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Christopher "Kit" Menkin is of editor (, an internet trade publication for the finance/leasing industry. He has 46 years experience in the finance/leasing industry as well as being a founder of a commercial regional bank and serving on several company... More
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  • Merger/Acquisitions--Online And Mobile Banking--- Helping To Fuel Bank Branch Consolidation 0 comments
    Oct 25, 2013 2:09 PM

    by Kevin Dobbs and Tahir Ali

    ---An SNL Exclusive Feature

    Advances in technology are driving reductions in bank branch counts, but Mergers and Acquisitions have served as a notable contributor, bankers and analysts say, and likely will continue to play a role as many anticipate deal activity will gradually build in coming quarters.

    The latest FDIC Summary of Deposits data, released this month, showed there were 96,341 branches in the U.S. at June 30, down from 97,340 a year earlier and marking the fourth consecutive year of declines.

    Observers told SNL that customers' mounting preference for online and mobile banking is leading to less and less foot traffic at branches, providing banks reason to shutter or downsize more underperforming locations. What's more, only modest profitability in recent years is motivating lenders to increasingly look at cost-cutting, further adding reason to shave branch counts.

    But deals, too, play a role, as banks often shutter overlapping branches after making acquisitions. This is true in deals big and small. Since Wells Fargo & Co. acquired Wachovia Corp. in 2008, for example, it has shuttered 396 of the target's branches. For a case in point on the smaller end, after M&T Bank Corp. acquired the much smaller Provident Bankshares Corp. in 2009, for a case in point on the smaller end, it closed more than half of the target's branches

    (click to enlarge)

    And while deal activity has been light relative to the boom years of the 1990s and the early 2000s, analysts say figures are modestly climbing and likely will continue to do so.

    There were 110 open-bank deals announced in the first half of 2013, for instance, higher than the 104 in the first half of last year. There also have been more than 20 bank failures this year.

    "All the consolidation has contributed to the branch reductions and we think we will continue to see that," Sandler O'Neill & Partners LP analyst Brad Milsaps told SNL Financial.

    Milsaps said failures, which are down from last year, likely will continue to decline in number but will trickle in yet this year and next, contributing to deal totals. And, more notably, he said there are a myriad of reasons to think open-bank acquisitions will mount, if slowly, particularly among community banks. Heavy regulatory pressure, high compliance costs, stiff competition from larger players and executive fatigue dating to the troubles of the financial crisis are all factors that Milsaps and others say are bound to bring more small-bank sellers to the deal table.

    Would-be buyers, meanwhile, could grow in number, too, as banks grow frustrated with tepid organic growth prospects amid a slow-growth economy and only modest loan demand.

    "We are hearing more and more from people on both sides," Jacob Thompson, a managing director of investment banking at SAMCO Capital Markets, told SNL recently. "Activity is building some, but also there are more and more conversations taking place, and we think more of those conversations will result in deals."

    MidSouth Bancorp Inc. President and CEO Clive Cloutier agreed with that assessment. And he told SNL that deal activity will inevitably result in fewer branches, as some buyers look to maximize cost-saves by closing targets' branches that are close to their own.

    But interestingly, Cloutier said, the greater influence on branch reduction - technology - may ultimately curtail bank M&A.

    In the medium term, he said, there is more inevitable consolidation, owing to the conditions Milsaps cites. But longer term, as technology advances and younger, tech-savvy generations age and account for larger shares of banks' regular customers, branches could continue to diminish in importance. Already, Cloutier said, an estimated 5% to 7% fewer customers per year are using physical branches. "They aren't necessarily leaving you; they just don't need to do business in person."

    While cost-saves come via closing overlapping branches, banks often traditionally have pursued acquisitions primarily to pick up branches in new neighborhoods or markets and to acquire the customers who go with them. This allows buyers to gain market share or gain entrance to new markets. But if you can steal share or enter new markets via new technology, without opening branches, why bother with deals, at least in the way people view them now, he asked. "If I can do it in a less expensive way, why wouldn't I?"

    Cloutier said he does not know exactly how that trend would develop, but with technology constantly advancing and banks steadily evolving with it, it strikes him as likely to happen in coming decades. "Technology is changing everything," he said.

    But bottom line: "We're going to continue to see fewer branches," Cloutier said.

    (click to enlarge)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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