Commercial Federal Corp., which used a string of acquisitions to build its flagship Commercial Federal Bank into a $13.8 billion-asset business but struggled to convert the size gains into profit growth, is pulling back.
The Omaha thrift company said Thursday that it will take a $15.4 million charge, sell 37 branches, and consolidate 12 others in a reorganization that is the latest in a series of initiatives during the last two months aimed at revitalizing earnings. The moves came amid intense pressure from investors for a change in management and sale of the company.
The branch reorganization is not the last of the restructuring initiatives. Commercial Federal will probably make further announcements about its back-office staff and operations in coming months, said David Fisher, who became chief financial officer in June. He said he does not expect the other initiatives would result in a charge of the size announced Thursday, "but there will be something."
In its fiscal fourth quarter, which ended in June, Commercial Federal said operating income fell 14%, to $103.3 million. Fiscal first-quarter results are to be reported Oct. 24 and will include the charge.
This comes on top of an estimated $105 million to $125 million of charges the company said it would book by yearend to account for a balance sheet restructuring.
Commercial Federal has partially completed this restructuring, which includes the sale of $2 billion of low-yielding and higher-risk investments and mortgage loans. Less than half the restructuring charges are to be recorded in the first quarter, the company said.
The company's share price dropped 2.5% Thursday, to $17.375, not as bad as
U.S. Bancorp Piper Jaffray is advising Commercial Federal on selling the branches, which have $464 million of deposits and are spread across seven states. About 220 employees are to be affected by the sales, though the company said it expects some will go to work at the acquiring banks or in other Commercial Federal branches.
Commercial Federal said it has grown bloated through six acquisitions in the last two years, prompting the branch trimming.
"Most of the low-growth markets are in areas where we made acquisitions," Mr. Fisher said. He said the company postponed weeding out branches in these low-growth areas because it wanted to complete a systems conversion.
Commercial Federal will still have to struggle to prove that these initiatives and the current state of its operations are enough to improve earnings. "There is a lot of stuff even beyond what they're divesting that no one would want," said Joseph Roberto, an analyst at Keefe, Bruyette & Woods Inc. "Maybe they paid too much for acquisitions because earnings per share growth is not there."
Among other share-boosting initiatives, Commercial Federal has begun to buy back up to 10% of its outstanding shares. It also plans to take charges for sales from its real estate portfolio, costing it $6 million, and an underperforming lease portfolio, costing $7 million.
Commercial Federal executives said they are not eyeing cost savings as a first priority. But by focusing on a more manageable branch network, the company should be able to increase growth rates, particularly in its retail business, they said.
"I think we should be able to grow earnings of the company at 10% when we're all done" with these initiatives, Mr. Fisher said.
| Branch Deposit Market Share for Commercial Federal Corp. | ||||
| State | Rank in State | Branches | Total Deposits ($ 000) | Market Share (%) |
|---|---|---|---|---|
| Nebraska | 4th | 42 | $1,217,025 | 4.23% |
| Colorado | 6th | 44 | $2,182,088 | 4.13% |
| Iowa | 3rd | 69 | $1,501,299 | 3.35% |
| Kansas | 8th | 39 | $1,109,743 | 2.72% |
| Oklahoma | 10th | 21 | $785,098 | 1.94% |
| Missouri | 18th | 19 | $483,946 | 0.61% |
| Arizona | 26th | 7 | $177,177 | 0.39% |
| Minnesota | 525th | 4 | $5,146 | 0.01% |
| Source: BankSource - Sheshunoff Information Services | ||||
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