Community banks interested in buying branches can expect to pay higher premiums.
The average deposit premium for branch sales so far this year is 7.21%, up from 6.21% in 1996 and 3.34% four years ago, according to Sheshunoff Information Services Inc.
While expensive, buying a branch may be the cheapest way to grow.
Take Klamath First Bancorp, a $960 million-asset holding company in Klamath Falls, Ore., that paid about $2 million for 25 branches of Wells Fargo & Co.
"It would cost us close to $1 million to build a single branch," said Marshall J. Alexander, Klamath's vice president and chief financial officer. "You can't beat that deal."
But bankers beware: Gauging the value of a branch is more difficult than assessing a whole-bank purchase, according to Chris Hargrove, president of Professional Bank Services Inc., Louisville, Ky.
"There are no rules of thumb to branch acquisitions like there are in bank deals," he said. Because many branch sales do not offer all the loans or other business at that location, it can be difficult to tell how profitable the branch will be.
However, Donald R. Mengedoth, chairman, president, and chief executive officer of $4.2 billion-asset Community First Bankshares in Fargo, N.D., and a noted acquirer, has a formula.
Community First looks at the economy of the region it would be moving into. It analyzes the profitability of the deposits it would receive, and the branch's dominance in the area. Mr. Mengedoth said Community First tries to buy only branches that rank first or second in local market share.
The bottom line is that the deposits are only worth what the bank makes of them, said John F. Burger, president and chief executive officer of Six Rivers National Bank, Eureka, Calif.
"We have bought 15,000 new accounts, 12,000 clients," said Mr. Burger. "They all have borrowing needs, some may be interested in refinancing existing loans. It is incumbent on us to be good salesmen."