Flush with capital from its recent public offering, Porter Bancorp Inc. in Louisville appears ready to put that money to work in acquisitions.
On Monday the $1.1 billion-asset company
It is unlikely to stop there. Maria Bouvette, Porter's chief executive, said in a
Since raising nearly $27 million in its October offering, Porter has been using the proceeds to open loan offices and hire teams of lenders.
Though the deal for Ohio County, the parent of Kentucky Trust Bank, would not be a transforming one, Porter would get six branches and $100 million of deposits in an area it has targeted for growth.
"We believe the addition of Kentucky Trust's branches will enhance our overall customer service in the contiguous nine-county market in central Kentucky and follows our strategic plans that are focused on the faster-growing markets on the I-65 corridor," Ms. Bouvette said in a press release announcing the deal.
Neither she nor Porter's longtime chairman, J. Chester Porter, returned calls to discuss its acquisition strategy.
But observers said that given its track record, the company is unlikely to overpay to achieve its objectives.
Since its creation nearly two decades ago its general approach to mergers and acquisitions has been to buy underperforming banks at a discount and fix them up, and the latest deal is consistent with that strategy.
Porter plans to pay 1.35 times book value for Ohio County, which, despite recent improvements, had been a chronic underperformer for years, partly because of problems with credit quality. Last year it had a return on assets of 0.37% and a return on equity of 4.84%, both well below the industry average for banks with assets of $100 million to $300 million, according to Federal Deposit Insurance Corp. data.
The acquisition would be Porter's sixth since 1988, when Mr. Porter created the holding company for the three independent banks he owned. Its last purchase was in February 2005, when it bought the $38 million-asset Citizens Financial Bank of Glasgow for $4.1 million in cash. Seven months earlier it bought another Glasgow bank, the $35 million-asset United Community Bank, for $3.9 million in cash.
At the end of 2005, Porter merged its three banks into a single one, PBI Bank, and in April of last year the company moved its headquarters from Greenville to Louisville, Kentucky's largest metropolitan market.
Kevin P. Fitzsimmons, an analyst with Sandler O'Neill & Partners LP in New York, said Porter has a good track record of buying and integrating troubled or underperforming banks.
"Over the years they had really built a specialty of buying banks that had run into troubles, so they could come in and get the banks at a very decent price and go in and deal with these problems," Mr. Fitzsimmons said.
Still, he said that if opportunities arise, Porter could veer from its strategy and buy healthy banks or those outside growth areas.
"I wouldn't rule out that they could make some small acquisitions in more rural markets if the banks have a nice deposit base," Mr. Fitzsimmons said.
Samuel Caldwell, and analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., said he expects Porter to take a measured approach to growth, instead of trying to build itself up quickly to make it more attractive to a potential buyer.
"They are still expanding. They are still building out, looking for acquisitions. I don't see them as a seller for the next three or five years," Mr. Caldwell said.
Porter is opening a loan production office in Lexington this month; it opened one in Bowling Green in March. Ms. Bouvette said her company will continue to hire lenders and open loan production offices in places where it wants to open branches.
"What I prefer to do is get an income stream going before we embark on building branches that cost $1 million or $2 million and take three years to become profitable," she said in her presentation.
However, that approach has had drawbacks, Ms. Bouvette said. "What that's done, though, is caused us to have more of a focus on assets and not really pay proper attention to deposit customers."
Porter's focus has changed since it went public, she said; it is now more attuned to the value of core deposit customers.
The company has controlled its margin without being too concerned about deposit growth, Ms. Bouvette said, because it has used Ascencia, the online bank it founded in 1999, to offer high-rate certificates of deposit without the expense of a large branch network. Porter has $897 million of deposits, and about 75% of them are in CDs.
Mr. Fitzsimmons said that even though investors would like the company to add more core deposits, it has done a good job of managing its margin, paying high rates on CDs because it is not supporting a large branch network.
At the end of the first quarter Porter's efficiency ratio was 41.62%, compared with an average of 69.37% for all commercial banks with assets of $1 to $10 billion, according to FDIC statistics.
"Who can argue with their efficiency ratio? They are in the mid-40s, and that is as good as any bank you can find," Mr. Fitzsimmons said.
Ms. Bouvette said in her presentation that Porter is giving its lenders incentive compensation for bringing in business deposits. It also hired a retail deposit officer to train employees to do the "touchy-feely" things to win more business.
"You walk in our banks, they will run out and greet you and thank you for coming in and work as hard as they can to get all the business from you they can," she said.
