Rising cost structures and revenue growth trends are out of sync at many community banks...
Toledo, Ohio (PRWEB) August 13, 2013
Community banks have not disappeared as quickly as many experts had forecasted. Presently, there are more than 7,000 commercial banks and savings institutions operating throughout the U.S., a reduction from pre-recession levels of approximately 8,500 institutions. While merger activity stalled since the onset of the recession in 2008, that pattern is shifting. Through the first seven months of 2013, 126 merger and acquisition transactions have been announced, a rate of consolidation that will approach the 230 announced deals for all of 2012.
“Deal activity is gradually returning to pre-recession levels, when the banking industry averaged 250-300 transactions annually,” said Rick Maroney, managing director and principal of Austin Associates, a Toledo, Ohio-based community bank consulting firm. “The pace of activity is definitely increasing. Management teams and directors are not as hesitant to at least discuss the idea of a merger or acquisition compared with attitudes of the past four or five years,” he added.
Maroney, who co-manages Austin’s investment banking practice area, suggested that smaller banks will continue to evaluate partnering with culturally similar organizations to develop more scalable business models. “Rising cost structures and revenue growth trends are out of sync at many community banks,” Maroney said. “Merging two community banks can often be the best solution to absorb escalating regulatory compliance costs and develop state-of-the-art services while preserving a local market presence,” he added. Maroney served as the lead advisor in the announced merger of Indebancorp and Croghan Bancshares, Inc. that will create an $850 million-asset community bank headquartered in Fremont, Ohio.
Of the 126 deals announced thus far in 2013, 98 involved sellers whose total assets were less than $500 million. Geographically, 41 deals involved banks based in the Midwest, followed by 24 in the Southeast and 23 in the Southwest.
The pace of branch sales is also picking up steam. Most recently, Austin Associates announced a proposed branch deal, also involving Croghan, which agreed to sell its Custar office to Archbold, Ohio-based Farmers & Merchants State Bank, a $950-million asset community bank. The proposed sale is Austin’s fourth transaction announcement in less than 90 days—see list of AA transactions. The Custar branch at time of the announcement had $29.5 million in deposits.
The sale of the office is the 41st branch deal nationally to be announced this year. “Since 2009, the number of branch deals has averaged about 80 transactions a year; the industry is on pace to hit or exceed that total for 2013,” said Craig J. Mancinotti, managing director and principal with Austin Associates, who served as the lead advisor on the Croghan branch transaction. “The 41 deals involved of 206 branches, with an average deposit base of $29 million per office,” Mancinotti noted. The median premium to deposits, an industry measure for pricing branch deals, is 2.5 percent for deals announced in 2013 and comparable with last year’s premium of 2.3 percent. “Ten years ago,” Mancinotti said, “deposit premiums were two to three times higher, reflecting a greater need by banks to fund loan growth compared with the last several years where loan demand has been much softer.”
Austin Associates, LLC has been serving community banks for more than four decades. It provides customized services through five practice areas encompassing investment banking, strategic consulting, financial management, technology solutions and risk management. Additional information about industry trends, the firm, its practice areas and professionals is available at http://www.austinassociates.com. M&A data involving community banks nationwide is available by contacting Austin Associates.