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Merchants Bank Sale Highlights Change And Challenges In Vermont Banking

Taylor Dobbs
Vermont Bankers Association President Christopher D'Elia says small community banks face a challenging regulatory environment and low interest rates, which sometimes forces banks to make tough choices to stay open.

Merchant’s Bank, the last statewide, state-chartered bank in Vermont, plans to merge with New York-based Community Bank System in a deal announced Monday.

The merger is expected to bring the value of Community Bank System’s assets above $10 billion.

Merchants CEO Geoffrey Hesslink said the merger will allow it to offer more services to customers. “We will continue to provide our highly personalized experience to our customers, while providing them with an expanded set of products and services as a larger organization,” he said in a statement.

The commissioner of Vermont’s Department of Financial Regulation, Mike Pieciak, said the deal is emblematic of what’s happening across the banking sector.

“The trend in the banking industry, whether it’s a national bank or community banks, is consolidation, so when I heard the news in some ways it’s not surprising,” he said. “The interest rates have been low for a very long time. The margins that banks have on their loans is very small – it’s very thin. The economy nationally and in Vermont has not been growing at a robust rate, so with no new business and thin margins, basically either for survival or to grow, merger, acquisition, consolidation has been the trend.”

Pieciak said his main concern at the Department of Financial Regulation is making sure that banking services are available to communities all over Vermont. In that sense, Merchants’ ownership moving out of state is an important moment.

“Merchants, unfortunately, was the last statewide bank,” he said. “They had 32 branches across the state. And they were also the largest asset class bank by far; they had just under $2 billion in assets.”

That $2 billion made up a big chunk of the total of about $3.7 billion in assets held by state-chartered banks, Pieciak said, “so they were considerably the largest.”

Pieciak said the merger means the loss of a state-chartered bank. That number has fallen dramatically in the past century, Pieciak said.

“At the height of Vermont’s banking industry, which was actually – in terms of the number of banks – was in the 1920s, Vermont had about 59 state-chartered banks. And now with Merchant’s merging with a federally chartered bank, we’ll now be down to six state-chartered banks.”

The six remaining state-chartered banks, he said, are People’s Trust in St. Albans, Passumpsic Bank in Newport, Northfield Savings Bank, Brattleboro Savings and Loan, Union Bank in Lamoille County and Wells River Bank.

The merger doesn’t necessarily mean Merchants Bank branches will be closing or changing the services they offer, and Pieciak said he’s confident Vermonters still have access to the financial services they need. That’s due in part, he said, to non-traditional financial companies.

"The trend in the banking industry, whether it's a national bank or community banks, is consolidation, so when I heard the news in some ways it's not surprising." - Mike Pieciak, Commissioner of Financial Regulation

“The one area of growth in Vermont, which has been considerable growth, has been the licensees that are not traditional deposit banks,” he said. “Just for example, licensed lenders have increased almost double from just about 20 years ago. There were about 315 licensed lenders in Vermont, and now there’s close to 700. And similarly, other types of licenses have exponentially grown. So these are institutions that offer financial services either loans or loan origination, loan servicing, debt adjustment – financial services that sometimes a traditional bank would offer, but they’re non-depository insititutions.”

Christopher D’Elia, the president of the Vermont Bankers Association, said the thin margins pushing banks toward consolidation are caused in part by constantly changing federal regulations.

“It’s a question of how they are able to manage those regulatory burdens, those costs that are being imposed on them in a challenging rate environment, in an economic environment that in some areas of the state people would say ‘Yeah, we know we’ve been in an economic expansion, but it doesn’t really feel like it,’” he said.

Taking the various economic and regulatory forces into consideration can lead banks to tough choices, D’Elia said.

“Sometimes, institutions are faced with the issue of ‘I’ve either got to grow, because by growing I’m able to spread those costs and regulatory considerations amongst a larger base, or if I can’t make this work I’ve got to figure out a way that I’m going to be able to continue to serve my customers, but it might be in a different structure, it might be through some type of merger or acquisition. So the industry is really challenged right now because of those pressures they’re feeling from, again, regulation cost, interest rates and so on. And it’s made for some very difficult times within the industry.”

Despite the challenges facing banks, both D’Elia and Pieciak said Vermonters still have access to financial services when they need them.

“Bottom line, we’re always going to have good quality strong banks in Vermont,” D’Elia said. “I would expect that Community [Bank System] is going to continue with that as they follow through on this merger with Merchants. So I don’t think Vermonters are going to see any type of shortage, if you will, or inability to access banking services.”

Pieciak was similarly optimistic, though he said it’s important to make sure the quality and availability of financial services doesn’t slide as a result of consolidation.

“I think there’s a variety, and a healthy variety, of banking services still available in Vermont, but it’s certainly something – whenever there’s a merger whether it’s a state-chartered or a federally chartered bank – it’s something we take a look at in terms of ‘Are or can financial services financial services still be provided to all corners of the state?’” Pieciak said.

Taylor was VPR's digital reporter from 2013 until 2017. After growing up in Vermont, he graduated with at BA in Journalism from Northeastern University in 2013.
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