Some regional banks looking to divest branches have attracted buyers by splitting up the branches and selling them to multiple community banks at once.
Such was the case for Arvest Bank, which recently agreed to sell 16 branches in separate deals with five different banks across four states. DD&F Consulting Group worked with Arvest Bank on the transaction and the firm's president, Randy Dennis, said in the latest Street Talk podcast that it represented the third transaction it has helped facilitate that involved a regional bank selling multiple branches, in multiple states to multiple buyers. Dennis expects more of these transactions in the future.
"When you have that many branches and most of them in rural markets, which is what most people are divesting, then you don't have one buyer to buy all," Dennis said on the episode. "I think we'll definitely continue to see it. It's been going on really for the last two years, and I think we'll continue to see it accelerate because people aren't using the branches as much. And it has more value for a community banker than it does for a large banker."
DD&F advised Bank OZK on the sale of four branches — two in south Alabama to two different banks and two in Hilton Head, S.C., to Sharonview FCU. DD&F also worked with Simmons First National Corp. on the sale of four branches to Citizens Equity First CU.
Banks have looked to shed branches through sales and closures as the pandemic accelerated the pace of digital adoption, causing customers to shift from visiting branches to transacting over digital channels. Most banks find themselves sodden with excess liquidity as well, which arguably reduces the value of branches, long seen as an important part of deposit gathering.
Dennis said he was a bit concerned when starting the branch sale processes because so many banks are flush with deposits right now. However, he noted that the sellers marketed strong core deposits along with the branches. Dennis said he quoted Bernard Baruch to buyers many times, noting that they should "buy straw hats in the winter for summer should surely come." While banks have plenty of cash now, Dennis noted that it will eventually go away like it tends to do, and smaller institutions should not pass up the chance to acquire low-cost funds when they can.
In addition to sales, banks closed far more branches in 2020 than in any other period over the last 10 years. Banks closed 3,488 branches in 2020 while opening 1,074 locations, resulting in net closures of 2,414 branches. The pace of closures appears to have accelerated in 2021, with institutions reporting 3,569 net closures over the 12-month period ending Sept. 30.
Dennis acknowledged that branch traffic has declined and technology can allow banks to continue serving their customers but noted that institutions, particularly community banks in rural markets, need to find ways to know and connect with their customers and ensure that they are serving as trusted advisers. If banks fail to do that, they could risk losing their customers to challenger banks and fintechs like Chime Financial Inc. and Robinhood Markets Inc.
"I think if you look across the footprints of any bank out there right now, the consumer hated the fact that the branches were closed, in general, especially rural markets. Those people are used to going into the branches. They know the tellers, they know the people and the banks, and they didn't like being shut out. And so I think what we have found is that a lot of our customers and clients out there, they want to go in and see the people," Dennis said. "That is a way for community banks, rural community banks, in particular, to keep in touch with their customers and know who they are and what their needs are."
"Street Talk" is a podcast hosted by S&P Global Market Intelligence.