Cost control is trumping local control.
A rising number of smaller banks have reached the conclusion that a need to cut costs outweighs the benefits of owning multiple banks. As a result, charter consolidation is picking up.
MountainOne Financial Partners, a $794 million-asset mutual thrift in North Adams, Mass., merged two of its banks: Williamstown Savings Bank and Hoosac Bank. Recently, the company decided to also merge its South Coastal Bank.
The banks will share a charter, but operate under existing brands, along with the phrase, "a division of MountainOne Bank."
"Given the redundancies we had separate board meetings and separate product lines we decided to tighten up the alignment," Thomas Leavitt, MountainOne's chief executive, says. "It makes more sense."
MountainOne isn't alone. The $590 million-asset Altrust Financial Services in Cullman, Ala.; the $217 million-asset Ashley Bancstock in Crossett, Ark.; and the $49 million-asset Delta Bancshares of Louisiana in Oak Grove are among the companies that are collapsing charters.
The economic environment has made it tough for managers to justify having multibank holding companies, says John Hancock, who leads the financial institutions practice group at Moss Adams in Portland, Ore.
"We're in a terrible rate environment and margins are so thin," Hancock says. "The only thing we can control is efficiency."
Brad Smith, a consultant with Abound Resources in Austin, Texas, says he had expected a rush to consolidate banks last year. The onslaught did not begin until six weeks ago and "it's entirely expense-driven," he says. "There are so many economies of scale."
Some companies may have been forced to wait, Smith says, because they were stuck in long-term vendor contracts with termination fees. He says the multiyear contract issue is especially acute for instances "where you have two or three banks and they all have different core processors and you have to figure out the one you want to be on."
Local politics can also get in the way, an issue that may have occurred at Hancock Holding (HBHC), Smith says. The Gulfport, Miss., company has steadfastly supported its two-bank model, which stemmed from its 2011 purchase of Whitney Bank in New Orleans.
"You have to maximize shareholder returns, but you also have the customer component," Smith says. "You might want to wait 12 to 18 months before ripping the Band-Aid off."
Hancock has no plans to merge its banks, Carl Chaney, the company's co-CEO, said in a recent interview. "The two-bank structure has worked extraordinarily well," he said. "The good will of both of those names is well worth it."
After Pony Express Bancorp in Elwood, Kan., bought 1st Bank of Troy, it kept the new bank under a separate charter. Management soon realized that it didn't make sense for a $96 million-asset company to have an extra charter, says Bob Means, CEO of Pony Express Community Bank.
"I cannot see how a $20 million, or even $50 million bank, can be expected to comply with everything that's coming our way," Means says. "Even at $96 million, I'm not sure how we're going to do it."
The $16.7 billion-asset Fulton Financial (FULT) has six banks, but the Lancaster, Pa., company reviews its charters annually to determine if they are cost-effective, says Craig Roda, senior executive vice president of community banking.
"There isn't a science to this," Roda says. "It's a fine balance of being able to deliver to the customers you serve, but by the same token, you have to treat shareholders fairly."
Regulatory pressures were too much for the $546 million-asset Uwharrie Capital (UWHR) to justify keeping three banks, says Roger Dick, the Albemarle, N.C., company's chief executive. "We had talked about keeping the different bank names, but then you lose some efficiencies of communicating your branding," he says.
The consolidation could save Uwharrie $750,000 to $1 million annually, Dick says. "We're seeing this perfect storm where we have been given a whole new load of additional overhead of regulatory requirements, and at the same time there is margin compression," he says.
Uwharrie's response addresses "the low-hanging fruit" for cost cutting, Dick adds. "This is what's being done in all of the banking community."