More bank mergers, acquisitions expected in N.C.

Last week, when Charlotte-based Park Sterling Corp. reported its second-quarter earnings, the community bank’s chief financial officer made it clear that it’s interested in acquiring other banks.

Indeed, at least three times during a call with analysts, David Gaines mentioned the bank’s openness to merger and acquisition talks, describing at one point “a burgeoning M&A market.”

That announcement came less than a year after Park Sterling acquired Gastonia-based Citizens South Banking Corp., in a deal completed in October.

And the announcement also supports what banking industry officials have been saying: Expect more bank mergers and acquisitions in North Carolina and elsewhere, thanks to post-recession federal regulations.

“We are going to experience a pickup in that activity over the next two and three years,” said Harry Davis, economist for the Raleigh-based N.C. Bankers Association, a trade group.

The new regulations, industry officials say, are driving up costs for banks, making it harder for small ones to compete. They say that is pushing such banks to consider merging with others or be acquired, in order to create a bigger financial institution that can spread out the higher expenses.

“Right now in North Carolina, you’ve got about nine or 10 banks that are around $2 billion in asset size,” Davis said. “In my opinion, two, three, four of those are going to merge.

“Then you’ve got a group of banks under $1 billion. It’s going to be more and more difficult for them to compete at that size, so they are going to either be acquired or merge with other institutions of a like size.”

The number of federally insured financial institutions in North Carolina has been falling since 2008. Thad Woodard, president of the bankers association, estimated that the group’s membership was approximately 150 before the downturn.

It’s fallen about 23 percent since then, he said, describing membership as “shrinking fairly rapidly." He attributes that largely to mergers and acquisitions.

Last year, the state had 119 federally insured financial institutions, down 14 percent from 138 in 2008, according to Federal Deposit Insurance Corp. data.

Meanwhile, growth of state-chartered financial institutions in North Carolina has been anemic. So far this year, none have been chartered. From 2008 to 2012, nine were chartered, down from the 22 chartered from 2003 to 2007.

“The thing that is very concerning to us is that we are not birthing any new banks,” Woodard said. “We have a complete nonexistence of upcoming or even prospective new banks across the state.”

But some say there are barriers to bank mergers and acquisitions. Buyers are looking to purchase banks for as cheaply as possible, while banks are looking for a fair price.

And will more mergers and acquisitions be good for consumers? Davis, for one, says yes, adding that they will result in cost-savings for banks, which will benefit customers.

“I don’t think it would hurt consumers at all. The banks that remain will be stronger. They will be more profitable. They will be able to offer a wider and better array of products to their customers,” he said.

“There is too much brick and mortar in banking in North Carolina and nationwide,” he said. “We have entirely too many banks and too many bank offices.”

According to the N.C. Office of the Commissioner of Banks, which regulates state-chartered financial institutions, account-servicing complaints fell to 385 last year from 576 in 2008. So far this year, the office has received 180 such complaints, putting it on track to have about the same amount as last year.

It's important to keep in mind, though, that the number of state-chartered financial institutions has fallen, too. That figure, excluding trust companies, is down from 92 in 2008 to 69.

That could be part of the reason complaints are down.