When Massachusetts-based Cambridge Trust Co. acquired Optima Bank and Trust in April, the state saw its only bank acquisition of the year.

The state also saw an out-of-state credit union merger, with Cheshire County Federal Credit Union in Keene merged with Gardner, Massachusetts-based GFA Federal Credit Union.

But even with limited M&A transactions, New Hampshire had an active banking industry, with a strong economy, national branch expansions and a de novo bank soon to open.

Integration Offers New Challenge

The acquisition of Portsmouth-based Optima Bank involved an out-of-state buyer, though Cambridge Trust had a long-time presence in New Hampshire through its wealth management services. One-third of its wealth assets under management are in New Hampshire, said Denis Sheahan, Cambridge Trust’s CEO.

What the organization did not have in New Hampshire were banking services, Sheahan said, and Optima Bank’s footprint matched well with Cambridge Trust’s existing wealth management offices.

The merger closed in April and a systems conversion followed in July. The merger was meeting expectations, Sheahan said, though work remained.

“Integration takes years, not months,” Sheahan said.

From credit and lending practice to business models and strategic focus, merging two organizations often means merging different cultures. There was some turnover after the merger, Sheahan said, but remaining employees have opportunities for career development and advancement. Because Optima Bank did not offer wealth management services, employees need to take a new approach with customers.

“Our New Hampshire banking team never had the opportunity to think about referring a client from a wealth perspective,” Sheahan said.

This month, Cambridge Trust announced it would acquire another Massachusetts bank, Wellesley Bank. After that, he does not plan to pursue another merger any time soon.

“We have enough to do with what we have in terms on capitalizing on opportunities in our existing market,” Sheahan said. “That needs to be our priority.”

Few Opportunities Remain

With low interest rates forecast for the next couple of years, the narrowing spread between what banks pay on deposits and earn on loans will play a role in the M&A market, leading both buyers and sellers to look for opportunities.

“Because interest rates are going to stay low, that’s going to continue to put pressure on bank’s spreads and margins,” said Arthur Loomis, president of Loomis & Co., a New York-based investment bank that works extensively with community banks in the Northeast on mergers and acquisitions. “That’s going to continue to dampen the ability for community banks to grow their earnings.”

Loomis said 3 to 5 percent of community banks are acquired annually, adding that New Hampshire has few opportunities remaining for acquisitions. Mutual banks and credit unions could continue to combine, and Loomis said those with $300 million in total assets or less might seek to combine to improve technology and processes or receive support with compliance and regulatory exams.

Even within the current environment, banks can still survive.

“A smaller bank can survive and thrive, but they have to be a lot better about their business and their performance than they typically have been in the past,” Loomis said, referring generally to community banks.

Loomis has seen prices soften with M&A transactions so far this year compared to 2018, and he expects that trend to continue. Still, low interest rates could drive buyers to place a premium on banks with a high level of non-interest-bearing deposits or non-interest income, Loomis said.

Community banks looking to sell should consider more than the value on the date of the announcement or the closing, specifically evaluating the long-term return potential that a higher performing bank might offer, Loomis said.

Community banks are sold, not bought, Loomis said, and because banks have longstanding ties within their communities, some directors often don’t want to sell. They fear the stigma, optics and effects within the community, potentially leading to inertia among potential sellers.

Strong Economy

Cambridge Trust’s Sheahan said New Hampshire’s vibrant economy and low unemployment make it a good place for banking. One challenge for business customers is the tight labor market and competition for good talent, Sheahan said.

The strong economy is reflected in other ways in New Hampshire’s banking industry. The state will soon have a de novo as Nashua-based Millyard Bank moves closer to opening. National banks like Chase have expanded into the state as well.

Even with little 2019 M&A activity, NH Bankers Association President Kristy Merrill said the organization is aware of the industry trend and pays attention to what’s happening. Right now, Millyard Bank and other institutions’ branch expansions are creating excitement for the industry.

“We’re very excited that there’s a new de novo bank and that other banks continue to move into New Hampshire,” Merrill said. “There’s a lot of good things that reflect well on the economy.”