Bank M&A may not be finished

As the dust settles from the purchases of three Springfield banks with alarming troubled asset ratios in 2010, it’s clear the acquisitions have changed the city’s banking landscape, and customers could benefit.

Most recently, Liberty Bank announced in December an agreement to acquire Village Bank, with closing expected in the first quarter of 2011.

Springfield bank executives say mergers and acquisitions likely aren’t finished despite recent troubled asset ratio reports that indicate the overall health of the Springfield banking market is more stable.

According to the most recent troubled asset report released Sept. 30 by BankTracker, seven banks with a presence in Springfield recorded troubled assets ratios greater than 30, which is double the current national median of 15, according to BankTracker, an online research tool developed by the Investigative Reporting Workshop at American University in Washington, D.C. The ratio compares loans past due 90 days or more, loans in nonaccrual status and bank-owned property to capital and loan-loss reserves.

Guaranty Bank, at 50.5, had the highest troubled asset ratio, followed by Metropolitan National Bank, at 36.9, and Regions Bank, at 34. By comparison, the ratios for the three banks prior to their purchases or announced purchases in 2010 were Southwest Community Bank’s 328.4, Citizens National Bank’s 145.9 and Village Bank’s 109.5.

Though Guaranty Bank (Nasdaq: GFED) President and CEO Shaun Burke declined to comment on the bank’s troubled asset ratio because officials are in the process of compiling and releasing year-end shareholder data, he noted the moves in the last year have leveled the playing field.

“It just made sense to have some in-market consolidation to put people on a more competitive playing field,” said Shaun Burke, president and CEO at Guaranty Bank.

Mark Harrington, Old Missouri Bank president and CEO, believes new banking regulations and the overall economic climate makes even healthy banks ripe for consolidation.

“With regulatory costs that all banks are facing, there’s pressure even on healthy banks to merge to spread out some of the fixed regulatory costs over larger asset bases,” Harrington said.

Burke also believes more mergers are likely.

“I think any bank under $1 billion in assets, its operating overhead is going to increase tremendously because of the changing regulatory landscape,” said Burke, whose bank holds $704.4 million in assets.

M&A activity among troubled banks last year kicked off in May when Arkansas-based Simmons First National Bank bought Southwest Community Bank after the Federal Deposit Insurance Corp. shut down the Springfield bank. Bank Midwest announced in July that it would sell its Kansas and Missouri assets – including four branches in Springfield and one in Ozark – to Boston-based NBH Holdings Corp. In October, Empire Bank bought Citizens National Bank, which for years touted the fact it resisted the idea of merging.

“In the climate we’re in, there are banks that are more open-minded than they would have been in the past,” Harrington said. “The odds are greater than normal.”

There are 42 banks operating in Springfield with $7.6 billion in deposits, according to the FDIC state banking profile for third-quarter 2010.

Even if troubled banks survive, boards or CEOs would be more likely to decide maintaining the bank isn’t worth the effort.

Harrington and Burke view the acquisitions as good news for consumers, whether they were customers of the purchased banks or not.

“Any time there’s a purchase where it’s a stronger bank taking over one that’s had some troubles, as far as the customers’ standpoint, I think it’s a positive thing,” Harrington said.
“The banks that have had some issues, those customers maybe have not been able to have the response from their bank that they’re used to. Once they’re taken over by a stronger bank, the customers will get the kind of service they’re used to.”

The acquisitions aren’t a reflection of the service provided by the purchased banks, Burke said.

“With the technology requirements, the tremendous regulatory changes we are facing and mostly, the tremendous financial impact the recession had, it just didn’t make it a viable enterprise for some banks,” he said.[[In-content Ad]]