Raymond H. Melcher Jr. talks like a banker ready to do a deal.
In a recent interview the chairman, president, and chief executive of Leesport Financial Corp. said his Wyomissing, Pa., company needs to increase its assets 10% to 15% annually over the next several years. He said he is eyeing fast-growing Montgomery County and, though not as closely, Chester, Delaware, and Bucks counties for expansion opportunities.
Leesport intends to announce some kind of strategic move within the next few weeks, Mr. Melcher said.
Its assets grew 6.4% in the first nine months of 2003 and now stand at $589 million. Mr. Melcher said its asset growth could be faster next year if the company does better "deep mining" of its customer base - specifically, by selling bank products to its growing roster of insurance customers.
But the CEO was quick to add that expansion into new markets is crucial. He said that if Leesport is to keep attracting investors and capital, and ultimately to remain independent, it must put together several years of double-digit asset growth.
"There's not a lot of sex appeal in a $600 million-asset company that isn't growing too much," Mr. Melcher said.
Thomas Doheny, an analyst at Sandler O'Neill & Partners LP in New York, said Leesport has dropped hints about its plans, telling analysts and investors during recent presentations that it would like to acquire a bank. He said it told them that if whole-bank deals proved too pricey, it would look next at buying or reopening branches and that if those options did not work out it would do branch start-ups.
"They've said that some announcement" concerning expansion "is imminent, but they haven't articulated the method," Mr. Doheny said.
Under Mr. Melcher, who took over in May 1998, Leesport has bought seven companies. But only one was a bank, the $61 million-asset Merchants of Shenandoah Ban-Corp of Shenandoah, Pa., which it bought for $11.1 million in July 1999.
The other acquisitions were of insurance agencies and money management firms, three each. In the most recent one it landed CrosStates Insurance Consultants Inc. in Langhorne, Pa., for an undisclosed price.
Mr. Melcher's strategy has been to transform Leesport from a small bank with a limited menu into a one-stop-shopping financial services provider. Its money management operation is still losing money, but its insurance division has become one of the most prolific bank-owned operations in the country. According to the American Bankers Insurance Association, Leesport is among the nation's top 10 banks by insurance-derived noninterest income.
The company reported that its insurance revenues were $6.8 million for the first nine months and said they should exceed $10 million next year, when CrosStates' results are included. Just under a quarter of Leesport's $3.52 million nine-month profit came from its insurance division, Mr. Melcher said.
John L. Pottridge, the president and CEO of Pottridge & Associates Inc., an Alexandria, Va., firm that advises banks on insurance issues, called Leesport's performance in the insurance field "extraordinary."
"At most banks with profitable agencies, insurance contributes about 5% to 12% of net income," he said.
Mr. Pottridge said plenty of banks make money selling insurance but that few are good at selling bank products to their insurance customers.
"Most banks have been unable to work the synergies," he said. "They haven't figured out how to really take advantage of the cross-sell opportunities."
Mr. Melcher said Leesport has had more success selling insurance to its banking customers than the other way around but that it has been working hard to even things out.
"Just this month, one of our [insurance agents] happened to be in a client's office when he overheard a banker telephoning," he said. "Our guy told the client that he'd like to introduce him to one of our bankers, and we ended up with his deposits, his money management business, and his mortgage. Those kinds of things are beginning to happen every week."
Leesport purchased its first insurance agency shortly after Mr. Melcher took the helm. He said its investments in insurance and later in money management have helped it "stand out" in Pennsylvania's crowded community banking market.
"I've championed these ideas," he said. "If you work here, you'd have to be in a coma not to get it that these lines of business matter."
Even though Leesport has not bought a banking company in more than four years, Mr. Melcher said he has given a lot of thought to expanding its banking business, not only how to do it but where.
Over the past few years, Leesport has focused mainly on Berks County, where its Leesport Bank subsidiary was founded in 1891. The bank has opened six branches there since 1998, more than any other company except Sovereign Bancorp Inc., Mr. Melcher said.
It now has 10 branches and a 6.6% share of Berks County's $5.3 billion of deposits, against just 4% five years ago. Mr. Melcher said it should continue to add to its share over the next few years as the two newest branches, which opened in May and June, begin to hit their stride.
He said the opportunities in neighboring Montgomery County are even better.
For one thing, Montgomery's deposit market, $15.3 billion as of June 30, is almost three times bigger than Berks'. And it has more people - its population was 760,000 in 2001 to Berks' 145,000, according to the U.S. Census Bureau. Finally, with a median household income of $61,000, Montgomery is one of the wealthiest jurisdictions in Pennsylvania.
"Just about every which way you look at it, the Montgomery market is much better," Mr. Melcher said.
Montgomery has a number of small banks that could provide Leesport with a platform for continued expansion there. In all, 44 banks and thrifts do business in Montgomery County, and any move by Leesport into that county and others near Philadelphia would probably face intense competition. Nine deals for Philadelphia-area banks have been announced this year.
"There's been a great deal of activity in Pennsylvania in general and in the Philadelphia area in particular," Sandler O'Neill's Mr. Doheny said.
"Leesport certainly isn't the only bank out there looking."
