Year-end Update on Banking Industry Consolidation

Throughout 2018, the consolidation of the banking industry has continued. Bankers executed one element of their strategic planning. Some bought. Some sold. Some started new. Was your bank’s strategic planning ready?

As one reviews the results of 2018, there are several take-aways:

  1. The decades-long consolidation of the banking industry continues.

  2. The pace of consolidation has only slightly slowed.

  3. Community banks - in both rural and metropolitan markets - are key participants.

  4. All banks - including Community Banks - should assess the M&A environment and impact on their bank annually in their strategic planning program.

For 2018, the banking industry saw a net reduction in commercial banks totaling 264, or approximately 5 percent. There were no bank failures during the year. Eight de novo banks were up and running. And 272 banks were consolidated through mergers or other activities according to the FDIC data.

The recent trend in consolidation is comparable to the trends since 1990. Since 1990, the number of banks has dropped by nearly 9,800, or 64%. While the decline in the number of banking charters is slightly lower - 264 in 2018 compared to an annual average of 355 banks, the pace as a percentage is slightly higher -  4.7% in 2018 compared to average of 3.6%.

Bank merger activity is substantially lower on average than was occurring during the seventeen years leading up to the Great Recession of 2008. And significantly lower than the peak period of 1993 through 1998 when annual bank mergers totaled 600 to 700. However, 2018 saw an uptick in bank merger activity to 259.

And, as consistent with prior timeframes, this past year, smaller Community Banks continued to show a net reduction. One reason simply being that nearly 97 percent of all banks are Community Banks so this is the natural pool for available bank merger activity. While the large bank mergers receive the national headlines, community bankers continue to deploy bank acquisitions as a critical component of their strategic planning.

And from a urban / rural perspective, community banks across all markets - larger metropolitan areas to smaller rural markets - are involved in the continued merger and acquisition activity across the U.S.

Banking industry consolidation has been going on since the 1970’s. This trend continued throughout 2018 and is expected to continue on over the next decade and longer.

As a Community Bank, bank merger and acquisition planning should be an important component of your annual strategic planning. You do not need to be a buyer. And, most certainly, you do not need to be a seller. In any given year, less than 5 percent of banks actually complete an M&A action. However, you do need to understand where your bank stands so that if an opportunity does arise, you are prepared to take action.

Establish time on your 2019 planning calendar to evaluate the banking merger environment and what your bank’s role should be over the next few years. This may be some of the most valuable planning time that your bank board and management team spend!