Samuel A. McCullough, chairman and chief executive officer of Meridian Bincorp, has a decidedly unbankerlike quality: He likes to dabble.
Under Mr. McCullough's direction, Meridian has forged ahead into several nonbank businesses: asset management, investment banking, broker-dealer services, title insurance, mortgage servicing, and equipment leasing.
Though not all his forays have been successful (Meridian sold the title insurance business last year and mortgage servicing is losing money), Mr. McCullough has had more hits than misses.
Standout Among Peers
Taking measured risks, and concentrating on niche businesses like municipal bond underwriting and small-business lending, the 54-year-old banker has transformed Meridian, with $14.4 billion in assets, into a national financial services company that is unique among regional banking companies of its size.
"In the Northeast, I don't know of any other bank that's as involved as Meridian" in financial services such as asset management and securities brokering, said Richard S. Lawrence, an analyst at Janney Montgomery Scott Inc., an investment bank in Philadelphia.
"They're fairly unique," he said.
Mr. McCullough likes to brag that Meridian's fastest-growing business is its securities subsidiary. The unit, founded in 1986, provides broker-dealer services, investment banking, and loan servicing to institutional and individual investors through offices in Philadelphia and Fort Lauderdale, Fla.
Solid Track Record
Meridian Securities has turned a profit every year since its inception. Last year revenues totaled $75 million and the unit contributed $15.5 million to Meridian's bottom line, up 40% from 1991.
The business is performing well so far this year. Net income from securities services was $6.8 million in the first six months, up 17% from the same period last year.
The key to the success of Meridian Securities is its sustained focus on specialized areas, Mr. McCullough said. Its principal niches remain asset management and securitization services for small banks and thrifts, along with municipal bonds. Meridian's bond underwriting volume totaled $1.675 billion last year.
"We mostly do business with customers that the big guys aren't chasing," said Mr, McCullough, a Pittsburgh native.
Cultivating Young Businesses
The same goes for Meridian's commercial banking business. The company specializes in loans to firms with $5 million in sales or less. While manv other aggressive banks turn up their noses at small-business lending, Mr. McCullough sees future profits in forming relationships with business owners when they and their firms are young.
His team of 70 small-business lenders racked up $450 million in loans last year, up 15% from 1991. All other commercial lending at Meridian was flat for the year.
Consumer lending, a bright spot at many regional banks, was up 15% to $2 billion last year.
Upbeat About SBA Loans
Meridian is one of the largest Small Business Administration lenders in the Northeast. Where some bankers see SBA lending as a necessary evil, Mr. McCullough sees opportunity.
"SBA lending looks like a low-margin business, but we see it as a feeder business," he said.
Despite his savvy interest in alternative nonbanking products, Mr. McCullough firmly realizes that traditional banking remains Meridian's bread and butter.
Net income from banking was $86.6 million in the first six months of this year, up 53% from the same period last year. The holding company as a whole earned $68.8 million in the first half of the year, up 22% from the same period of 1992.
A steady acquirer of small thrifts. Meridian operates a network of 93 branches in Pennsylvania, Delaware, and eastern New Jersey. Its most recent acquisition, $2.2 billion-asset Commonwealth Bancshares Corp., closed Sept. 1.
Indeed, Meridian's burgeoning retail banking network makes it attractive to acquirers. Many analysts have Meridian their lists of Northeastern banks likely to be merged or sold over the next few years.
Mr. McCullough doesn't rule out a merger with a bank of similar size or a "partnership" with a foreign bank.
"A lot of people view us as a target," he acknowledged. "I say that it's a compliment."
In the meantime. Mr. McCullough wants to continue expanding, though he admits his company has a hard time competing on price. Meridian acquired several small banks last year, but lost several bids to competitors who were able to pay more because their stock is more highly valued.
Losses at Mortgage Unit
The only drag, meanwhile, on Meridian's enviable retail products record is mortgage servicing, one of Mr. McCullough's chosen niches. The company actively acquired mortgage servicing rights from the mid-1980s through 1991.
But declining interest rates led to faster prepayments, which led the mortgage subsidiary to lose money for the last three quarters in a row.
Meridian also ran into problems with loss-ridden portfolios it acquired from failed thrifts.
The bank lost $15.4 million from its mortgage banking lines in the first Six months, and has written down $22 million in its servicing portfolios, That compares with a profit of $2.1 million in the same period last year.
Servicing Rights Sold
Ezekiel S. Ketchum, Meridian's president and chief operating officer, said the company is dealing with the problem. The bank sold $1.2 billion in servicing rights so far this year and is looking to sell more. Its remaining servicing portfolio stands at $8 billion.
Even that is too much, in the eyes of some analysts who believe Meridian should consider getting out of the business.
"Servicing is less of a strategic business than originations," said Mr. Lawrence of Janney Montgomery. "I'm sure they've thought about the longevity of being in the mortgage servicing business."
Mr. Ketchum said the bank is evaluating its options, but stopped short of saying that Meridian is planning to bail out of mortgage servicing. And its origination business, he pointed out, is strong. The company currently holds $1.2 billion of its own mortgage loans.
Approval Process Streamlined
Meridian recently worked with the consulting firm Arthur D. Little Inc. to reengineer its mortgage business, including the speeding up of the approval process. processing, and cost cutting.
"We've reduced the time it takes to process the loan down to a quarter of the previous turnaround" which was 35 to 40 days, said Mr. Ketchum.
The bank is also revamping its asset management subsidiary, which provides trust services and money management products for individuals, corporations, and institutions. Though assets under management have grown from $5 billion in 1991 to $5.8 billion today, revenue growth has not kept pace with expenses related to back-office systems, bank officials say.
The business, which includes a California-based trust subsidiary and a Pennsylvania-based investment management and trust bank, earned $1.9 million in the first six months of this year, down $200 million from the same period a year ago.
Mr. McCullough is considering his options to grow the business, including acquiring a brokerage firm.
Meanwhile, Mr. McCullough is proceeding full-speed ahead on other fronts. He's looking for more branches to acquire in New Jersey and wants to enter Maryland in the near future. That would be a new market for Meridian, proving that Mr. McCullough is not through dabbling.