US whole-bank M&A might have sputtered back to life, but branch sales and acquisitions remain depressed.
Merchants Bancorp‘s recently announced planned sale of four Illinois branches brings the number of 2023 bank branch deals to nine so far, a decrease from 19 in 2022 and the lowest count since at least 2000, according to S&P Global Market Intelligence data.
The year-to-date deals involve a total of $443.1 million in deposits, while the deposits transferred under the deals in each of the recent years amounted to billions.
A smaller number of branches is one of the likely reasons for the slow branch deal activity.
Before deciding to strike a balance between reducing branches and increasing digital adoption, banks slashed their branch footprints in 2020, 2021 and the earlier part of 2022 as the pandemic triggered a change in consumer behavior.
“Banks have offloaded a lot of ‘excess’ branches in the prior years and have already worked down to more desired levels,” said Stephen Scouten, a managing director and senior research analyst at Piper Sandler. “So, there is just less supply.”
The effect of higher interest rates on deposits is another potential reason for the sluggish branch deal activity.
“Higher rates have made deposits far more valuable, and branches are still the best way to drive core customer deposit growth,” Scouten said.
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Together with the Federal Reserve’s monetary policy tightening, the liquidity crunch that erupted in March has put a much greater premium on deposits at banks. Deposit premiums are largely between 4% to 8% on recent deals, but “the data set is too small to glean much,” Scouten said.
Since banks need to generate deposits amid heightened competition, branch deal activity is unlikely to pick up, according to Scouten.
“If they do pick up, it would be to drive capital growth for banks with underwater balance sheets,” he added.
Recent branch deals
Merchants Bancorp was the latest to announce a bank branch deal. The company’s planned sale of three Illinois branches to Pontiac Bancorp Inc. and one Illinois branch to Central Bancshares Inc. represents the largest and second-largest bank branch deals so far in 2023 in terms of deposits involved.
Pontiac Bancorp’s branch purchase would see the transfer of $157.0 million in deposits, and Central Bancshares’ branch buy would include $62.0 million in deposits.
With the branch deals, Merchants Bancorp will be able to concentrate on its core business of single and multifamily mortgage lending, Chairman and CEO Michael Petrie said in a news release.
Deals in 2023 so far involve mostly community banks and three credit unions. The most recent credit union-bank branch deal is University of Illinois Community CU’s purchase of retail deposits from the Danville, Ill., branch of CIBM Bank, a subsidiary of CIB Marine Bancshares Inc.
Largest branch deals
The biggest branch deal in terms of the number of branches acquired and deposits transferred was Citizens Financial Group Inc.’s sale of 80 branches and its national online deposit business to HSBC USA Inc., with $9.0 billion in deposits involved.
The Citizens-HSBC transaction was announced in May 2021, making it one of the branch deals sealed at a time when many US banks are shuttering branches amid the digital acceleration caused by the pandemic. In 2021 alone, banks inked 44 branch deals, including 183 branches and the transfer of $13.94 billion in deposits.
