Growing Number of Banks Embrace Merging Charters

More community banks are moving to consolidate their charters in an effort to save money and streamline operations.

Collapsing charters offers a range of advantages, but it also carries risks, especially for companies that stubbornly refused to combine their banks through the financial crisis and its aftermath. Deciding when to consolidate, and whether to keep multiple banks, can be a delicate balance between cutting costs and avoiding disruption to a business.

"We had been considering consolidation for about ten years, but we didn’t think the separate markets were prepared for the change at the time," says Derick Hill, senior vice president of process management at SouthCrest Financial Group (SCSG) in Peachtree City, Ga., which consolidated its four charters in February.

"As we’ve seen growth in the markets, we’ve felt like it gave us the opportunity to effect this change," Hill adds.

Consolidations peaked from the late 1980s through the 1990s, after the federal government eased interstate banking rules that had encouraged banks to hold multiple charters. Annual consolidations have remained relatively steady since 2000, but ticked up after the financial crisis, when several large regional banks such as Synovus Financial (SNV) in Columbus, Ga., and Fifth Third Bancorp (FITB) in Cincinnati began to centralize their banking models.

Banks that have recently announced charter consolidations include Hancock Holding (HBHC) in Gulfport, Miss.; Simmons First National (SFNC) in Pine Bluff, Ark.; First National of Nebraska in Omaha; and Republic Bancorp (RBCAA) in Louisville, Ky. A decision to consolidate involves factors specific to each bank, but is usually spurred by a need to lower costs and reduce the regulatory and operational headaches of dealing with multiple charters.

Hancock gave in and decided to combine its two banks late last year. It was an about-face for co-CEO Carl Chaney, who had told American Banker a few months earlier that despite intense pressure to reduce costs, he was committed to a two-bank structure.

Hancock, while combining charters to improve back-office operations, will not do away with the Hancock Bank and Whitney Bank brands. "The value of the goodwill in those brands, in our opinion, is enormous, and so we are not going to walk away from that, by any means," Chaney told attendees at a banking conference in February.

Banks that are combining brands have to walk a tightrope of sorts. The $560 million-asset SouthCrest is integrating its back-office operations and alerting customers to the change. The company has been under cost pressure after losing a total of $9.7 million in the last two years.

"The most difficult part was trying to think through and anticipate all the different situations that occur and minimize impact to our customers," Hill says.

SouthCrest has offered incentives to customers whose account numbers have changed. The company has also run a series of promotions tied to the consolidations that are designed to raise awareness and encourage customers to stick with the company. SouthCrest is also introducing improved mobile banking and debit options as an inducement to loyal customers.

Floridian Financial Group in Lake Mary expects that its charter consolidation, which quietly took place in late April, will reduce operational expenses by 6% to 8% annually, CEO Tom Dargan says. Beyond saving money, he says he is hopeful that the consolidation will streamline the company’s asset-liability controls and loan-production paperwork.

The consolidation has been a long and complex process for Floridian. The company began working on merging its Floridian and Orange Bank of Florida brands several years ago, in anticipation of eventually switching to a single charter. But only last year, after cleaning up a loan book that had been hit hard by the Florida housing bust, did management feel like it was in position with regulators to make the change, Dargan says.

"Over the past four years, we have continued to kind of evolve where our banks had been managed as one bank even though they were two," Dargan says. "You don’t just flip the switch to combine charters — you make a long-term plan and execute the plan."

Republic folded a $150 million-asset thrift into its $3.3 billion-asset Republic Bank last week. The company, which had bought the thrift seven years earlier, had benefited from having two different types of charters, which provided a little bit more flexibility for branching and other regulatory matters, Chief Executive Steve Trager says. But a chance to improve efficiency eventually outweighed the advantages of having separate charters, he says.

"We felt that we benefited from charter diversification, but the advantages of that waned over time, while the back-office record keeping and administration became more complex," he adds.