First of America Bank Corp., struggling to become more efficient, is shedding some small-town branches.
The Kalamazoo, Mich., company announced last week that it will sell eight offices, with $125 million in deposits, northeast of Detroit, to Independent Bank Corp., Ionia, Mich.
The banks said they have not finalized a sale price, but analysts predicted the branches would sell for between $6 million and $12.5 million. The sale is expected to close in the fourth quarter.
Though the divestiture of branches "won't have a material impact" on earnings, analyst Michael Moran of Roney & Co. in Detroit said the move shows First of America's willingness to continue a restructuring that began two years ago.
Analysts said First of America's earnings have been disappointing during the past few quarters, largely because the cost-cutting program hasn't yet helped the bottom line.
They said the branch sale is a sign that $22 billion-asset First of America is trying to pare its large retail network by selling less profitable offices. First of America has more than 600 branches, 350 of which are in Michigan.
Independent, a $777 million-asset community bank, said the branches were a natural fit because they were located near existing branches and "will make an important contribution to our community banking franchise," said Independent president Charles Van Loan.
"It's a good match for both considering the circumstances," said Tony Howard, an analyst with First of Michigan Corp. in Detroit.
Mr. Howard said Independent is better suited to serve small towns, such as the tiny burg of Bad Axe, where First of America is selling two branches. "That's where Independent does real well, basically getting to know everyone in the community," Mr. Howard said.
First of America, which is trying to reduce its ratio of noninterest expense to revenues, needs to continue to reassess its branch network, Mr. Howard said. With a 62% efficiency ratio, it lags behind competitors. "It's improving, but it's still not as good as the super regionals."
First of America began scaling back its branch network last year, selling $121 million in deposits in Illinois, and six small branches in Michigan.
While reducing its number of traditional branches, First of America has been increasing its supermarket bank branches outside of its home state. Most recently, it announced it would add 16 in-store banks in Florida.
Fred Cummings, an analyst with McDonald & Company Securities in Cleveland, said because revenue growth has been slow at First of America, cost-cutting efforts become important. "They've done a reasonably good job of controlling the rate of expense, but that has been offset by sluggish revenue growth," Mr. Cummings said.