Nearly every business sector in America is feeling the effects of consolidation. Mergers and acquisitions are occurring regularly in technology, insurance, retail and manufacturing. We’re even seeing this in the ag sector among farm equipment manufacturers and dealers, grain elevators, cooperatives, seed companies and farm/ranch producers themselves.

The banking and finance industry certainly isn’t immune to this trend. Just take a look at the numbers: in 1986, there were about 17,700 banks in the U.S., and today that number is down to about 4,500 and continuing to decline, according to data from the FDIC. Interestingly enough, there are about the same number of credit unions today – 4,600. But that’s a story for another day.

To further illustrate this point, the five largest banks in the U.S. today (JPMorgan Chase, Bank of America, Citibank, Wells Fargo and Goldman Sachs) combined have over $13 trillion in assets as of June 30. The total asset size of Minnesota and North Dakota banks are just $170 billion. These institutions are so large, it’s pretty much a consensus that from a government standpoint, they’re simply too big to fail – the negative impact to the country’s overall economy would be too large.

Let’s take a look at why consolidation is happening in the banking sector, and what smaller banks can do to navigate challenges and maintain their independence.

Why Do Banking Mergers and Acquisitions Happen?

For community banks, there are many reasons why a merger or acquisition might be considered – in fact, there are probably as many reasons as the number of banks involved. Every situation is unique, but here are a few of the main reasons we’ve seen:

1. A need for scale: Many banks face a math problem where size matters. Some of the factors involved include:
   • The cost of complying with increasingly large and complex regulatory and compliance requirements, and of investing in the technology necessary to compete in today’s digital world.
   • The difficulty of finding, attracting, retaining and affording the talent needed in highly specialized areas.
   • Broad customer expectations spread across different generations. Banks must find ways to serve both older customers who value in-person and face-to-face business along with younger generations who prefer digital, online options. All of this comes with a cost.
2. A drive for core deposits: Community banks are often an attractive acquisition target due to the “stickiness” of their deposit base.
3. No succession plans: For some family-owned banks, the next generation of bankers simply isn’t waiting in the wings.

How Community Banks Can Stand Out

So, given these challenges and the reasons for consolidation, is there a future for smaller, independent community banks? Absolutely. Often, consolidation can stifle innovation, flexibility and responsiveness – areas where community banks can thrive.

Consider these interesting numbers from the FDIC:

1. 97% of banks are generally categorized as community banks.
2. 2,168 banks are located in cities or counties with a population of less than 50,000.
3. 1,800 banks have $250 million in assets or less.
4. 2,744 banks have less than $500 million in assets.

Community banks clearly aren’t going away anytime soon, in large part because of the things they’re able to do well. For example, well-run community banks look at their customers through a relationship lens instead of only a transactional one. They know their customers’ names and not just their account number. Their knowledge of their customers goes far beyond their balance sheet or profit/loss statement. They know their market. They stay in their own lane, do what they do very well and the rest of it takes care of itself. Also, customers often have direct access to the decision maker, which is a huge benefit.

What are some of the other things these banks are doing to compete and thrive? They may work with other like-minded organizations to collaborate to share costs and resources for things like IT, compliance, etc. As important as it is to have a common goal, it’s just as important for the partnering organizations to be culturally aligned as well.

How Bell Can Help

Having an adequate lending limit to meet larger customers’ growing credit needs can be challenging for community banks. By building strong relationships with other banks, like Bell, smaller banks can better compete for larger credits and punch above their weight in the industry.

Bell has a dedicated correspondent banking team that can provide flexible underwriting, competitive lending terms and prices, faster decision-making and more consistent communication. We’ve partnered with hundreds of community banks, and we can help you enhance your customer relationships through our experience-based expertise in participation loans, bank stock and ownership loans, and equipment financing.

Our correspondent team is particularly experienced and knowledgeable when it comes to bank stock financing. We understand it, and we do it very well. If your bank is in need of additional capital – whether to make an acquisition, as part of a merger transaction, or for growth or other purposes – Bell can help.

By leveraging a partnership with Bell’s correspondent banking team, you can navigate the challenges of a changing industry and continue to serve your communities effectively.