In a deal that would nearly double its deposits in its home state's largest metropolitan market, Old National Bancorp in Evansville is buying all the Indiana branches of Citizens Financial Group Inc.
The $7.6 billion-asset Old National said Tuesday that it would buy the 65 branches for $15.9 million in cash, or a 4% premium on the deposits.
Of the 65 mostly in-store branches, 51 are in Indianapolis, a market Old National had been interested in for expansion. It has roughly $410 million of deposits in the market, and the deal would add about $350 million.
Statewide, Old National would gain nearly $400 million of deposits and roughly $16 million of loans.
"This deal fits right into our sweet spots of our growth strategy," Bob Jones, Old National's president and chief executive, said in an interview Tuesday. "Our whole strategy in Indiana centers around investing in the growth of Indianapolis, Fort Wayne, and Lafayette."
The Citizens branches operate under the name Charter One Bank, which Citizens' parent, Royal Bank of Scotland Group PLC, bought in 2004.
For the $161 billion-asset Citizens, a Providence, R.I., banking company, the divestiture fits into its overall strategy of focusing on faster-growing metropolitan markets. This month it closed a deal to sell 18 upstate New York branches, along with $575 million of deposits and $115 million of loans, to Community Bank System Inc. in Syracuse, N.Y.
In a press release, Citizens said that the Indiana branches hold one-half of 1% of its overall U.S. deposits. "This is a strategic business decision to realign our distribution network," said Sandra Pierce, Charter One's president in Michigan and Indiana.
Citizens said it will continue to operate Charter One's Indiana corporate banking business, which includes commercial and government clients.
It gave no indication that the branch sales were related to the broader problems at its parent company. Last week, Royal Bank of Scotland's shareholders approved a $30 billion bailout from the government that will give the British Treasury 58% ownership of the company.
With the addition of the Charter One sites, Old National will have 182 branches statewide, the third-most in Indiana.
Old National's Mr. Jones said the company has been looking for acquisition candidates but "you can only buy what is presented to you."
And since this is a branch buy, Old National was able "to be very selective on credits we chose," he said.
Though the branches it is getting average just $6.1 million of deposits, Mr. Jones said that Citizens was not particularly aggressive in Indiana so that, with a little marketing, he expects these branches to grow.
"We would have to spend $3 million to build a brand new branch, so to get this many branches at the price we are paying is great," he said.
Ken Thomas, a Miami consultant who operates the Web site Branchlocation.com, agreed that in-store branches are cheaper to operate but said they are not as profitable as stand-alone ones.
"I would have told them to put that $16 million into traditional branches," Mr. Thomas said. "It is tested and proven to be the model."
Stephen Geyen, an analyst at Stifel, Nicolaus & Co., said in a research note Tuesday that the deal was "a fairly low-risk acquisition."
He said that core deposits make 52% of the total Charter One deposits.
Old National, whose risk-based capital ratio is 14.28%, said it has been approved to participate in the Treasury's capital purchase program but would not use any of the money in the branches deal.