Pub. 9 2014-2015 Issue 1

www.nebankers.org 20 Extraordinary Service for Extraordinary Members. Dwight Larsen, Vice President of BankValue™ Advisory Services, United Bankers’ Bank An Emerging Trend in Community Bank M&A? “Happy Together” I N 1967, THE TURTLES RELEASED THE catchy classic song “Happy To- gether,” and it promptly kicked the Beatles’ “Penny Lane” out of the No. 1 spot on the pop charts. Forty-seven years later, we are seeing some signs of a comeback for “Happy Together,” at least as it relates to what could be an emerging trend in the com- munity bank sector. Similar community banks are considering the “merger of equals” concept as a way to better posi- tion themselves in today’s rapidly evolv- ing, and challenging, marketplace. With myriad issues on the horizon (increased regulation, declining margins, a persis- tently sluggish economy), some bankers are hoping that by getting together with a partner facing the same issues, they’ll be more “happy together” than they are on their own. The massive wave of consolidation predicted for the last few years is not occurring. The theory was that, in these troubled times, smaller banks would struggle to compete and larger, stronger banks would swoop in and snap themup at prevailing low values. Although con- solidation has occurred to some extent with banks that had passed the tipping point with asset quality problems and found themselves essentially “forced” to sell, we now have an environment in which the crisis has passed, and the many banks still standing are not necessarily in any hurry to throw in the towel. That said, many commu- nity bankers (and industry observers) acknowledge that we seem to be facing some structural issues (as noted above) that aren’t going to go away anytime soon. Historically, some of these issues (tight margins, compliance costs) could be addressed by growth. The problem is, lack of organic, internal growth (caused by the sluggish economy) is one of the issues we’re facing. Hence, the renewed interest in looking for merger opportunities. “Merger of equals” is an accounting term that has been around for years, and historically, in the vast majority of situations, the actual transaction was equal in name only. The reality was a large company was gobbling up a small one, with previous owners and the top managers often moving out of