ENTERING 2023, THE BANKING INDUSTRY CONSOLIDATION CONTINUES TO BE LOWER THAN HISTORICAL AVERAGES.
Banking Industry Consolidation Rate = 2.6% for L4Q. The pace of industry consolidation was well below the historical average since 1990 of 3.7%. The industry is entering its fourth year of below average consolidation.
Bank Merger Rate = 2.5% for L4Q. The pace of bank merger activity was well the historical average since 1990 of 4.5%.
Bank Failure Rate = 0.0% for L4Q with only 2 bank failures and reflecting on the strength of the banking industry. The historical average since 1990 is 0.3%.
De Novo Bank Replenishment Rate = 9.5% for L4Q - primarily reflecting lower merger activity. The replenishment rate was well below the historical average since 1990 of 20.9%.
NUMBER OF U.S. BANKS:
Overall, the number of U.S. banks fell to 4,672 at the end of Q1 2023 - down 124 from one year ago.
The largest declines continued to occur in Community Banks with less than $500 million in total assets.
And the largest declines of headquartered banks continues to occur in rural markets with populations of less than 50 thousand.
BANKING INDUSTRY CONSOLIDATION RATE:
Banking industry consolidation net activity slowed during 2023 Q1 L4Q. The Banking Industry Consolidation Rate for 2022 was 2.6%. The historical average was 3.7% since 1990.
Community banks consolidated at a rate of 2.7% L4Q with several states showing a consolidation rate of 4% or higher: Massachusetts, Missouri, Wisconsin, Florida, and Pennsylvania.
BANK MERGER RATE:
Bank merger activity slowed significantly for the L4Q through Q1 2023. The Bank Merger Rate was 2.5%. The historical average was 4.5% since 1990.
DE NOVO BANK REPLENISHMENT RATE:
De novo banking activity remains historically low with 11 new charters approved during the L4Q through Q1 2023 and 6 new banks opened. The De Novo Bank Replenishment Rate was 9.5%, or approximately 10 new banks opened to replace every 100 banks lost to merger, failure or liquidation. This rate remains well below the historical average or 20.9%, or 21 new banks opened to replace every 100 banks lost to merger, failure or liquidation.
BANK FAILURE RATE:
There were 3 bank failures for the 12 months ending May 2023. The Bank Failure Rate was near 0.0%.
These bank failures were the result of large, uninsured depositor runs resulting from a loss of confidence caused by significant losses in the AFS and HTM securities portfolios.
Financially, the industry is sound. Earnings were solid. Credit quality continues to look good. And capital levels remain strong.
2023 OUTLOOK:
The pace of banking industry consolidation is expected to continue below historic averages.
This pace will result from a below average rate for bank mergers. There is no reason to believe that any unusual resurgence will occur.
The bank failure rate should continue to remain near zero.
And de novo bank activity will continue at less than 10 per year with the de novo bank replenishment rate in the 5-10% range.