K.H. Thomas Associates - BranchLocation.com

Banks are sprouting branches
By Larry Rulison, Staff Writer
From the August 27, 2004 print edition

Bank merger-and-acquisition activity has slowed down in Philadelphia this year, and that's good news for the region's real estate brokers.

Since the beginning of the year, local banks in Pennsylvania have filed plans with the Pennsylvania Banking Department to open nearly two dozen new branches in the region.

That follows a busy M&A year for banks locally when nine announced they were selling themselves to larger banks. This year only one local bank -- Madison Bank of Blue Bell -- has announced plans to be acquired. Bank mergers often result in branch closures because of overlaps in service areas.

"Everybody realized that people today still want a bank to have a physical presence," said Brian M. Hartline, CEO of Nova Savings Bank of Philadelphia. "We tend to see the transactions at the branches decreasing, but they do want to see those branches."

Nova is one of the busier expanding banks in the region these days. Although it has three full-service branches, it is planning at least five additional branches by 2006, including a private banking office in Chester County.

Moody's Investors Service of New York published a report this month calling de novo branch expansion a "growing trend" among U.S. banks, even though it tends to be expensive and cuts into earnings, as opposed to a stock acquisition that brings the acquiring bank an established earnings stream without spending cash.

Bankers and bank consultants say that the reason for the branch expansion has a lot to do with the fact that bank consolidation in the region has cooled off. Also, several newly formed banks are about to start building branches of their own.

"It's the second stage of the growth cycle," said Kenneth Thomas, a Miami-based bank consultant who has worked in the Philadelphia area. "It's the cycle because of CoreStates."

CoreStates was acquired by First Union, now Wachovia, of Charlotte, N.C., in 1998 in a $16 billion deal. Since that merger, new banks have been formed to fill a perceived, smaller niche, and last year there was another round of consolidations that spurred the creation of more de novo banks such as Bucks County Bank in Doylestown and Penn Liberty Bank in Wayne.

Of course, the greatest example of branch building in the region is Commerce Bancorp of Cherry Hill. Commerce, which already has 134 branches in metro Philadelphia, plans to open roughly 10 new branches by the end of the year.

Arnold Danielson, chairman of Danielson Associates, a Maryland-based bank consulting firm that has advised Philadelphia banks on mergers in the past, said merger activity in the region has slowed down because the stock prices of acquiring banks have generally fallen this year, making deals less desirable than they were last year. Also, with the acquisition of several de novo banks last year, there are not many merger candidates left. Although Danielson personally believes building new branches is too expensive of a way to grow deposits, he believes banks will go that route to expand.

"The mentality is there," he said.

Royal Bank America of Narberth has been expanding lately through de novo branches. The bank's current growth has largely been driven by its creation of Royal Asian Bank, a bank targeting the Asian population in Philadelphia and North Jersey.

Royal Bank America, which opened its first Royal Asian branch in an existing Royal Bank America branch on Castor Avenue earlier this year, has also filed applications with the state to create three additional Royal Asian branches, including one in Fort Lee, N.J. A fourth application has been filed to create a new Royal Bank America branch -- also on Castor Avenue -- so that the Royal Asian branch on that street can have its own branch.

Joseph Campbell, CEO of Royal Bancshares, the parent company of the two banks, said the advantage of building a bank through de novo branches is that the bank doesn't have to pay the premium of an acquisition. Although the firm has been building its Asian bank through de novo expansion, he would not rule out the possibility of an acquisition, especially since there are established Asian banks in the North Jersey and metro New York market.

"There's opportunity there," Campbell said.