Taking the next step in its strategy to grow its deposits and fee income by acquisition of companies that handle Section 1031 exchange transactions, The Bank Holdings last week said it will acquire a California company.
The Reno-based bank holding company, the parent of Nevada Security Bank, said it will pay $5.2 million for Granite Exchange Inc. of Roseville, Calif.
The deal comes on the heels of a February transaction in which The Bank Holdings announced plans to acquire Big Sky Property Exchange, a 1031 exchange company based in Bozeman, Mont.
Exchange companies such as Granite Exchange and Big Sky Property Exchange act as intermediaries when property owners swap their holdings through the tax-deferred Section 1031 strategy.
For the bank, the newly acquired Section 1031 exchange intermediaries generate fee income. Granite Exchange, for instance, acted as the intermediary on more than 1,100 transactions last year.
Just as important, the Section 1031 exchanges generate deposits as the intermediaries hold funds from buyers and sellers.
Granite and its subsidiary, AllStar Exchange Services LLC, had about $90 million in exchange balances on deposit at the start of this year some $60 million of it deposited at Nevada Security Bank. Big Sky Property Exchange had $3 million on deposit at Nevada Security Bank as of Dec. 31.
Hal Giomi, chairman and chief executive officer of The Bank Holdings, noted that the deposits generated by the exchange intermediaries will support further loan growth by the bank.
He said Justin Swift, the founder of Granite Exchange Inc., will stay on board to run the operation.
Swift, in turn, said his company's acquisition by a publicly held company The Bank Holdings trades on NASDAQ brings more financial muscle to Granite Exchange.
The Bank Holdings' acquisitions of the property exchange firms await approval by the Federal Reserve.