Although big banks, taking advantage of a lower cost of funds, are joining nonbanks in consumer finance, some smaller banks are finding the business does not pay.

First Bank of Brunswick, Ga., a $114 million-asset institution, is a prime example.

The bank's holding company, Golden Isles Financial Holdings Inc., St. Simons Island, Ga., said Wednesday it plans to sell First Bank's consumer finance affiliate, First Credit Service Corp., to New South Financial Services. New South will also be buying First Credit Service's $10 million portfolio of personal, home equity, retail, and mortgage loans.

The unit just was not bringing high enough returns, said Michael Hodges, president of First Bank and co-manager of Golden Isles, despite a Georgia law that lets lenders charge high rates on loans of less than $3,000.

"There's so much capital getting into the consumer finance business right now" that it is difficult for a small company to compete, Mr. Hodges said.

Large commercial banks have been increasing their participation in the business in recent years, while established finance companies have doubled and tripled in size.

"You turn on your television, and you see Dan Marino advertising single- digit interest rate first mortgage loans for 125% of the value of a home. How are you going to compete with that?" Mr. Hodges said, referring to a marketing campaign by FirstPlus Financial Corp., Dallas.

Big finance companies are getting "better rates than some banks can get" because they sell or securitize loan portfolios rather than keeping them on their books, he said.

"I think everyone will eventually securitize everything they do," he said. "Funding is very difficult for banks."

Mr. Hodges, who has more than 20 years of banking experience, joined Golden Isles eight years ago. Previously Mr. Hodges was with Georgia Federal Bank, the state's largest thrift.

This year Golden Isles shuttered First Bank Mortgage Corp., its conventional mortgage division, and sold the portfolio to various investors. "Most folks our size have a difficult time" making mortgage lending profitable, Mr. Hodges said.

"It's very much a volume-driven business, with very, very high overhead," he said.

Now the bank refers customers to another lender for mortgages.

First Bank of Brunswick is going to concentrate on what it does best, Mr. Hodges said, and continue winning over customers with good service, where megabanks in the area like NationsBank Corp. fail.

"In our markets there are a couple of large banks. ... We've found we can compete with them," he said.

"We can offer personal service that they aren't able to offer. It's a really good, stable niche market," he added. "We've just found that the community banking business gives us better returns."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.