New Post has been published on News From Banks | Banking and Investment Blog
New Post has been published on http://www.newsfrombanks.com/tim-mccausland-smaller-banks-focus-of-merger-activity.html
Tim McCausland: Smaller banks focus of merger activity
<![CDATA[ .pgNumactivetext-decoration:underline; .pgactivecolor:#315680; .pginactive color:#d2d2d2; #pagingControlsPS ul li float: left; margin: 0px 5px; font-weight:bold; .title-pagerfont-weight:bold ]]>
Mercer Capital, a business valuation and financial advisory firm in Memphis, Tenn., recently published its March 2015 Bank Watch, an overview of trends in the U.S. banking industry. In 2014, there were 289 banking institution mergers or acquisitions. While this number is equivalent to the average number of deals in pre-recession years, the total value of all the deals in 2014 was the second-lowest since 2000. Total deal value for all bank transaction in 2014 was about $ 20 billion, compared to over $ 320 billion in 2004.
As it turns out, the key dynamic for the low aggregate deal value is the fact that 75 percent of the 2014 M&A deals involved the nation’s smallest banks, those with assets under $ 500 million. Why is this meaningful? First, because it confirms the fact that oppressive and unfair government regulations are imposing too heavy a burden on America’s smaller community banks; secondly, seemingly perpetual low interest rates squeeze the ability of small banks to earn a profit on their deposit base (versus multi-business large banks); and, finally, many, if not most of the banks that “went away” were profitable, long-term corporate citizens in their respective communities.
Most likely unnoticed by the banking public in the Hudson Valley, only 3.8 percent of the M&A transactions occurred in the Northeast. The industrial Midwest saw the most activity with over 40 percent of all bank deals. Even though a persuasive argument can be made that efficiencies in the business of banking will occur with fewer banks, an equally strong case can be made for the value small community banks create for consumers and businesses in gaining access to capital.
As it is, most of the community banks in the Hudson Valley fall into the “under $ 500 million” category. Since there have been relatively few M&A deals of any size in the Hudson Valley – notable exceptions being Hudson Valley Bank to Sterling National and Riverside to Salisbury Bank – it does not necessarily mean the existing under-$ 500 million banks are “in play.” What is known, however, is that ever-increasing regulatory and compliance costs will continue to impact smaller banks with a comparatively greater magnitude than larger banks.
Coupled with the increasing departure of small community banks from the public landscape is the fact that cities, especially big cities like New York, are growing much faster than the U.S. at-large. Commerce, including banking, follows the shifts in population, so it should be no surprise that more and more banks have set up shop or announced plans in urban markets.
The community bank model has proven successful in rural, suburban and urban markets across the country. Moreover, while certain smaller banks will disappear due to the unforgiving calculus carried by regulatory and compliance costs, community banks are generally more adept than money center banks in addressing market changes at the client level. This attribute, attention to the customer’s details, will mark success and be the principal differentiator in a rapidly changing industry.
Tim McCausland is senior vice president and chief administrative officer of Orange County Trust Co. He can be reached at [email protected].
