Continuing its efforts to shed rural branches, KeyCorp is selling seven branches and $160 million of deposits to an Ohio community bank.
Wooster-based FirstFederal Financial Services Corp. agreed to buy the seven branches, in the north-central part of the Buckeye State, for about $19.2 million. That's a deposit premium of 12.15%, far higher than typical branch-sale premiums of about 6% to 8%.
The deal is expected to close in September. It includes $24 million in loans, which would boost FirstFederal's assets to $1.3 billion.
FirstFederal, which now has $1.1 billion of assets, is also buying $80 million-asset Summit Bank, Akron; that deal that is expected to close in July.
FirstFederal's current branches are in small towns just southeast of Cleveland. The KeyCorp branches are in similar communities further west, toward Toledo.
"These were markets we were trying to get into for quite some time- stable but rural markets," said James J. Little, executive vice president and chief financial officer of FirstFederal. "They're markets that we're very comfortable with."
"It's a good move for FirstFederal," said Ross A. Demmerle, research analyst at Cleveland's McDonnell & Co. "Key's strengths are probably in suburban and urban areas, versus FirstFederal, whose markets are more in the small towns. It's probably more attuned to the customer needs in the towns where these branches are."
The transaction will also give FirstFederal a burst of low-cost deposits to help fund its bustling loan growth and its business securitizing manufactured housing loans.
The company has been an active acquirer of nonbank finance companies, but deposits have not kept pace.
"Most of the markets we're in are not high-growth deposit markets," Mr. Little said.
"As a result, deposit acquisitions both of entire entities and branches make a lot of sense for us."
On March 31, FirstFederal had $753 million in loans but only $663 million of deposits. And in 1996, loans soared 30% while deposits only grew 17%.
That forced the company to borrow from the Federal Home Loan Bank of Cincinnati and other sources. By March 31 its borrowings totaled $323 million.
Key has now reached agreements to sell 84 of the 140 rural branches it targeted for sale last November.
The $67 billion-asset regional is selling the branches and closing another 140 as it prepares to merge its separate state subsidiaries into one national bank after the June 1 onset of interstate branching. The company plans to operate in 27 metropolitan areas when its reorganization is completed.
"This is consistent with their announced plans to sell 140 branches across the country," said Frank J. Barkocy, senior vice president at Josephthal Lyon & Ross Inc. in New York.
"They are getting out of markets where it is not economically feasible to continue to serve on the same basis."