By Dennis Seid/NEMS Daily Journal
Climbing out of the recession, banks are looking ahead with guarded optimism.
While an improving economy presents opportunities for their growth, added federal regulation also threatens to stifle it.
“All banks and especially smaller community banks are being challenged daily from the vast array of new regulations that have come from Washington in the past several years,” said John Allison, Mississippi’s commissioner of Banking and Consumer Finance.
He pointed to the implementation of the Consumer Finance Protection Bureau as called for in the financial reform act passed last year.
“I envision the CFPB as an agency that will create more regulations that will create further stress to the resources of smaller banks,” he said.
BancorpSouth Chairman and CEO Aubrey Patteson agreed.
“The smaller community banks, those with $200 million to $1 billion in assets, face the same regulatory burdens larger community banks have, but don’t have the staff and resources like we do,” he said. “We spend a lot of time and money on regulations that have nothing to do with safety and soundness. It’s particularly expensive for the smaller banks.”
The additional regulations also have cut into revenue for the banks derived from fees, a source of income that banks must find a way to replace.
“The cost of business is going up, and banks are going to pass that along to their customers,” said Ken Cyree, dean of the University of Mississippi School of Business, a professor of finance and holder of the Mississippi Banking Association Chair of Banking.
Despite the onus of additional regulations, banks aren’t letting them get in the way of growing. While banks often talk about “organic growth” and the “strength of legacy markets,” expansion into other markets is a key source of growth. Renasant Bank, for example, has acquired two banks since July – both based in Georgia. The moves not only opened a new market for Renasant, but they also added $1 billion in assets.
Renasant Chairman and CEO Robin McGraw sees additional acquisition opportunities.
“I think in the next 18 months you’ll see a combination of FDIC-assisted transactions and more traditional merges like Hancock and Whitney,” he said. “There will be close examinations of the credit quality of acquired banks, and you’ll see more happen.”
Gulfport-based Hancock Bank in December said it would acquire New Orleans-based Whitney Holding Corp. in a $1.5 billion deal, creating a banking company with about $20 billion in total assets, $16 billion in deposits and $12 billion in loans.
Banking analysts say that direct acquisitions probably will become the rule in bank consolidations as the FDIC tightens its purse strings after 179 bank closures since the first of 2010.
In a recent acquisition that didn’t go quite as planned, Cadence Bank in Starkville walked away from an offer by Jackson-based Trustmark, preferring what it deemed a superior offer from Community Bancorp. of Houston, Texas.
“I feel certain that there will be continued consolidation in the banking industry,” Allison said. “Consolidation has been going on ever since I’ve been associated with bank regulation. For example, when I started with the department almost 40 years ago there were a little over 200 banks in Mississippi. Today there are less than 100 and nationwide when I started there were around 25,000 and today less than 8,000.”
Allison thinks most of the “significant” consolidation of the industry in Mississippi has already occurred and believes much of the next wave of consolidation will happen in the Midwest, which has an abundance of very small banks.
“I believe consolidation will continue,” he said. “Primarily because of the aforementioned increase in cost of regulation and the size of the institution not being able to withstand further cost to do business with limited income resources.”
But smaller community banks will tread carefully when it comes to their own expansion.
John Haynes, president of the $200 million Farmers amp& Merchants Bank in Baldwyn, said the bank is satisfied with its footprint that extends into Mantachie, Mooreville, Booneville and Marietta.
“One of the main things we look at is if an area is under-served, and if we can go there, can we provide the same level of service and not sacrifice our growth,” he said. “From that perspective, small communities are great places to be.”