Page 28 - 2Q 2018 June Reporter
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Community Banks – Changing
Market Dynamics Put
Spotlight on Strategic Options
Ed Usalis by Ed Usalis, United Bankers’ Bank
Significant changes have occurred within banks may have concerns regarding economies
the community banking industry over the of scale and raising capital.
past 20 years. Most notably, the number of Historically, regulatory pressures incentivized
FDIC-insured commercial banks and savings community banks to make acquisitions in order
institutions has declined from 9,024 as of to justify the more stringent supervision and
March 31, 1998 to 5,606 as of March 31, 2018. associated costs they must face. However, the
This level of consolidation has undoubtedly Economic Regulatory Relief and Consumer
led many community bankers to contemplate Protection Act (the “Act”) was recently signed
the future of their bank. Specifically, should into law on May 24, 2018. It is expected that
community banks sell now or double down on this Act will reduce the regulatory burden on
their investment? small and mid-sized banks, including changes
To provide some context for this decision, to regulatory requirements imposed under
the financial performance of community the Dodd-Frank Wall Street Reform and
banks should be considered. As of the end Consumer Protection Act of 2010. While the
of March 2018, America’s community banks costs of compliance might have fueled past
were performing well. According to the consolidation, it is unclear if this will impact
FDIC’s Quarterly Banking Profile, community future consolidation.
banks reported strong earnings, lower levels Today, community banks face increased
of noncurrent loan balances and higher competition from investment banks and non-
levels of regulatory capital. Given this strong bank lenders which are changing customer
financial performance, will community bank expectations. Given the changing competitive
consolidation continue? landscape, community bankers will have
The various challenges that community to understand their customers and their
banks face need to be examined in order financial service needs more than ever. To
to understand the motivations behind future be successful, community banks will need to
consolidation. These challenges include: continue their focus on customer relationships
increasing regulatory costs, heightened and accountability and leave the transaction-
competition, and revenue challenges. based model to the larger regional and national
Additionally, smaller closely held community
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June 2018 IllInoIs RepoRteR
