.5% of Alterras expenses. In most deals, cost savings are typically 25% to 30%, with some in-market deals aiming for significantly higher projections.
"This is a deal filled with synergies and growth, but this isnt the cost-saves deal," Chambas said in an interview. "We are two verysimilarly focused banks that have complementary products sets that the other doesnt have in place."
First Business can addasset-based lending, equipment finance, factoring and some private wealth management to Alterra's product lineup, Chambas says. Alterra would also benefit from a larger capital base.
On the other hand, Chambas is most excited about bringing Alterras Small Business Administration loan platform to Wisconsin. The Kansas bank has been the top SBA lender in Kansas City for the past two years, he says.
Besides their balance sheet similarities and potential complements, Chambas says the primary reason for the deal is the team it gets to pick up. That is what will help it drive shareholder value. First Business plans to retain the Alterra charter, and Pam Berneking the current CEO of Alterra Bank has agreed to remain with the combined company.
"If you win the talent game, you win the business-banking game," Chambas says.