Is bigger better?

Merger mania is old news, but is it good business? In 1995 five industries topped the list for the most corporate merger-and-acquisition activity of all U.S. industries: broadcasting/entertainment; computer software; drugs and medical supplies; utilities/telecommunications; and, of course, banking.

If

In a year of record U.S. mergers, it was a record year for bank mergers.

At year-end 1995, there were about 8,100 independent banks and bank holding companies, down from about 12,300 in 1980, according to the U.S. Comptroller of the Currency. The number of actual banks--bank charters--was about 10,000 at year-end down from 14,000 in 1980.

Yes, the big banks are bigger, and community banks have had to become better at what they do, often getting bigger in the process themselves. My own feeling is that in four or five years, we'll have about 6,000-7,000 banks, still a healthy number.

One result of the recent merger and acquisition activity is that an already skeptical U.S. public, and an even more skeptical press, has been asking: What's in these mergers for us? That is a reasonable question to ask.

Several months ago I participated in a point-counterpoint debate in the Washington Business Journal on the subject of bank mergers. My opposite was a banking researcher with the Center for Study of Responsive Law, based in the nation's capital.

In her counterpoint argument, researcher Janice Shields concluded that big bank mergers spell trouble for customers. She wrote that "enormous benefits will accrue to experts in the art of the deal, at the expense of a defenseless public."

I'm a community banker, so you won't find me defending the idea that ever larger banks are the only, or even the best, way to deliver financial services to consumers. However, I will defend every bank's right to merge, as I did in my counterpoint argument in the Business Journal.

When done right, bank mergers have the potential to improve operating efficiency of the merging banks, enhance earnings for shareholders, and provide a broader range of services for the customers. But not every merger is going to work out that way.

William Silber and Roy Smith, finance and economics professors at New York University's Stern School of Business, wrote of big-bank mergers in the New York Times on Aug. 31, 1995. They said that in a merger: "Neither bank will gain something that wasn't there just by becoming larger."

At First National Bank & Trust in Asheboro, N.C., we've asked the same questions that community bankers across the country have been asking themselves. Do we want to get big just for the sake of becoming bigger? What do we gain, and what do we lose, through growth? If we stay the size we are, can our $285 million-asset bank survive? What's best for the shareholders? What's best for our customers? What's best for our employees, who have helped us grow?

We've certainly seen our share of competition in North Carolina. Seven of the top 100 bank holding companies by assets are in North Carolina, and in my market. Yet in that environment, our bank has not only survived, but grown. The experience of our bank is being repeated around the country, by community bankers who almost welcome the competition of bigger banks. They recognize that a small-town bank with a genuine local focus can offer personalized service that institutions headquartered many miles or states away can't offer.

I'm not an advocate for small banks, however, anymore than I'm an advocate for large ones. As ABA's president I'll continue to speak nut for banks of all sizes. The nation's financial needs can best be met through a combination of larger and community banks.

Besides, I'm not worried about the size of banks today. American Express and Merrill Lynch worry me a great deal more. Mutual fund companies, finance firms, mortgage companies, insurance companies and even computer-software companies are dishing up a formidable combination of tough competition with limited government intrusion in their business.

Careful readers will note that I haven't answered the question: Is bigger better? The answer to that question is best found in the board rooms and executive offices of America's banks. Size alone isn't an adequate measure of a bank's value to its customers, community, or shareholders.

Performance is what counts, not the size of the package in which it arrives.

BY JAMES M. CULBERSON, JR., chairman, First National Bank & Trust Go., Asheboro, N.C.