More companies are shuttering branches obtained in Federal Deposit Insurance Corp.-backed deals.
In most cases, buyers took on branches in markets beyond their geographical scope, or came to a later realization that it would cost too much to maintain and compete for greater market share in single-branch markets.
Sometimes, even, the closures are for both reasons. Consider First Financial Bancorp of Cincinnati's ongoing consolidation.
The $6.2 billion-asset company bought a bank and thrift in September 2009. Since then, it has shuttered 10 branches it bought in those FDIC-backed deals in states removed from its Midwest base. By March 31, another five obtained in those deals will be closed in Michigan and Kentucky.
(The company had 128 branches at its peak; it is closing 22 branches overall, but would not disclose the acquisition-versus-legacy breakdown of a further seven closures in its core markets.)
Given how profitable First Financial's acquisition of Irwin Union Bank and Trust Co. and Irwin Union Bank has been, the company may not have buyer's remorse. But the moves do reflect the shotgun-wedding approach of many government-brokered deals.
Industry observers said more banks have now had time to evaluate the costs versus potential growth in running branches.
"You probably will see more branch rationalizations," said Ralph "Chip" MacDonald, a lawyer at Jones Day in Atlanta. He noted First Financial's purchases of Irwin Union Bank and Trust Co. and Irwin Union Bank occurred a year ago, "before the Dodd-Frank Act and Basel III," which will serve to create more branch closures.
Analysts added that closures are going to become more visible because some regulators require buyers to wait a year before making such moves.
First Financial waited until after September to close some of Irwin's Western branches. Frank Hall, the bank's chief financial officer, stressed, however, that a one-year requirement to keep certain Irwin branches did not play into its Wednesday announcement that it would exit the Michigan and Louisville, Ky. markets by shuttering five of Irwin's branches.
Leaving those markets was based on a lack of scale. Each branch was a lone representative in its city, "making it difficult to support them in gaining market share," Hall said. The company also expects to reduce its annual $5.3 million in pretax operating costs from the five closures over time.
Hall cautioned it does not mean they are permanently writing off Michigan and Louisville. "It was not the right way to enter those markets," he said.
Core markets include Cincinnati and Dayton, Ohio, as well as Indianapolis and in southern and northwest Indiana.
Regardless of whether a bank has made an FDIC-assisted deal, many banks are cutting costs in a tough economy and expensive regulatory environment. That can lead to branch closures. For example, in addition to the Irwin branches First Financial is closing are legacy others that will be shuttered in Ohio and Indiana.
Hall said management only recently decided on the latest closures "as part of a re-occurring planning process as we looked at where the best opportunities were to deploy capital."
Among all of the branch consolidations, Hall said the company expects to lose the most deposits from Michigan and Kentucky branches, which totaled $163.5 million in deposits, or 3.2% of the total deposits at Sept. 30.
This is small considering the significant benefits First Financial has already earned from the three failed bank deals, posting a $342.5 million gain at Sept. 30.
The bank's scaling back may add franchise value to its core market. R. Scott Siefers, an analyst at Sandler O'Neill & Partners LP, wrote in Thursday a note to clients that the consolidation will help "tighten up" First Financial's presence in markets "where it feels it has the best penetration, growth opportunities, and brand awareness" and will improve overall efficiency.
First Financial isn't the only bank to close branches gained from FDIC deals. Stearns Bank of St. Cloud, Minn., closed 10 out of 13 in Florida after it bought two failed banks in August 2009. The bank did not return a phone call.
Bank consultant Ken Thomas said that, unlike First Financial, there are buyers who "didn't really care about the franchise value, they just wanted to get as many deals as they can with the FDIC." After the S&L crisis, "you had never seen a bank close half or more of their offices unless it was because of bad locations or overlap."
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