Banking Industry Consolidation Update - Q2 2020 Continued Strong.

The Q2 FDIC Call Report data reflects continued banking industry consolidation.

The Banking Industry Consolidation Rate was 4.5% over the last four quarters.

This reflects a ongoing bank merger activity with the Banking Merger Rate of 4.2% over these four quarters. The Bank Failure Rate was nominal during this period. And the De Novo Bank Replenishment Rate was on 4.8% (i..e., only 5 percent of the banks lost to mergers and failures were replaced by start up banks).

Based upon preliminary data on bank mergers during July and August, it is anticipated that the Banking Industry Consolidation Rate and the Bank Merger Rate will be significantly lower during Q3 2020 as the impact of COVID-19 will show significantly.

Banking_Industry_Consolidation_Metrics.jpg

Community Bank Leverage Ratio - Update on Q1 Opt-in Elections

The new Community Bank Leverage Ratio (“CBLR”) optional framework was effective for Q1 2020 Call Reports.

The framework provided Community Banks with the option of continuing the current risk-based capital framework and reporting or opt-in for the new CBLR framework and maintain a minimum Leverage Ratio of 9.0%. We discussed that this CBLR election would be attractive to some Community Banks but not others in Capital Planning Issues.

With Q1 2020 Call Reports filed, approximately one-third of Community Banks elected to opt-in and utilize the new CBLR framework.

There was some differentiation among Community Banks by size. Smaller Community Banks opted-in at a higher level than larger Community Banks. Approximately 40 percent of Community Banks with less than $250 million in Total Assets opted-in. This opt-in percentage for Community Banks between $500 million and $1 billion was 29 percent; and Community Banks between $1 billion and $10 billion opted-in at only 17.5 percent.

Through Q1 2020, Banking Industry Consolidation Steadily Continues.

The banking industry consolidated continued at an above average rate. The Banking Industry Consolidation Rate was 4.6%. This is above the average of 3.7% since 1990.

Bank mergers & acquisitions had a strong showing with the Bank Merger Rate at 4.5% (or, for every 1,000 banks in existence one year ago, 45 of these banks merged with another bank).

With only 5 failures over the last four quarters, the Bank Failure Rate was a negligible 0.1%.

And, the source to augment the banking industry - de novo banks - was nominal. The De Novo Bank Replenishment Rate was only 5.7%. That is, only 6 banks replaced each 100 banks that merged or failed.

Note: with the “shelter-in-place” actions taken in response to COVID-19, a review of FDIC merger actions in Q2 would suggest a significant slowdown in the Banking Industry Consolidation Rate and the Bank Merger Rate during the next quarter or two.

Total number of banks declined by 246, or 4.6 percent, to 5,116 from 5,362.

By size, the reduction in the number of banks was largest in the smaller asset segment sizes. The number of banks under $100 million in Total Assets declined over 11%; banks between $100 million and $250 million in Total Assets decreased by approximately 6%; and banks between $250 million and $500 million in Total Assets saw a 4.5% drop in their numbers. There was generally net gains in the larger bank assets segments.

And, among the states with large numbers of Community Banks (< $10 billion in Total Assets), four states had Banking Industry Consolidation Rates (Community Banks only) above 6%. Massachusetts had an 8.5% loss in number of banks; Kentucky showed a decrease of 7.4%; the number of banks headquartered in Wisconsin dropped 7.0%; Alabama showed a reduction of 6.9%; and Georgia’s banking industry declined by 6.1%.

The banking industry consolidation continues. A slow, but steady pattern that is expected to continue for the foreseeable future.

Bank Lending Surges to Support Customers During COVID-19 Pandemic

Community Banks are stepping up lending to support customers during the COVID-19 pandemic. The data is from the Federal Reserve H.8 Release, “Assets and Liabilities of Commercial Banks in the United States” which are weekly estimates made by analysts and economists at the Fed.

Banks of all sizes are showing significant growth as customers draw down on various banking lending facilities. Most of this loan growth is showing up in the commercial and industrial loan category for both large and small banks.

Loan_Growth_LCB_SCB.jpg