Local Community Bank

Challenge
Over the past few years, turmoil within the financial sector exposed balance sheet flaws of almost every bank across the globe. Large banks and small banks alike were not prepared for the financial meltdown and the impact it had on solvency and profitability. Like many others, a local community bank found itself under the regulatory review of the Office of the Comptroller of the Currency. The management team at the bank quickly moved to implement a turnaround plan that addressed every facet of the balance sheet and income statement to position the bank for long-term growth. In a move to bolster profitability, every expense was scrutinized, including real estate occupancy costs. Given the static nature of real estate, rent payments, and leasehold liabilities, the bank turned to Allegro to develop a forward-looking real estate strategy and deliver expense savings.

Solution
Allegro met with the management team at the bank to discuss and review the entire real estate portfolio and develop an implementable strategy. Three key facets were analyzed: the fiscal impact of each branch, the leasehold liabilities and obligations associated with each lease, and demographic trends surrounding each location.

Each branch, by its nature, creates revenues and expenses for the overall bank. Every bank branch was analyzed using key indicators including deposits, loans, and mortgages. In addition, real estate expense audits were performed at select locations. Market studies were conducted to benchmark the bank’s real estate costs with market comparables. A full understanding of each branch’s contribution to the overall health of the bank was identified in context with its peers and the market. Additionally, Allegro abstracted each lease to fully understand lease expirations, renewal options, and termination rights for each location. A firm understanding of the leasehold flexibility at each bank branch helped to prioritize the urgency at each location. Finally, a demographic analysis was conducted across northeastern Ohio. The team analyzed a key set of demographic attributes that characterize the ideal banking client. The analysis helped to identify the current and future demographic trends around each bank branch location and other opportunities which were not addressed within their current branch network.

In light of the three facets discussed above, Allegro completed a strategic plan to address the branch network in multiple stages. Decisions were made to close, hold, and invest in a number of locations in the first stage. Allegro represented the bank on the restructuring of seven leases. Utilizing data compiled during the development of the strategic plan related to market comps and expense audits, Allegro conducted negotiations with each landlord.  New business and legal terms were agreed upon by all parties that afforded the bank the flexibility desired for future growth and yielded real estate cost savings for shareholders in excess of 20% when compared to the previous year over year run rate.

The management team at the bank was ultimately successful in their turnaround, and the regulatory order issued against the bank was lifted within three years.