After a few years of bargain hunting, it looks like buyers are willing to pay up for bank branches.

Data on deals announced so far this year shows a median deposit premium of 4%, an improvement of more than 60 basis points from the levels of the last two years. Recently, a few larger branch deals have had even higher premiums, including one announced last week in which First Financial Bancorp in Cincinnati agreed to pay a 6.41% premium for $346 million in deposits and 16 branches from Liberty Savings Bank in Wilmington, Ohio.

The apparent loosening of buyers' purse strings suggests an increased confidence in the market and a keen appetite for growth opportunities, experts said.

"It is a little early to tell how it will play out this year, but for banks that are marketing an attractive deposit base there is more enthusiasm than there was a couple of years ago," said Charlie Crowley, a managing director at Paragon Capital Partners. "I think potential buyers are feeling better about their own position and are eager to get back on the growth trail."

That eagerness might be tied to the lack of revenue growth, said Scott Siefers, an analyst at Sandler O'Neill & Partners LP. "To generate earnings growth right now, banks either have to cut costs or find economies of scale," Siefers said. "So, for someone like First Financial, they can achieve that by buying a thrift's branches, finding some efficiencies and improve the overall funding mix through cross-selling. That is where the real leverage is."

Since branch deals tend to be deposit-heavy, they do not immediately help banks looking for loan growth, Siefers said. "There is nowhere to put those funds; there are not a lot of loans to invest them into right away," he said. "Branch deals are a good long-term strategy."

Sellers' improved credit quality is also contributing to the uptick, Siefers said. For the last few years, branch sales have been a go-to strategy for struggling banks that have been shut out of the capital markets. Buyers like the deals because they could cherry-pick loans to take along with the deposits and branches, while sellers are able to bring in cash and reduce their asset size.

Today's sellers are less stressed than counterparts from years passed; buyers might not be able to drive as hard of a bargain.

"A lot of the sellers today might be in tough financial condition, but they are not in the 'make it or break it' situation they were a few years ago," Siefers said. "That has changed prices, too."

First Financial's track record is a particularly useful example. In the summer of 2009, the company agreed to buy 17 branches from the critically undercapitalized Peoples Community Bancorp Inc. in West Chester, Ohio. The deal included $260 million of performing loans and $310 million of deposits. It initially offered Peoples a 4% premium, but raised the offer to 5% after the struggling company received a second bid. Regulators seized Peoples before the deal closed, with First Financial submitting the winning bid to the Federal Deposit Insurance Corp. for the thrift.

With Liberty Savings, First Financial will buy 16 branches, $346.2 million in deposits and $143.3 million of performing loans. Liberty, which is struggling with credit issues but is well capitalized, said it would keep back-office operations in Ohio, though its remaining branches would be in Colorado, Florida and South Carolina.

Though experts believe prices in branch deals are rising, Frank Hall, First Financial's chief financial officer, said it is difficult to compare deals side by side. But he said he would rather buy branches than whole companies. "With a whole-bank acquisition, you are assuming all the knowns and unknowns," Hall said in an interview Monday. "Branch deals are better, because you know exactly what you are buying."

For First Financial, the deal with Liberty Savings is an acceleration in a key market. "We had an existing presence in Dayton, but this transaction gives us the right type of market penetration, scale and visibility to increase our momentum in that market," Hall said.

The deal, which First Financial expects to close in third quarter, would make the buyer the largest community bank deposit holder in Dayton and would move it from 11th to seventh in market share, according to a research note from Siefers.

That kind of upgrade is also worth paying up for, said Ken Thomas, an economist at He said PNC Financial Services Group Inc. in Pittsburgh paid a 10% deposit premium to buy all of BankAtlantic Bancorp Inc.'s Tampa, Fla., branches in a deal that closed Monday.

"Buyers are willing to pay a higher premium if they are going to get all the branches in a market," Thomas said.

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