The combination of two Pennsylvania bank holding companies is coming because of economic and regulatory reasons, the chief executive of one of the companies said.
Midstate-based Riverview Financial Corp., with operations under the Halifax, Marysville and Riverview names, and Schuylkill County-based Union Bancorp Inc. announced in March a definitive agreement and plan to consolidate the holding companies and merge bank subsidiaries, according to a joint statement this spring.
The transaction will put the CEO of Riverview at the helm of the new entity and its shareholders in the majority.
Locations of Union Bank and Trust Co. — for which Union Bancorp is the holding company — will fall under the Riverview name, Union Bancorp CEO Mark Ketch said. Union has seven locations; six are in Schuylkill County and one is in Northumberland County.
Union has about $125 million in assets, which is very small by today's standards, Ketch said. So the costs associated with today's regulatory environment are one reason to pursue a combination. These have been going up significantly in recent years and eat away at profit margins, he said.
Banks also need to keep more capital on hand today, meaning they can deploy less of their capital to make money, Ketch said.
The economy also has driven the decision, he said. Union operates in an area with an unemployment rate that has stayed stubbornly high, and the housing market is not strong, Ketch said.
Home values mean that loans the bank could have made several years back aren't possible because the underlying asset backing a loan isn't worth enough, he said.
All of these factors mean it is harder to loan money, and at the same time the bank has missed out on some large opportunities because it does not have enough deployable capital, Ketch said. Where there is opportunity, it tends to be for larger projects, he said.
The new company will have assets of about $450 million, according to previous statements.
The boards of both companies unanimously approved the definitive agreement that calls for a new holding company under the Riverview name, with Union shareholders getting 1.95 shares of the new company per share of Union, according to the companies.
Riverview shareholders will receive shares of the new company on a 1-1 ratio.
Union shareholders will end up with about 36.5 percent of the outstanding stock of the new company, which will have current Riverview CEO Robert Garst retain the post for the combined firm.
If you asked people two years ago, many would have predicted that mergers and acquisitions would increase in the state's banking industry, said Ed Novak, spokesman for the Pennsylvania Department of Banking and Securities.
But the agency just isn't seeing as much as expected, he said. However, considering costs from compliance to information technology, the activity will continue to happen to some extent, Novak said.
The number of overall institutions has been dropping for the past few decades in Pennsylvania, he said.
Nick DiFrancesco, president and CEO of the Pennsylvania Association of Community Bankers, said the trend is likely to continue for economic and regulatory reasons.
Generally, regulators can treat small banks like big banks, and he said he's heard stories of having as many or more examiners at a bank branch for a given amount of time as bank employees. Dealing with regulation is of particular concern for smaller banks, DiFrancesco said.
The economy also figures into the equation, he said, but it varies by area. Some local economies are providing opportunities for banks to lend while other markets aren't so vibrant, he said.