A branch network makes for a boring acquisition target. It’s not a big bank deal that will result in significant scale or a business line that will complement the acquiring institution’s strategy. It’s not a sexy technology platform. But as deposits have grown increasingly attractive, branch acquisitions have emerged as a relatively low-risk way to acquire them.
The rationale behind branch deals has evolved, says Rick Childs, a partner at Crowe LLP. After the crisis, big banks rationalized their gargantuan branch networks; smaller banks gobbled them up. Now, instead of jettisoning one underperforming branch, sellers are divesting clusters of their network to get the best price. “There has been an evolution in the way we’ve thought about branch deals, both for the buyer and the seller,” he says.
To analyze the best branch network acquisitions, Bank Director looked at deals involving multiple branches, based on the number of locations acquired and the deposits gained. We then examined deposit growth at the acquired branches and improvement in noninterest expense 12 months following the close of the deal, as well as average deposits per acquired location and whether the bank’s loan-to-deposit ratio was too high or too low. We also examined how the deal affected the buyer’s geographic footprint.
According to our analysis, People’s Utah Bancorp’s acquisition of seven branches from Walla Walla, Washington-based Banner Corp., with $11.8 billion in assets, is the best transaction of the bunch. The deal came about through conversations between the CEOs of the two organizations: Len Williams at People’s Utah and Mark Grescovich at Banner, who wanted to exit Utah to focus on California and Banner’s native Pacific Northwest markets. “The banking community is a close-knit community; most of us tend to know each other here in the West,” says Williams. “I’ve actually had dealings with Mark in the past … so we kept the relationship alive, and [when] the opportunity presented itself, we made it work for both of us.”
The in-market deal filled in the $2.3 billion asset bank’s footprint around Provo and Salt Lake City, Utah. People’s Utah, which is based in American Fork, acquired more loans than deposits, which benefited its loan-to-deposit ratio. What’s more, Williams says he acquired commercial lenders and credit officers to help build the bank’s commercial and industrial (C&I) capabilities. “It was a game-changer for us,” due to the acquired sales culture and credit expertise, he says.
Deposits grew by 7.8% at the acquired locations. Noninterest expense improved by 11%.
In our second-ranked deal, Easton, Maryland-based Shore Bancshares, with $1.6 billion in assets, extended its branch footprint to the greater Baltimore area with its acquisition of three branches from $10.5 billion asset Northwest Bancshares, based in Warren, Pennsylvania. “It was a sizeable deal for them, and it [added] a new market, going across the Bay Bridge to more urban, faster-growing Baltimore area suburbs,” says Casey Whitman, a managing director at Sandler O’Neill + Partners. “Shore, longer term, wanted to be in those markets; it’s allowed them to grow more and have more growth potential by expanding over there and bring[ing] on more talent and open[ing] up more branches longer term.”
Carroll County Bancshares strengthened the footprint in central Iowa for its subsidiary, Availa Bank, through its three-branch acquisition from Stark Bank Group, which ranked third. (Stark Bank Group’s subsidiary is $856 million asset First American Bank, based in Fort Dodge, Iowa.) The relationship between the two banks resulted in a later opportunity for $1.1 billion asset Availa Bank to acquire three additional branches from First American Bank in a deal announced in March 2019. “[W]e have maintained a dialogue and when this opportunity arose, it seemed like it was a good fit for both sides,” Availa Bank CEO Jeff Scharfenkamp said in a local news story.
On its face, Flagstar Bancorp’s acquisition of eight Desert Community Bank branches in California, from $43 billion asset East West Bancorp in Pasadena, comes across as a head scratcher. Why acquire so far from its Troy, Michigan home base?
The acquisition, which placed fourth in the ranking, represents a small portion of Flagstar’s sizeable footprint today — it operates 160 branches in Michigan, Indiana, Wisconsin, Ohio and California. But in 2017, California was already a lucrative market for the $20.2 billion asset bank, which had previously acquired lending operations in the state.
Flagstar faces little competition in the acquired locations in the high desert region of California. And the market is a good source of low-cost, stable deposits. “[Customer] attrition was fairly low. If anything, they actually started to grow deposits within the Desert Community Bank [division],” says Kevin Barker, a senior research analyst at Piper Jaffray.
Through its $473 million asset Legence Bank subsidiary, based in Eldorado, Illinois, First Eldorado Bancshares purchased eight branches from MidCountry Financial Corp., based in Macon, Georgia, in August 2017. The market extension doubled Legence Bank’s branch network and strengthened its footprint in small and mid-sized towns in southern Illinois. The deal ranked fifth and boasts the highest average deposits per acquired branch, at $69 million.
In branch acquisitions, relationships tend to be the secret ingredient to getting the deal done. In the People’s Utah acquisition, the two CEOs are friendly and struck a mutually beneficial deal. With Carroll County Bankshares, one branch acquisition with First American led to another two years later; Legence purchased branches from MidCountry in 2011.
With banks more inclined to sell multiple branches at once, “you target who is the likely buyer,” says Childs. It’s easier to work with a known entity.
Williams at People’s Utah is on the lookout for more deals and has regular conversations with local community banks. “Those transactions tend to come together over long periods of time,” he says. “Our focus is on keeping relationships alive and when opportunities present themselves to help both sides, then we’re interested in putting something together.”
How They Ranked: Best Branch Network Acquisition
|ACQUIRER NAME, LOCATION / ASSET SIZE||TARGET NAME, NO. OF BRANCHES||DEAL DATE||SCORE|
|1||People’s Utah Bancorp
American Fork, UT / $2.3 billion
|Oct. 6, 2017||1.89|
Easton, MD / $1.6 billion
|May 19, 2017||2.22|
|3||Carroll County Bancshares
Carroll, IA / $1.1 billion
|Stark Bank Group Ltd.
|Mar. 20, 2017||3.33|
Troy, MI / $20.2 billion
|East West Bancorp
|Mar. 17, 2018||3.44|
|5||First Eldorado Bancshares
Eldorado, IL / $473 million
|MidCounty Financial Corp.
|Aug. 21, 2017||4.11|
SOURCES: S&P Global Market Intelligence, bank filings