Michael R. Brenan spent almost four years building MainStreet BankGroup from a small local institution into an 11-bank, $2 billion-asset company with branches from southwest Virginia to the Washington suburbs.
Last month MainStreet announced a deal to sell to BB&T Corp. of Winston- Salem, N.C., for $545 million.
Mr. Brenan said he chose to seek a buyer because he feared MainStreet could not continue to meet double-digit earnings growth projections. And he said other super community banking companies will follow suit as pressure mounts to produce earnings typical of multibillion-dollar banks.
"The $1 billion to $5 billion-asset holding company is in a difficult situation," said Mr. Brenan, MainStreet's chairman, president, and chief executive officer, in an interview. "They have to ask, do you have the resources to create noninterest income to match the larger bank companies? We, frankly, did not."
Super community banks-bands of small banks joined under one holding company in hopes of gaining big-bank efficiency while keeping a little-bank touch-have been hailed by many as the best of both worlds. But Mr. Brenan said shrinking margins, along with the high costs of updating technology and expanding into new businesses, threaten to cut profits, not add to them.
Because super community banks tend to make most of their money from traditional lending-where fierce competition and the narrowing gap between deposit and loan rates are depressing profits-"selling has to be something most bank presidents and their boards are considering," Mr. Brenan said.
Diane Casey, a partner at Grant Thornton LLP in Washington, said she can see the earnings pressure placed on super community banks in the decidedly big-bank policies some have adopted in recent years to manage their books.
"A lot of banks are now looking at their capital structure, looking for ways to leverage that capital," she said. "It is a different conversation from any we have had in the past."
That's not to say every super community bank is looking for a buyer. Other bankers say there are solutions to the problems Mr. Brenan described.
MidAm Bancorp, Bowling Green, Ohio, for example, has expanded fee-based businesses such as insurance, investments, and trust services to boost its bottom line.
"There is no viability in a $2 billion company that is nothing more than what it has been, a traditional community bank," said David R. Francisco, president and chief executive officer of $2 billion-asset MidAm.
In the next few weeks MidAm is expected to close a merger of equals with Citizens Bancshares, Salineville, Ohio, with the goal of creating a company that one day will have fee income higher than interest income.
"I think that it is a goal all banks should be going for," Mr. Francisco said. "What worked until the 1980s in banking will not work now."
Elsewhere, super community banks are finding niches where higher returns are possible. Greater Bay Bancorp, Palo Alto, Calif., has succeeded by targeting small businesses. Unlike retail banks, in which the lowest rates and latest technology are essential to keep customers, Greater Bay can still win small-business customers with personal service, even at slightly higher prices.
"I don't know how any small bank could ever be competitive with huge financial institutions in something like a credit card, regardless of the holding company's size," said David L. Kalkbrenner, president and chief executive of the $1.5 billion-asset, four-bank company.
Super community banks have a definite edge in rural markets, where few large banks exist. Pinnacle Bancorp, a $2 billion-asset company in Central City, Neb., owns 24 community banks in five midwestern states and is on the lookout for more.
Shrinking margins and high costs are "reasons small banks are joining us, not reasons for us to get out," said president J. Sid Dinsdale.
Should analysts demand greater profits, super community banks have another option: abandoning the structure altogether and merging subsidiary banks under one charter.
For example, West Coast Bancorp, Lake Oswego, Ore., plans to combine its four banks under one name.
Though the $1.2 billion-asset company will be giving up the brand identity it has enjoyed in the four markets, it estimates the move will save it about $6 million per year.