Community bank mergers, already heating up, could soon reach a boil.
That's the opinion of many experts following last week's passage of the interstate branching bill.
They expect hundreds of small marriages to take place across the country in the next three years as bankers try to figure out how big is big enough to survive, or to attract a buyer.
Already this year through July 27, 243 community banks have been sold in deals totaling $6.5 billion. In the comparable period last year, 231 deals worth $5 billion were consummated, according to SNL Securities, a Charlottesville, Va.-based banking research firm.
"What this [the bill] has done is finally force every community banker to think in terms of strategic combinations down the road," said Donald K. Crowley, an industry analyst and principal with Smith & Crowley in San Francisco.
"We will see interstate organizations evolve from $200 to ... $600 million organizations," added Charles W. Phillips, director of the Indiana Department of Financial Institutions. "The BancOnes and the NBDs are not going to be looking at $30 (million) and $50 million banks anymore."
Most community bankers weren't surprised the interstate branching bill passed, but they admit that it is already having a profound impact on the way they view the future of their business.
No longer is there business as usual; they are forced to make one of three choices: sell now, remain independent and fight, or buy their buy to critical mass for an eventual sale.
Those choices are increasingly being made in regions where there are concentrations of small community banks such as Texas, Florida, and New York.
"Interstate adds one more stick to the fire," said Peter J. Baxter, president and chief executive of CFX Corp., a $753-million-asset banking company in Keene N.H.,. who expects more mergers between community banks in New England.
Perhaps this trend is most evident in California where 400 community banks operate dozens of mergers have occurred there since the beginning of the year, and almost all have been between banks with assets of less than $1 billion.
William Strunk, an industry consultant in Houston, said for banks that want to remain independent, growth is imperative. But to survive, these banks will "have to be a little more efficient than they have been," he said.
"The way to become more efficient here is not to cut costs," Mr. Strunk added. "It's putting on volume."
So, operationally, interstate branching will demand more of the same from community bankers. Traditionally lenders, community bank CEOs increasingly must have broad experience in operations, technology, and administration and have a good head for numbers crunching.
"If you're going to be gobbled up you want to put yourself in the best light possible," said Geoffrey Longstaff, president of First Mercantile National Bank, Orlando. "The strategy for the ones that want to get noticed is to increase their size. The best the others can do is to in as clean and high-performing bank as possible."
Robert Halleck, president of Maryland Federal Bancorp in Hyattsville, Md., one of the best performing thrifts on the East Coast, said, "If you do what you're supposed to do, one way or another you'll get rewarded. Either way, community banks still hold the keys to the kingdom."
To be sure, the interstate branching legislation passed by the Senate last week, and expected to be signed by President Clinton shortly, will only formalize the widespread competition between big and small banks that already exists. Some bankers and observers, said passage of the bill is a nonevent.
"I'd liken this to the pope declaring that Galileo wasn't a heretic anymore for saying that the earth wasn't the center of the universe," said Edward Kane, professor and holder of the Cleary Chair at Boston College. "This is really an incremental change, not a dramatic change. Small banks already have been competing against the larger ones."
"To us it is principally just a big snore," said Thomas F. Goldrick, president of State Bank of Long Island, $500 million of assets. "We operate in competition with the money center banks every day of the week."