Merger allows Coastal, Prime Pacific to meet new challenges

It’s the latest in a long line of mergers of community banks.

Coastal Community Bank in Everett and Prime Pacific Bank of Lynnwood and announced in April that they intend to combine, pending regulatory and shareholder approval.

The deal makes sense for the banks on a lot of levels, said Eric Sprink, Coastal’s CEO and president, and Glenn Deutsch, CEO and of Prime Pacific.

“Our core values are the same,” Deutsch said. “We both understand what relationships are and we both understand the small business person is really the economic wheel that keeps things turning.”

The combined bank will have $704 million in assets and 15 branches after Coastal opens a Marysville branch later this summer.

For customers, the combined bank, which will retain the Coastal name, will have higher caps on the amount it can loan to businesses. The banks have no overlap, so the new entity isn’t expected to close any branches.

And the new bank will have new resources to handle today’s banking challenges.

“Prime Pacific and Coastal, we’re both healthy banks, but we need some size and scale to be able to fulfill the obligations of being a bank in today’s society,” Sprink said.

One of those challenges is navigating new federal financial regulations enacted after the recession.

Dealing with financial regulations wasn’t a driving force behind the proposed merger, but it was a factor, Sprink said.

The financial regulations were passed because of the failings of mega banks, he said.

But nearly all of the new regulations affect smaller banks like Coastal and Prime Pacific.

“All banks continue to feel the burden of a lot of regulation, and we’re only about halfway through the rulemaking process,” Sprink said.

This is the largest merger of banks with branches heavily centered in Snohomish County since Heritage merged with Whidbey Island Bank last year.

Expect more bank mergers to happen, said Mark MacDonald, president and CEO of Community Bankers of Washington, a group that represents independent community banks in the state.

“Certainly mergers are going to happen, because there are good fits between organizations, and I think that’s the case between Coastal and Prime Pacific,” MacDonald said.

Smaller banks are devoting between 2 1/2 to 3 1/2 full-time employees to make sure they’re in compliance with the new rules, MacDonald said.

“When you’re a small bank, that becomes very painful, to have that many resources dedicated to compliance,” MacDonald said.

MacDonald was part of a contingent of community bankers headed to Washington, D.C., in late April to press lawmakers about the very issue.

“When people talk about banks, they tend to think about the Wall Street banks, not the Main Street banks, the ones up on Colby,” MacDonald said. ““It’s our goal to get politicians to understand the difference between Main Street and Wall Street banks.”

In his opinion, regulation should be tiered, based on the size of a bank and the complexity of banking, MacDonald said.

And there should be multiple layers, with banks with $50 million in assets regulated far differently than banks with $20 billion or more in assets.

He said there’s value in community and regional banks because those institutions are often the ones that will take chances on new or struggling small businesses.

If lawmakers don’t support tiered regulation, MacDonald said, there will be fewer community banks in the future.

“I believe the big banks would love regulatory relief,” MacDonald said. “But I don’t believe they would support tiered regulation, because they would love to see the small banks disappear.”

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