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CorTrust Bank in Mitchell, S.D., has acquired a one-branch bank in Blaine, Minn.
March 22 -
CNB is an infrequent buyer but agreed to acquire a smaller bank near Columbus, Ohio, as a way to enter a market without abandoning its preference for organic growth.
March 27 -
Bryn Mawr Bank in Pennsylvania It has agreed to buy MidCoast Community Bancorp in Wilmington, Del.
March 28 -
Time ran out on Corus Bank late Friday as regulators closed the once-high-flying Chicago condominium lender and sold its operations to another institution.
September 11
CorTrust Bank is ready for a new life in the big city.
The South Dakota company recently
CorTrust needs to build assets to $1 billion from its current $680 million to survive, executives have concluded.
"In this day and age, in terms of compliance and regulation, $1 billion is the level we think we need to reach in order to be efficient," Smith says.
A growing number of community banks are, like CorTrust, pursuing safe out-of-market expansions. Before the financial crisis, banks were eager to enter distant, high-growth markets such as Florida and Arizona. Bankers stung by those forays are favoring stability today, and they seek to avoid oversized bets when economic constraints force them to branch out.
Several deals last month fit that description. CNB Financial (CCNE) in Clearfield, Pa.,
Sticking in the lightly populated South Dakota would have been tough for CorTrust. The bank, based in Mitchell, has 22 branches and roughly $500 million of deposits in 16 communities. Minneapolis offers greater population density and an opportunity to make more loans.
"Our management wants us to be in the larger areas where we have an ability to expand," Smith says. "That's why we felt Minneapolis would be a good opportunity for us."
Banks can benefit from expanding into high-density markets, as long as they are mindful of operational and credit risks, says Wesley A. Brown, a managing director at St. Charles Capital, an investment bank in Denver.
"As banks break through $100 million in assets in any market, they start to accrue more value for their shareholders, "Brown says. "Of course, there are some possible negatives. You may not understand the market or the customer base very well. We've seen a number of banks make that mistake along the way."
CorTrust hopes to avoid that misstep by targeting banks with corporate cultures that resemble its own. "We're looking at situations that seem to fit well with our current organization," Smith says. "That's where we pay most of our attention. As far as size is concerned, it will be dictated by the opportunities that are available to us."
Blaine State Bank, located just north of Minneapolis, was also a relatively small bite, with $36 million in assets and $28 million in deposits. And it is CorTrust's second acquisition around Minneapolis. In September 2009, it bought Brickwell Community Bank, where it picked up $72 million in assets and $63 million in loans, after regulators closed the Woodbury bank. CorTrust secured a
Smith would not discuss the price or structure of the Blaine acquisition.
CorTrust also has an interest in hiring lenders or building branches, though it prefers to buy whole banks or branch portfolios. Banks with up to $100 million in assets are "probably a real good fit, but we'd be willing and able to take a look at something bigger than that," Smith says.
The Minneapolis economy appears relatively stable, with an unemployment rate of 6.1% in January, according to the U.S. Bureau of Labor Statistics. The U.S. unemployment rate was 7.7% in February.
The city's housing market has "normalized" from a decline fueled by aggressive subprime lending before the financial crisis, says Ben Crabtree, a senior advisor at Oak Ridge Financial, an advisory firm in Golden Valley, Minn.
The biggest challenge in Minneapolis could be its abundance of financial institutions, with 160 banks dividing the market's $159 billion in deposits at June 30, according to the Federal Deposit Insurance Corp. The retail market is dominated by Wells Fargo (WFC), U.S. Bancorp (USB) and TCF Financial (TCB). Still, CorTrust has been able to boost its deposits in the market by 31% since the Brickwell purchase, to $36.6 million, according to FDIC data.
"I feel we've positioned ourselves in the Minneapolis market to be able to grow," Smith says.
A bank like CorTrust is best suited to focus on small-business lending, particularly if it can hire skilled and experienced commercial lenders, Crabtree says. "I would not have a lot of optimism for banks that think they're going to go head to head with U.S. Bancorp, Wells Fargo and TCF in consumer banking," he says.
The market has a lot of banks with $700 million of deposits or less, suggesting a need for consolidation. But it has few publicly traded banks that could serve as "roll-up agents," Crabtree says.
CorTrust plans to work with its regulators as it charts a strategy for Minneapolis, and it has no immediate plans to raise more capital to accelerate its consolidation plans. "We all know that capital dictates" the pace of growth, Smith says. "Right now we have the ability to take on more without adding capital."
