Being too small was the big problem for three banking companies that recently detailed why they decided to sell.

Directors at Anderen Financial Inc., Mainline Bancorp Inc. and Connecticut Bank and Trust Co. felt that shareholders would do better owning stakes in bigger franchises, according to separate merger proxies filed with the Securities and Exchange Commission in December.

That is one of the chief reasons the boards at each company agreed to cash-and-stock deals with much larger organizations this fall.

Being small in a market, each bank said, is increasingly becoming a disadvantage. That issue magnified other problems that drove the banks to the altar, from the Connecticut bank's need to repay the Troubled Asset Relief Program to a regulatory matter that Mainline needed to resolve.

Anderen, of Palm Harbor, Fla., identified three typical small-bank banes in its Dec. 29 proxy detailing its $37 million sale to 1st United Bancorp Inc. in Boca Raton, Fla. Those factors were "increasing competition, the increased regulatory burden and encouraged consolidation in the banking" industry, the proxy states. The first two bullet points in the "reasons for the merger" section of Anderen's proxy stress the benefits of having shareholders paid in an even split of cash and stock. Investors who receive 1st United common stock will not have to pay any taxes on those shares, and get to "participate in any growth opportunities of the combined company," the filing states.

That means Anderen's shareholders will receive an interest in a bigger, stronger company that should be more valuable over time than their stake in the $205 million-asset company would have been worth had it stayed independent. Anderen has four branches; 1st United has 19 branches and assets of $1.2 billion.

Connecticut Bank and Trust, of Hartford, detailed similar reasons for selling in its Dec. 19 proxy for its deal announced in October to sell itself to Berkshire Hills Bancorp Inc. of Pittsfield, Mass., for $30 million. Berkshire is paying 70% of the consideration in stock and the remaining 30% with cash.

Profits at the $284 million-asset Connecticut Bank and Trust have been sapped by weak loan demand and dividend payments to the Treasury Department tied to the company's $5.5 million in outstanding Tarp funds. A review of "the risks and prospects" of "remaining independent" found that Connecticut Bank and Trust would fare better as part of a "well-capitalized, well-run larger organization," the proxy states. It has eight branches. Berkshire Hills has 60 and about $4 billion in assets.

Michael Daly, Berkshire Hills' president and CEO, said in October that its purchase of Connecticut Bank and Trust "provides solid financial benefits to the shareowners of both institutions. It is targeted to produce double-digit returns."

Mainline, of Ebensburg, Pa., said in a proxy filed Dec. 9 that regulatory and profit problems led to its decision in September to sell itself to S&T Bancorp Inc. in Indiana, Pa., for $22 million. Mainline returned to profitability last year after a money-losing 2010, but impairment charges on trust-preferred securities in its investment portfolio introduced both profitability and regulatory problems. The Office of the Comptroller of the Currency in March deemed the bank to be in "troubled condition" and ordered it to draft a plan to improve profits and maintain capital.

The eight-branch, $238 million-asset Mainline had already been in play after receiving "unsolicited telephone inquiries" about merging from other banks a month earlier, the proxy states.

Mainline agreed to a cash-and-stock sale to S&T because its board felt that "potential future profitability and strategic options" were under threat from the bad economy and increased regulatory scrutiny, the proxy said. The board also felt that the company's small size hobbled its ability to raise "capital on acceptable terms" to fund new loans or acquisitions. Mainline, much like Anderen, felt that its shareholders could derive better returns in a "business combination transaction with a significantly larger" bank, the proxy states.

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