I know I talk about The Trade of the Decade and talk a lot about the win-win situation in small banks stocks. Because of higher regulatory and compliance costs many small banks are going to be forced to consider selling their bank. Those that survive will be those that dominate their local market and can growing earnings at a very high level for a long, long time. Either outcome leads to a higher stock price for bank stock investors. Activists are very busy in the space and they are forcing smaller banks to improve shareholder value or sell the bank at a premium. Small community bank stock represtn an enormous opportunity to make enormous profits right now and will for some time to come.

You need to understand that this is not a hook or a gimmick to sell newsletters. It’s real. It’s happening now. Below are some comments by Fed officials, analysts, Bank executives, and journalists over the past six weeks. Of course I want you to sign up and become a member of Banking on Profits. We are making money here as banks consolidate. You first takeover will pay for you membership for the next decade so it’s a bargain. Most of all I want you to join us because doing so will make you money.

"There was a finance professor who really summed it up well," says Covington. "When I talked to him about community banks, he was quick to say 'when's the last time you saw that mom-and-pop full-service gas station? You know, where the bell would ring and they come out and check your oil and pump your gas for you. How many of those do you see? That's the future of community banks in North Carolina. They're just not going to be those small, locally-owned institutions anymore that they were in the past.'" NPR 88.5 WFFD talking with Triad Business Journal’s Owen Covington.

"We continue to be active in identifying and analyzing M&A opportunities, and we believe an active and disciplined M&A strategy will allow us to continue to create significant additional shareholder value," said Bank of the Ozarks CEO George Gleason during Tuesday's earnings call.- Triad Business Journal

“Insurance will go up every year. The regulatory environment goes up every year. The technology side as well; it’s ever-changing; what you bought two years ago you’re already having to replace,” explains Landry. “Basically, our costs will never stay the same, so staying a certain size is really not an option. And that’s no matter the industry; you can’t stand still — you’ll just get run over.” Donnie Landry, president and CEO of Tri-Parish Bank, Acadiana Business Journal

That development has gotten the attention of banks. South State Corp., the No. 2 player in the Charleston MSA in terms of deposit market share, said the Charleston area represented the fastest growth market for the roughly $8.0 billion-asset company in the first quarter. South State CFO and COO John Pollok said at the SunTrust Financial Services Conference in May that the amount of wealth moving into Charleston is just "stunning." Pollok said the bank has seen considerable growth in the Daniel Island area, where residential lots are being awarded through a lottery system. Pollok equated that level of demand to what many banks witnessed "pre-downturn." He believes that the demographics in Charleston remain favorable and does not expect growth to slow, adding that he feels really good about momentum in the market.

Given the attractive growth prospects, a number of banks are looking to expand in the Charleston MSA. Banks such as United Community Banks Inc. and Ameris Bancorp have said they would like to expand and have their eyes open for opportunities in the Charleston MSA.

Birmingham, Ala.-based ServisFirst Bancshares Inc. expanded into Charleston earlier this year, opening a banking center and assembling a team of bankers in January. ServisFirst has continued to build in the Charleston MSA since then, hiring commercial bankers and a Summerville city executive from CresCom Bank.

"We love Charleston and think South Carolina is a wonderful place and a great place for us. It's a vibrant growth market, a good business climate, and culturally very similar to that of Alabama," ServisFirst President and CEO Thomas Broughton III recently told SNL in an interview.

Most recently, Charlotte, N.C.-based CommunityOne Bancorp opened a loan production office in Mount Pleasant, S.C., which is part of the Charleston MSA. The company tapped Brooks Melton, who previously served at South State Bank, to lead the office and serve as commercial banking executive.- Nathan Stovall SNL Financial

“The decline in community banking is a troubling trend for the economy as a whole, but particularly for small businesses,” New Orleans banking executive Guy Williams said in May.

The CEO of Gulf Coast Bank and Trust Co., Williams made the comment during a news conference in which a University of New Orleans researcher released a study of banking trends that shows community banks in a state of decline. Consolidation in the banking industry at large during the past 20 years sharply reduced the number of institutions operating in the United States and hit the community bank sector disproportionately hard, UNO Professor Kabir Hassan reported. The total number of small banks shrunk during that period by more than 50 percent, while the ranks of larger institutions decreased by about 18 percent.- MyNewOrleans.Com

Not surprisingly, the burden of regulatory compliance is hitting community bankers particularly hard. Less able to bear the costs of hiring additional staff to deal with the regulations, many owners of small banks are putting their institutions up for sale. The trend is one that Virginia-based banking industry Gregory Feldmann focused on in predicting last year that consolidation among banking institutions will sharply pare the ranks of small lenders. While politicians continue to debate the evils of “too big to fail,” he says, the corollary question is whether some banks are “too small to thrive.” In comments he made last fall, Feldmann said the United States could see 300 bank mergers annually in the near term, with as many as 2,000 institution names vanishing during the next five to seven years.- My New Orleans.Com

Sound Bites and Cornerstone’s Take

Bigger is better. While this was a bank conference and not a Tupperware party, this theme rang loud and clear for the better part of three days. Granted, many of the presenters are i-bankers who make their living by doing deals so they have vested interest in encouraging the attendees to merge their banks. I do wish, however, that some presenter had pined that there is still a place for mid-size banks that grow organically and have deep roots in the communities they serve.

$5 billion is the new floor. Presenters stated that the high costs of just keeping the doors open (regulatory compliance, technology investments, branches, etc.) were going to continue to drive consolidation in the market and that the threshold to be competitive is quickly creeping up to the $5 billion in assets mark. The $5 – $50 billion banks will have the best currency and will be the most active acquirers. Frankly, this is one where I think the prognosticators were spot on. Between banks and credit unions, we certainly don’t need 13,000+ institutions to serve our basic banking needs. And I do think the most active deals will be in the $5 – $50 billion space. There are so few banks with more than $50 billion in assets that the mega banks at the top of the asset heap don’t have any targets to go after that would make a material difference.

If you are in the Midwest, pack it up and call it a day. Outside of some bright spots in Chicago and certain Texas markets, all of the growth is occurring on the coasts, and that’s where most of the larger deals are happening. Rural markets are in a freefall, and banking in the Midwest was portrayed as a zero-sum game of house-to-house combat. Having quite a few Midwest clients, Cornerstone does see our banks looking at the demographic shift of people and businesses to the metro markets and the coasts. Bank CEOs are gleeful that the big banks are pulling out of their rural markets at the same time they scratch their heads and wonder why.

The most profitable franchises in the industry are $2.5 to $5 billion. Because of the exhortations that bigger is better and $5B is the new $1B, I was surprised to see this, but the data bore it out.-Gonzo Banker.Com

The profitability of community banks shows a much clearer positive trend than that of commercial banks overall. Community banks reported strong income growth in the fourth quarter of 2014, with quarterly earnings rising 28 percent. They reported net income of $4.8 billion, up $1.0 billion from the previous year. The FDIC quarterly banking report noted that this increase in net income resulted from a combination of higher net operating revenue and lower loan-loss provisions. Yet, even with this increase in revenue for community banks, the banking industry as a whole still experienced an earnings decline of 7 percent.- The Cleveland Fed

Rick Clayburgh, president and CEO of the North Dakota Bankers Association, said the increased regulatory costs stemming from the recent financial crisis are driving some mergers and acquisitions. But he added some moves are "focused on the strengths of the two joining institutions."

"One will bring something to the table that the other may not have had," Clayburgh said. "By bringing the two together, you're putting together a stronger organization."

Choice Financial CEO Brian Johnson said acquisitions help them invest in new technologies like mobile banking and business-to-business products.- Grand Forks Herald

ABA President and CEO Frank Keating discussed the challenges community banks are facing in serving their customers’ needs in an appearance on Bloomberg TV’s “Bloomberg Surveillance” this morning — and he emphasized the indispensable role banks play in meeting the credit needs of their hometowns.

“There is no way you’re going to have financial services that you need and want — with a focus on the goodness of a town and the vitality of a community — without a community bank,” Keating said. When asked by a host about the ongoing consolidation of community banks, Keating noted that “it’s accelerating.” The economy remains soft and that young people are having a harder time qualifying for credit under newer regulations, he explained, and “the costs of compliance are really oppressive.”- ABA Banking Journal

FIG Partners analyst Timothy Coffey, who covers banks in the West, said Salt Lake is indeed growing and "is a really good market for construction right now," fueling demand for loans.

Muelleck said People's is an established real estate lender and is eager to continue growing that business line. It also is in the midst of expanding its commercial-and-industrial operation, which currently accounts for roughly a fifth of its lending. The finance chief said People's wants to boost lending organically, but it also has a substantial appetite for acquisitions. Though not near cinching a deal, Muelleck said People's is perpetually reviewing the merger-and-acquisition landscape in Utah and studying potential targets. "We are always looking," he said.Without naming names, Muelleck said there are about 20 banks ranging from $70 million in assets to around $700 million in the state that People's would have the wherewithal to buy. He said the bank is gauging interest among banks in that group and "any of those could potentially" end up being a target for People's.-Kevin Dobbs SNL Financial

But Hageboeck said the bank believes acquisitions will be a part of its story going forward. The bank's earnings have been solid leading to a strong stock performance. In the past 30 days, City Holding's stock has been up 5.19% — exactly in line with the KBW Bank Index during that time. "It puts us in position to be on everybody's list as a potential acquirer when they become a potential seller," he said.City Holding's most recent whole-bank deal was its acquisition of Staunton, Va.-based Community Financial Corp., which closed in January 2013. Keefe Bruyette & Woods' Mealor said City Holding will continue to look at expanding more into West Virginia, Virginia, Kentucky and Ohio primarily, although the Carolinas would not be a surprise either given the company's LPO in Charlotte. "I think they will look at banks primarily in the $200 million to $1 billion range most likely," she said. "[City Holding] is very conservative in [its] M&A strategy but certainly has an attractive currency to use in future deals." The past six months has been particularly busy in terms of M&A discussions as more banks wonder what strategies they can employ to meaningfully build earnings per share, Hageboeck said. And that seems to be truer of larger, more sophisticated banks and less true of smaller, insular banks that are more interested in maintaining a franchise than in developing strong financial performance, he said. Opportunities the company has been seeing tend to be larger rather than smaller. - Ken McCarthy SNL Financial

With lots of money—and potential customers—at stake, I believe more banks should consider aggressively growing one’s franchise through M&A than in previous years. Competition comes in so many shapes and forms that sitting idle while others take market share does not bode well. This is especially true for the 5,705 banks under $1 billion in assets as challengers offer tools and products designed for small businesses and borrowers—two key sources of revenue for community banks.- Al Dominick Bank Director.Com

A look at SNL's bank M&A data shows that industry consolidation is continuing to pick up, with a high concentration of deals in the Midwest. More than a third of U.S. bank deals announced in the first four months of 2015 involve targets based in the Midwest, according to a recent analysis.SNL identified whole and minority bank and thrift M&A transactions in the six SNL-defined U.S. regions, excluding U.S. territories, going back to 2005. In 2014, 288 deals were announced in the U.S., continuing the upward trend seen in the last couple of years. In 2013, there were 224 deals and in 2012 there were 220.Year-to-date through April 30, 87 U.S. bank and thrift deals have been announced. This exceeds the number of announced deals for the same periods in 2014 and 2013, which saw 81 and 65 deals announced, respectively. Average deal values through April 30 increased from $62.7 million and $54.8 million in 2014 and 2013, respectively, to $187.5 million thus far in 2015, with 2015's average significantly impacted by the $5.33 billion Royal Bank of Canada/City National Corp. deal.- Robert Downey III SNL Financial

In a recent presentation, the Lutherville, Md.-based company said it will target distressed and failed banks along with those that have strong deposit bases and "strategic advantages." As of March 31, Bay reported a Tier 1 leverage ratio of 13.01% and a total risk-based capital ratio of 16.57%. On the human capital front, the bank's management team and key leaders have "significant industry experience" and the leadership capacity to run a much larger company, Thomas said. "We have overinvested in talent to enable the company to grow at an accelerated level and consummate and integrate complex acquisitions," he said. And opportunities seem to abound. Thomas said there are a number of banks in those markets that will need a partner due either to capital deficiency or because they are simply too small to succeed. He said there are a "double-digit" number of banks that could be potential targets for Bay in coming years.- Chris Vanderpool and Ken McCarthy SNL Financial