Two years after doubling its branch network with the purchase of 17 former CoreStates Bank branches, Main Street Bancorp of Reading, Pa., realized that it had bitten off more than it could chew.
So last quarter Main Street closed two branches in counties where it has several and sold its sole branch in Lancaster County to Susquehanna Bancshares of Lititz, Pa.
Main Street plans to sell two or three more branches that are outside its main market by the end of this quarter. All are former CoreStates offices that, according to Main Streets president and chief executive officer, Brian Hartline, were simply too far away from the companys core market or were not profitable.
Having one branch in each of a handful of counties was causing a financial drain, he said, so the $1.5 billion-asset company decided that it was better off closing them and concentrating on the five or six branches that we have in one county.
While Main Street was retrenching, other community bankers were coming to the same conclusions. Amcore Financial Inc., BankAtlantic Bancorp, Republic Bancshares, City Holding Co., and Eagle Bancshares have all announced plans to shed branches, close far-flung loan production offices, and exit unprofitable businesses.
Getting rid of dead weight every few years is not uncommon, but industry observers say activity has picked up noticeably as the economy slows and banks place a renewed emphasis on traditional banking in their own backyards.
Companies are realizing that they need to shed unprofitable branches outside of their market and tighten up their core markets, said Chris Hargrove, president of the consulting firm Professional Bank Services in Louisville, Ky.
For instance, AMCORE in Rockford, Ill., announced plans in January to sell six branches it had acquired outside its main markets.
We wanted to re-deploy our capital and focus our resources closer to home where we see more economic growth opportunity, said John Hecht, chief financial officer of the $4.2 billion-asset company.
The bank is half way there, selling two branches to $142 million-asset First National Bank and Trust of Rochelle (Ill.), and a third to $123 million-asset Union Savings Bank in Freeport, Ill. Deals for the three other branches are being negotiated. AMCORE is adding two branches near its headquarters.
Over the last several years, banks and thrifts throughout the country have been buying up everything, said Steve Covington, an analyst with Advest Inc. in New York. Now they are going through a digestion phase and sitting down and realizing what is and isnt profitable.
For example, BankAtlantic of Fort Lauderdale, Fla., announced earlier this month that it was closing 350 of its 800 automated teller machines in Wal-Mart and Kmart stores. The $4.3 billion-asset company decided to close the ATMs, which are located throughout Georgia, Alabama, and Florida, because use was much lower than expected and they were not sufficiently profitable, said Leo Hinkley, vice president of investor relations.
The bottom line was that they were not performing up to our expectations, he said. And it only made common sense to exit.
BankAtlantic also announced it would phase out its participation in syndicated loans outside of Florida and that it would focus more on in its traditional networks.
After realizing how thinly its resources were spread, Republic Bancshares in St. Petersburg, Fla., also decided to do some trimming. The $2.4 billion-asset company, which bulked up quickly by acquiring 25 branches from the former NationsBank Corp., announced that it was selling five of its branches in Miami-Dade County and two in central Florida.
Republic CEO William Klich said recently that the company did not have a large enough presence in those markets to be competitive. Like BankAtlantic, it is also halting lending outside Florida.
Mr. Hargrove of Professional Bank Services noted that while many community banks are selling, others are buying. The buyers are often smaller banks based in the town where branches are being sold, he said. That happened with Amcores sales and Republics branch sales attracted $250 million-asset Pointe Financial in Boca Raton, Fla., and $425 million-asset CNB National Bank in Lake City, Fla.
However, City Holding in Charleston, W.Va., which decided last July to refocus on its banking operations in West Virginia after a string of problems, has had trouble unloading its two banks in California and getting out of nontraditional businesses it picked up in 1997.
The $2.7 billion-asset City Holding sold its specialty finance division last month and the service rights to some of its mortgages in December, but it is still looking for takers for its Internet service provider and direct marketing company.
Mr. Hargrove said that in recent years many banks overpaid for mortgage and insurance operations in a rush to expand their offerings. Now, unable to make money, they are trying to unload those businesses. The most unpopular line of business has clearly been mortgages, he said.
Eagle Bancshares in Atlanta announced earlier this month that it is pulling out of the construction lending and retail mortgage business beyond the Atlanta metro area. Eagle, preparing for an economic slowdown, said it wants to focus resources on its main market, which has more growth potential.
Although a downturn was a second thought for Mr. Hartline when he decided to sell the Main Street branches, he said he can see why it is motivating his peers to scale back. If we do go through a downturn, you are better off in a community where everybody knows you and you know everything there is to know about your bank, he said.