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Talk of M&A signals small-bank scramble to be bigger


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According to Market Intelligence, April 2023

Talk of M&A signals small-bank scramble to be bigger

Amongcommunity banks, having more assets seems to be associated with outsized growth.

S&PGlobal Market Intelligence analyzed those with less than $10 billion in assets thathad reported earnings as of July 22. For the quarter endedJune 30, those within the $5 billion-to-$10 billion range grew operating revenueyear over year by a median of 8.94%. The median EPS increase was at 4.35%.

Overthe same period, the $1 billion-to-$5 billion asset bucket saw median operatingrevenue improve by 8.11%; for EPS, it was by 6.82%. Meanwhile, the smallest banksincreased operating revenue by a median of 5.53% — and EPS by 4.95%.

An earlylook at earnings results showed plenty of noise from recent M&A, mostly of wholebanks, plus some insurance agencies. The broader community bank space continuesto seek relief from regulatory burdens as the nation's smallest banks bear the highestcosts.

"There'sno question that some of the larger community banks seem to be doing better,"Chris Cole, Independent Community Bankers of America's executive vice presidentand senior regulatory counsel, said in an interview. He estimated the "sweetspot" in asset size to be around $300 million to $500 million, above which"there [are] still regulatory pressures, but … banks can deal with [them] withoutmerging."

Of course,deals abound even well above that half-billion mark. Tupelo, Miss.-based ; Nashville, Tenn.-basedPinnacle Financial Partners Inc.;and Wyomissing, Pa.-based CustomersBancorp Inc. have all recentlycompletedacquisitions.For Customers, it was a disbursements business, as it prepares BankMobile's -off in order to delaycrossing the $10 billionthreshold.

Acquisitions also appealed to Green Bay, Wis.-based NicoletBankshares Inc. and Canfield, Ohio-based Farmers National Banc Corp., both revenue growth leadersamong banks in the $1 billion-to-$5 billion asset group. Nicolet's were largely driven by the of Baylake Corp., and Farmers' acquisition of Bowers InsuranceAgency was touted as being immediatelyaccretive to earnings.

At Oakdale,Calif.-based Oak Valley Bancorp,the quarter's results were a combination of a December 2015 acquisitionand loan growth, CFO Jeffrey Gall said in an interview. An uptick in regional loandemand and its effort to hire more lenders also helped the $926 million-asset bank,said the finance chief.

And whilelobbying for regulatory relief has made some progress, the difference has yet tobe felt. Chris Marinac, FIG Partners' director of research, pointed out that theeasing in certain areas, such as reporting requirements, are offset by the highercompliance demanded in others, such as cybersecurity. Leaner call reports are "nice,"Marinac said, but certainly not enough.

In the meantime, lower-for-longerrates and emerging credit headwinds are also expected to dent small banks' near-termprofitability. S&P Global Market Intelligence now projects a net interest margin of 3.61% for small banks in2016.


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