Small banks on Long Island says it makes sense for...

Small banks on Long Island says it makes sense for them to be acquired by larger operations because the cost of dealing with new regulations is just too much. (Undated) Credit: iStock

Hamptons State Bank president Ron Krawczyk expressed a common banker's lament when he explained why his bank agreed to be swallowed by a larger bank -- the costs of complying with regulators' demands kept climbing, and for a small bank like his, it was too much.

"The regulatory expenses are just phenomenal," he said.

That's why officials at several other small banks on Long Island -- including some that have clashed with regulators -- agree that further consolidation will take place in the banking industry on Long Island and nationally, although they also say there are ways for small banks to thrive.

"It depends on what your business model is," said Steven Schnall, chief executive of Long Island's smallest bank, Quontic Bank of Great Neck. "If you're a bank that's had trouble, it's real hard to come out from under that.   . . . A lot of small banks are throwing in the towel."

Another small Long Island bank, Madison National Bank of Merrick, also is in the process of being acquired after clashing with regulators.

The key to succeed is having enough capital to keep regulators happy and finding a niche "that you can operate in safely without competition," Schnall said. For Quontic, that's been turning around small-business loans quickly at a premium and financing condominium projects that others shy away from.

Still, he and others note the cost of regulatory compliance is large and growing.

Thomas O'Brien, chief executive of Jericho-based State Bank of Long Island, said last year's financial reform law spawned about 500 new regulations.

"You need to have the benefits of some size to spread your compliance costs over a big enough base," said O'Brien. He said his bank is looking for smaller ones to acquire.

In this region, he said, a bank needed about $1 billion in assets to thrive.

Smaller banks "don't have access to the capital," O'Brien said. "They don't have access to the talent. They don't have access to the customers."

Executives at several small banks disagreed.

"We're planning to raise capital [this year] and keep on going," said Douglas Manditch, chief executive of Islandia-based Empire National Bank. "We worked hard to gain critical mass. We're profitable."

Anthony Capobianco, chief executive of American Community Bank of Glen Cove, said there is a cost to compliance. Federal Deposit Insurance Corp. fees are up more than 40 percent and regulators are much more stringent than they used to be, he said.

"In our case, I think we'll be OK," he said, noting the bank increased its capital by about a third in the past few months. "It's not our mission to be acquired. We will continue to grow. It'll just be a lot more difficult to do in this economic and regulatory atmosphere."

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