Economy has banks shopping — for other banks

A Colorado Springs bank is taking advantage of the still-recovering economy and buying parts of a shrinking bank.

First Commercial Bank is acquiring two branches of Liberty Bank Group in Denver.

When it comes to failed or downsized banks, it’s a buyers’ market. But while plenty of bankers are shopping, few are buying.

That’s because the process involves a good deal of risk, said Colorado Bankers Association President Don Childears.

Acquiring banks must be well-capitalized, have regulatory approval and proceed carefully.

“Buyers have to be extremely cautious to make sure they understand exactly what they are buying … and that the loans they’re acquiring are solid,” Childears said. “If the transaction passes this test, then it has to show value, so that the price paid buys assets of sufficient value. But there are not a lot of banks that meet all three requirements.”

Still, given the 500 percent increase in bank failures last year over 2008, this is an opportune time to buy.

During 2009, 148 institutions failed nationally; 130 were acquired by other banks. Nine others were placed into receivership and depositors were paid, and another nine were resolved in other ways, including FDIC-created “bridge” banks — temporary institutions that operate the bank until a buyer is found.

Although 62 percent of bank executives surveyed said their banks were interested in pursuing a failed bank, only 42 percent of bankers said their bank is interested in actually bidding for a failed bank’s assets or deposits, said John Ziegelbauer, national managing partner of Grant Thornton’s Financial Institutions practice.

And the reality is that, so far, only 2 percent have acquired a failed bank.

But there is another way to increase deposits, market share and footprint — purchasing branches from banks that are shedding locations or downsizing.

Which is precisely what First Commercial Bank is doing. Jack Kerr, market president for Colorado Springs, said the branches have existing infrastructure — including staff, vaults, teller lines, etc.

The bank will purchase “core depository,” such as commercial and personal checking accounts, savings accounts, some money market accounts, and some of the loans.

The branches are in the bank’s niche market and both are “end-cap,” corner locations, enhancing their visibility, Kerr said.

It’s an inexpensive way to expand and add presence in the marketplace, said Scott Yeoman, CEO of Central Bank & Trust in Colorado Springs.

“Acquiring a branch provides the opportunity to be more selective in terms of assets, loans and deposits,” Yeoman said. “Out of necessity, almost every banker has to stop and think about acquiring a branch or bank — the bargains are so striking in comparison to what the deal multiples were three or four years ago.”

Kerr agreed. “I don’t think there’s been a better opportunity for growth during the last 20 years,” he said.

Generally, regulators require a minimum of 8 percent capital reserve to buy deposits.

So, in order to acquire $50 million in core deposits, an institution would need $4 million in reserves, in addition to what it pays for the deposits.