Susquehanna Bancshares in Lititz, Pa., has expanded its potential borrowings from a Federal Home Loan bank by 67%, to $1 billion, simply by switching one of its bank charters to another state.
"We've never had a liquidity problem, nor do we ever anticipate one," William J. Reuter, the $8.2 billion-asset company's chairman, president, and chief executive officer, said in an interview last week. "But if you can pick up another $400 million of availability, it's nice."
The company's Susquehanna Patriot Bank dropped "Patriot" from its name this month and switched its New Jersey state charter to Pennsylvania, moving it from the Federal Home Loan Bank of New York to the Federal Home Loan Bank of Pittsburgh.
"Simply put, the Pittsburgh bank allows us to use more of our balance sheet for collateral than the New York bank," said Drew K. Hostetter, the company's chief financial officer. "For us, it's about $400 million additional borrowing capacity."
Each of the 12 Home Loan banks sets its own rules for what it will accept as collateral for advances, said John Von Seggern, the president of the Council of Federal Home Loan Banks.
Typically each assigns risk weightings to the loans pledged as collateral; these vary from one Home Loan bank to another and even from one borrower to another. So depending on a banking company's portfolio mix, one Home Loan bank can be more attractive than another.
Mr. Hostetter said he could not easily explain how Pittsburgh's collateral rules differ from New York's. "It's a very detailed calculation for each of the banks," he said.
Terri McKay, a spokeswoman for the Pittsburgh Home Loan Bank, and Paul Héroux, a senior vice president and the head of member services at the New York Home Loan Bank, could not spell out the differences either.
"While I cannot comment on the difference among or between the Home Loan banks, the practices of the Home Loan Bank of New York are developed on a level of detail that is customary in the secondary mortgage market," Mr. Héroux said in an e-mail.
Mr. Reuter said the additional borrowing capacity "is a good cushion for us" even if Susquehanna never needs it. "Not saying anything bad about New York," he said, "we just have a liquidity advantage by dealing with Pittsburgh."
Susquehanna had other reasons for switching too, including simplifying its regulatory oversight.
Mr. Reuter said Susquehanna had nine bank charters before it began consolidating them a few years ago. (The company has made 32 acquisitions since 1982.)
"We dealt with every regulatory agency you can think of," he said. "As time progressed, we wanted to streamline."
Susquehanna now has three charters, two in Pennsylvania and one in Maryland.
"As we changed the name of Susquehanna Patriot Bank, it gave us an opportunity to again consolidate regulators and deal with just Pennsylvania," Mr. Reuter said.
And all three of its separately chartered units now use the Susquehanna Bank name, he said. This makes it easier for customers to recognize that they can use any of the company's automated teller machines and its 164 branches in Pennsylvania, New Jersey, and Maryland.
The branch total is to increase by about half next quarter when it is scheduled to close its largest deal to date. In May it agreed to buy the $3.8 billion-asset Community Banks in Harrisburg for $860 million in stock and cash. Community has 80 branches in Pennsylvania and Maryland.
Mr. Reuter said the company is unlikely to buy another bank before the middle of next year because it wants to focus on integrating the Community acquisition. But he said Susquehanna is actively scouting for other types of acquisitions, particularly in wealth management.
Stephen Moss, an analyst at Janney Montgomery Scott LLC, said dealmaking is one purpose for which liquidity comes in handy. "I think their desire for liquidity stems from their desire to do acquisitions," he said.
The company historically has been better capitalized than its peers, Mr. Moss said.
Its ratio of tangible equity to assets was 7.5% in the second quarter, well above the average of 6.7% for companies with $1 billion to $10 billion of assets, he said. Even on a pro forma basis including the Community acquisition, the ratio would be 6.3%, he said.
Matthew Schultheis, an analyst at Ferris, Baker Watts Inc., said he thinks the name change at Susquehanna Patriot is a bigger benefit than the added liquidity.
"It enhances their branding. They are going to be Susquehanna Bank on both sides of the Delaware River, instead of having the Patriot name attached in New Jersey," he said. "The added liquidity is nice but not necessarily needed."
