A growing number of small community banks are deciding it's time to put themselves up for sale. Many executives of these small lenders are frustrated by costly new regulations. Other bankers are throwing in the towel because their companies have limited growth prospects in a period of weak loan demand, low interest rates and thinning profit margins.
With more than 90 deals announced so far this year, 2012 is shaping up to have the highest number of bank mergers since 2007, when there were 286 transactions.
The increased activity will likely result in fewer choices for customers and, some bankers say, fewer loans because the buyers might not have deep roots in those communities.
Bank analysts and investment bankers have long predicted a wave of consolidation among the nation’s 6,643 small banks. Although most steered clear of financial instruments that plagued the industry's largest players, the small banks still were hit hard by customer loan defaults.
Many have cleaned up their loan portfolios, leading to a renewed interest in deal-making.
Small banks received an unexpected blow this month that could drive more transactions. The Federal Reserve approved Basel III
, a proposal requiring even the smallest lenders to comply with comprehensive international capital requirements. Many bankers had expected regulators to exempt some small lenders from the new rules, which are aimed at shoring up the biggest global banks whose troubles fueled the financial crisis.
Banks also are under pressure from new overdraft rules that are eating into profits. And bank executives grumble that regulators are getting tougher about rules that have long been on the books, such as avoiding too much concentration in a particular type of loan.
Deal activity among small banks also is likely to get a boost from the recently enacted JOBS Act, which includes a provision that raises the number of shareholders at which they must register with the Securities and Exchange Commission to 2,000 from 500. The change is expected to make it easier for small banks to merge and still avoid making SEC filings that can be costly.