Last week I made a bold prediction
⅓ less banks in the US in 10 years.
So which ones are going away?
I believe the following types of banks will cease to exist:
Banks that are sub scale – It is hard to make a buck in banking with an institution that is smaller than $250M. ~2000 banks are smaller than $250M today. These institutions will either grow organically (super tough in this environment), conduct mergers of equals (sub $1B banks that could find synergies and contiguous footprints), be acquired by a larger bank (this is getting tougher since larger institutions may not see the economic benefit of integrating a small bank), be acquired by a credit union (this trend is picking up and credit unions are interested in diversifying into the commercial side of the business) or attempt to continue operations with meager net income margins, high regulatory burden, significant credit and operating risk and required capital from the owners.
Banks that are poorly operated – The stakes have been raised. You must have top notch systems, adequate well trained people, cyber security experts, invest in an upgraded or new core system, a functional website and mobile app and so much more. These are bare minimum requirements to operate a bank today. If your leadership and management teams can’t meet these types of operating requirements, you will likely be forced to find the exits.
Banks that struggle to compete – Deposit growth. Loan growth. Fee income growth. These are the 1st, 2nd and 3rd bases in banking. You must be neutral to growing in each of these or you are losing market share. If you find yourself in the red in one or more of these categories for a period of quarters or years, you are likely in a challenging situation. My recommendation: If you can’t beat ‘em, join ‘em. Find the highest value for your bank by identifying suitors who would appreciate what you bring to the table: deposits, geographic footprint, loan portfolio, customer base, niche product set, etc.
Tune in on Wednesday for the last group of banks that I believe will cease to exist.
I post weekly about banking, data science and family adventures.
Digging deep on banks is what I do. If there is a bank that you are curious about, shoot me a note and we can discuss this bank together.