In the midst of acquiring the largest divestiture package in U.S. history from FleetBoston Financial, Sovereign Bank has made deals to sell two dozen branches outside of its core markets. Rockland Trust Co. will buy four Cape Cod Fleet Bank branches from Sovereign in a same-day transaction to close in August.
Together with the 10 Cape Cod branches Rockland will buy from FleetBoston Financial, the bank will have 14 branches on the Cape. Sovereign Bank officials explained that they sold the branches because the four sites did not constitute a significant market share in the area.
This sale is consistent with other recently announced community banking office sales by Sovereign and represents the final phase of a recent initiative to select and refine the market areas which we serve, said Sovereign President and CEO Jay S. Sidhu. These were the only four community banking offices that Fleet was offering to Sovereign in the Cape Cod region; therefore, Sovereign’s presence in this market would not have represented a meaningful market share.
The Philadelphia-based bank also made deals this spring with three banks to sell 20 branches in Northeastern Pennsylvania. In the third quarter, First Citizens National Bank in Mansfield, Pa., will close on six branches and Northwest Savings Bank in Warren, Pa., will buy eight branches. LA Bank of Scranton, Pa., will close on six branches in the fourth quarter of this year. Those branches have a total of $280 million in deposits and $138 million in loans on the books.
The bank sold the branches as part of a strategy to refine its core markets, said Sidhu. The bank plans to grow mainly in Central Pennsylvania, he said.
While these branches have been solid performers for Sovereign in the past, our recent acquisitions have caused us to reevaluate the growth potential of these community banking offices as compared to other markets along the Boston-to-Philadelphia corridor, Sidhu said in announcing some of the sale agreements in April.
In all, Sovereign will gain 285 branches throughout New England with $12 billion in deposits and $8 billion in loans. The New England acquisition will almost double the bank’s branch network, which will stretch from New Hampshire to Pennsylvania. Community banks scrambled to bid on the remaining 30 branches, raising speculation that Sovereign could engage in a second sell-off of branches.
But Sidhu said he does not anticipate selling any more branches in New England or in the bank’s mid-Atlantic markets in the foreseeable future.
The four Fleet Bank branches in Hyannis, Chatham, West Dennis and North Eastham have approximately $95 million in deposits and $7 million in consumer and small business loans. The sale to Rockland Trust Co., set for Aug. 4, is contingent upon regulatory approval. The bank will pay a 12 percent deposit premium on the branches. The $1.9 billion-asset Rockland Trust, a subsidiary of Independent Bank Corp., will retain Fleet’s employees at the branches.
We have been aggressively pursuing this for a while now, said M. Casey Davis, senior vice president at Rockland Trust. We’re the number-one bank in Plymouth County in terms of deposit market share. It makes sense to go across the bridge.
The two acquisitions will boost Rockland Trust’s branch network from 36 to 50. The Cape Cod region is attractive to banks that cater to its wealthy residents and retirees. Rockland Trust will market its asset management and trust services to those groups, Davis said.
We view that as a very lucrative market for at least that division, as well as commercial banking and personal banking, Davis said.
The sale of branches has nothing to do with the sizable branch acquisition from FleetBoston, said David Winton, a research analyst at Keefe, Bruyette & Woods in New York. The Pennsylvania branches the bank liquidated are located in sparsely populated areas where the bank had a smaller market share, he said.
It has nothing to do with that they couldn’t handle all the branches so they cut four of them loose, Winton said.
The company arranged financing for the branches last year and is focused on executing its integration plan, he said.
Conversion Hurdles
Sovereign converted a third of the former Fleet branches in late March, including Connecticut, Rhode Island and five Bay State branches. The remaining 82 Eastern Massachusetts branches will be converted to Sovereign June 16. In addition, 113 Central and Western Massachusetts branches will be converted July 21. Once the Pennsylvania bank converts all the divested branches, it will have $35 billion in assets, 575 branches and more than 1,000 ATMs.
As the bank points out accurately, if you took all the other community banks in the states they’re in, collectively it wouldn’t add up to the size of this acquisition, Winton said. It is a serious foothold in this market.
To pay FleetBoston for the branches, Sovereign had to exercise creative financing. The bank will pay a premium of 12 percent on the deposits, or approximately $1.44 billion. The company paid a $200 million deposit, then divided the bulk of the purchase into three payments. Sovereign arranged to split $1.1 billion in payments according to the dates it will acquire the branches. The bank will pay another $340 million in periodic installments from January to October 2001.
Sovereign experienced some integration problems in the first conversion, mainly tied to ATM personal identification numbers. The bank transferred more than 800,000 accounts in the first conversion, and added staff at its call centers to handle the increased volume of calls from customers.
Whatever small problems they had in the first round, they have had plenty of time to make sure it doesn’t happen again, he said.
FleetBoston has had its own set of problems in converting BankBoston branches to the new Fleet brand. The bank converted about 1.1 million BankBoston customers to its new ATM and debit cards on May 12. Some customers had difficulty activating their new cards. Fleet reported that less than 5 percent of its customers faced that problem. Fleet extended the activation period for the new cards through Memorial Day weekend to accommodate customers. To ease the next conversion on July 7, Fleet is mailing detailed instruction cards to customers. FleetBoston has $187 billion in assets and more than 1,250 branches and 3,400 ATMs in the Northeast.
Last week Sovereign announced that in its New England market the bank will charge a 75-cent surcharge to non-customers at its ATMs, the same amount Fleet charges its non-customers. In the bank’s other markets it charges a $1.50 surcharge fee. Sovereign Bank New England’s network will have 556 ATMs.
We are sensitive to the valid concerns about the expense of using ATMs and decided to enter the New England market with an affordable rate, said Sovereign Bank New England Chairman and CEO John Hamill. As we become more well known, we hope that our emphasis on affordability of our products and the community-based services that we offer will encourage new customers to join Sovereign Bank.
The bank also recently announced an agreement with Boston-based 1RoofRealty.com, a real estate auction site. Visitors to a Web site co-branded by Sovereign and the real estate brokerage will be able to pre-qualify for mortgages, making it easier for them to bid on properties sold on the site.