Great Southern buyout doubles St. Louis presence

Paul Ebisch: The banking environment is ripe for mergers.

For Great Southern Bank, 106 is a more valuable number than 110.

If plans unfold as expected, in first-quarter 2016 Great Southern Bancorp Inc. (Nasdaq: GSBC) will more than double its presence in the St. Louis area, consolidate 15 underperforming retail centers and sell off its bank in Thayer. The combined moves will give Great Southern Bank 106 branches – down from 110 – across Missouri, Arkansas, Iowa, Kansas, Minnesota and Nebraska.

On Sept. 30, Great Southern reached an agreement with Cincinnati-based Fifth Third Bancorp (Nasdaq: FITB) to buy 12 branches and assume roughly $261 million in deposits and $155 million in loans from the public bank, which would exit the Gateway City market.

The acquisition is Great Southern’s largest outside of buying failed banks, and it solidifies St. Louis as the Springfield-based bank’s second largest market 10 years after moving in.

The buyout-agreement announcement comes six days after bank officials told customers it would consolidate 16 banking centers – one of which, in Thayer, would be sold to West Plains-based Community First Banking Co.

Arch-area additions
Great Southern President and CEO Joe Turner said the deal in St. Louis helps strengthen an already strong performing market.

“We wanted an opportunity to leverage the outstanding management group we have in St. Louis, and this was a way to do it,” Turner said. “Fifth Third has outstanding locations; I would call them A-plus locations. … They are profitable now, and we hope to grow the level of deposits, the level of loans and, obviously, the profitability of those banking centers.”

Currently, Great Southern operates eight branches in the market with over $250 million in deposits and around $500 million in loans.

Great Southern spokeswoman Kelly Polonus said via email the company would buy buildings, furniture and equipment in the deal for roughly $18 million, pay a small premium on the deposits and purchase the loans at face value.

For Fifth Third Bank, the exit in St. Louis is part of a broader strategy announced in June to consolidate or sell roughly 100 branches to restructure in response to customer demographics.

“Our aspiration is to be a significant market share player in each of our retail markets,” Fifth Third Bank spokeswoman Laura Trujillo said via email.

“We determined that the investment required to achieve that objective in St. Louis, in the near term, was too high relative to other strategic priorities.”

Turner acknowledged organic growth is Great Southern’s preferred strategy.

“We are not a company that sets out at Jan. 1 of each year to do a bunch of M&A deals during the year. That’s not us,” he said. “But it is an environment that is encouraging acquisitions, so we do field phone calls from time to time, and we are interested in looking.”

Subject to regulatory approval, the deal is expected to close in the first quarter next year.

Great Southern officials estimate the transaction would result in additional annual earnings of 7-9 cents per common share.

Banking and finance veteran Paul Ebisch of Auxan Capital Advisors LLC said the Great Southern deal should help it establish a firm foothold in the St. Louis market.

“I think if you are going to commit to a market, you have to commit to a level where you would start to gain market share,” Ebisch said. “And that follows suit with Simmons and Liberty, Bear State and Metropolitan. It’s hard to thrive in a market with just one location. I think that may be why Fifth Third is exiting; it’s making a conscious choice to decide where they can dominate its market. With Great Southern, that is a Missouri market, so it is making a conscious effort to be known.

“And the scale helps.”

Consolidation outlook
Great Southern’s bank consolidations, slated to occur Jan. 8, would affect 11 branches in Missouri – including one in Springfield – four in Iowa and one in Kansas.

Polonus said there were several factors.

“As part of an ongoing performance review of its entire banking center network, Great Southern evaluated each location for a number of criteria, including access and availability of services to affected customers, the proximity of other Great Southern banking centers, profitability and transaction volumes, and market dynamics,” she said.

The consolidations include:
• moving its 507 E. Kearney St. branch to 1805 W. Kearney St.;
• transferring a Buffalo branch to 2562 N. Glenstone Ave.;
• moving a Branson branch on Highway 76 to one on Highway 248;
• merging a Forsyth branch into the Highway 248 facility in Branson;
• moving a Lockwood branch into operations in Greenfield; and
• moving a Miller branch into the Greenfield operation.

On Oct. 7, Great Southern announced it had reached a deal for undisclosed terms to sell its banking center in Thayer to Community First, which operates two branches in West Plains and one in Mountain Grove.

Community First would assume $14 million in deposits as part of the brand purchase, which also is subject to regulatory approval.

Ebisch said the strict regulatory environment is prompting banks large and small to identify ways to stay profitable, even as they intend to remain conservative.

“The regulatory environment stifles the appetite to take risks,” he said. “Banks, especially smaller ones, are more afraid to develop bigger growth plans and possibly innovate because of the regulatory consequences.”

He said the biggest threats to banks come from online products, such as PayPal, Google Wallet and Apple Pay, which offer mobile-payment and money-transfer options that eat into bank revenue opportunities.

Web Editor Geoff Pickle contributed.