When First Citizens Bancshares Inc. in Raleigh wanted to expand into Georgia and Florida in the late 1990s, it decided that its best course was to charter a thrift under a new name.
It did so because the states prohibit out-of-state commercial banks from branching in unless they buy a bank first, but these laws cannot block federally chartered thrifts from opening branches.
Now, after a decade of using its thrift charter to add branches in 10 more states nationwide, the $16.2 billion-asset First Citizens intends to roll the thrift, which operates as IronStone Bank, into its First Citizens Bank subsidiary.
The merger could be the first step in a First Citizens effort to build a nationwide brand.
Company officials declined to discuss the move's rationale in detail, but it appears First Citizens no longer needs the thrift charter because it now has branches in states it where it wants them and can focus on bulking up in those markets.
In announcing the combination last week, chairman Lewis R. Holding said in a press release that the merger "strengthens our national presence under a single identity in many of the nation's top growth markets. The combined bank will provide better growth opportunities to build our company for the future."
First Citizens has 343 branches in Maryland, Tennessee, North Carolina, Virginia, and West Virginia. When the combination is completed early next year, it would have more than 400 branches operating under that name, from Florida to the Pacific Northwest.
Industry observers said that First Citizens could also achieve significant cost savings by combining the bank and thrift subsidiaries' marketing costs and dispensing with the need for a thrift regulator.
John Matheny, the director of sales and marketing at the Austin consulting firm Brintech Inc., said that, despite the initial costs for rebranding IronStone's 58 branches, the combination should reduce First Citizens' overhead in the long term. At 72.49%, its efficiency ratio was above average for banking companies in its asset class, according to June 30 data from the Federal Deposit Insurance Corp.
"Our view would be, there are seldom operational reasons not to consolidate," Mr. Matheny said. "There are sometimes marketing reasons not to consolidate, like name recognition in a particular market. But the bottom line is almost always improved with consolidation and centralization."
Typically, bank holding companies that obtain a thrift charter are expected to fulfill the three-year business plan they present in their application. After that, a holding company can convert the thrift to a bank charter or merge it with its commercial bank unit.
Though merging bank and thrift units could make sense from an efficiency standpoint, banking companies that have both rarely combine them because they like the thrift charter's flexibility to branch anywhere, industry observers said.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 eliminated many restrictions on interstate banking — allowing acquisitions across state lines — but left it to the states whether to allow interstate branching.
Chet Fenimore, the managing partner in the Austin office of Hunton & Williams LLP, said several states created barriers to entry for out-of-state banks, believing this would protect in-state banks from competition. But the industry has found ways around these barriers, such as acquiring shell charters for buying small banks in those markets, or chartering thrifts.
State laws blocking interstate branching "don't pose significant impediments to market entry because there are a number of different avenues to get around those impediments, if somebody really wants to get into another market," he said.
The Office of Thrift Supervision says roughly 40 bank holding companies have thrift subsidiaries.
Other commercial banking companies that have opened thrift units in other states recently include Southeastern Bank Financial Corp. in Augusta, Ga., which established a thrift, Southern Bank and Trust, in 2006 in order to enter Aiken, S.C., and Reliance Bancshares Inc. in Des Peres, Mo., which converted its Fort Myers, Fla., loan production office into a thrift that same year.
Jerry Von Rohr, Reliance's chairman and CEO, said it had opened four more branches in Lee County, Fla., since establishing the thrift.
Mr. Von Rohr said his company would only consider merging the bank and thrift charters if it decided to do no more interstate branching or if capital levels at one were suffering.
"If one bank was overly capitalized and the other was marginally capitalized, you could roll them together and take advantage of the capital," he said.
