Tuesday, April 07, 2020

Planning in a Consolidating Banking Industry

Posted by OnCourse Staff August 10, 2015 6:00pm

Photo Credit: Robert Churchill

By Marc S. Winkler, Audit Manager

It’s no secret that the number of community banking institutions is decreasing and that this trend will continue into the future.  Included in their strategic planning and Board discussions, management and directors need to ask a critical question: Is the bank going to stay independent, by growing organically or by being an acquirer, or is the bank going to be acquired?  Addressing the last part of the question – “Is the bank going to be acquired?” – is a difficult issue to confront.  Often, it’s not an easy discussion for management and Boards that have faithfully served their communities, but the reality is that banks are going to continue to be acquired.

On December 31, 1999, there were 8,356 banking organizations active in the United States (See Chart).  Banking organizations consist of independent banks and thrifts, one-bank holding companies and multibank holding companies.  On March 31, 2015, there were 5,977 banking organizations, a decrease of 2,379 or 28.5% from 2000.  Since the end of 2010, there has been a decrease of 939 organizations in a little over four years, which is 39.5% of the total decline in the number of institutions since 1999.

In 2014, 249 organizations disappeared, and in the first quarter of 2015, another 76 were acquired or merged (or failed).  For now, it appears that merger and acquisition activity is accelerating.  The trend in the declining number of banks might accelerate or decelerate at times, but the overall direction is down.

Number of FDIC – Insured Banking Organizations

Report Date

Thrifts and Independent

One-Bank Holding

Multi-Bank Holding


December 31, 1999





December 31, 2000





December 31, 2001





December 31, 2002





December 31, 2003





December 31, 2004





December 31, 2005





December 31, 2006





December 31, 2007





December 31, 2008





December 31, 2009





December 31, 2010





December 31, 2011





December 31, 2012





December 31, 2013





December 31, 2014





March 31, 2015





Source: FDIC [www.fdic.gov]

How many banking organizations will there be in the next five years, or even next 10 years?  I have discussed this with many industry experts who predict that there will be as little as 3,000 organizations by 2025.  Just looking at the recent trend, there will be fewer than 5,000 institutions before 2020.

Why will community banks continue to sell? There are multiple reasons: increased regulatory scrutiny, increased compliance costs, increased competition from non-bank competitors, increased competition from large banks, increased technology costs, cyber security risks, the need to create greater efficiencies through mergers and acquisitions and, finally, “fatigued” Boards. Any one or combination of these reasons can cause a community bank Board to sell.

I believe that most banks would prefer to continue operating as independent organizations serving their communities, customers, employees and shareholders.  By developing and implementing practical strategic plans with a high probability of success, banks can avoid being acquired.  To lay the path to a profitable and successful future, bank management and Boards need to focus on several critical issues in their strategic planning.

  • Can the bank remain independent without acquisitions by growing earnings organically? 
  • Is the bank operating in a growth or stagnant market?
  • If in a growth market, can the bank maintain market share and grow earnings?
  • If in a stagnant market, can the bank increase market share as a means of generating business?
  • Does the bank have a sales-oriented organization?  (Organizations generally believe they do by the nature of being a community bank, but the question should be: Is the staff actually generating sufficient new profitable business?) 
  • Is the bank’s technology competitive and cost effective? 
  • Does the bank have strong and active management processes in place to mitigate risk? 
  • Is the bank’s staff extremely well trained and is the organization continuing to develop their skills and abilities? 

Or, will the bank be an acquiring institution?  There are four primary questions to determine if expansion plans include purchasing another organization.

  • Does the bank have sufficient capital?
  • Are there opportunities for an acquisition in the bank’s current market or a market that is targeted for growth? 
  • Is the bank’s management team capable of managing an acquisition and integrating another organization? 
  • Does the bank have a good relationship with its primary regulator? 

Whether the bank plans on growing organically or through acquisitions, these are not questions to be taken lightly and need honest and forthright assessment by management and the Board of Directors. With a dynamic and active planning process, along with a laser focus on implementation, a bank can continue to remain independent and avoid the fate of being acquired.



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