Garnet Capital Advisors Blog

How many more community banks will get lost in the consolidation and acquisition shuffle?

There's something easy and familiar about banking with community banks. They've managed to form strong personal connections, and have a lengthy history of servicing the local population.

In fact, 57 percent of all Americans prefer to work with locally-owned and operated community banks to deal with their financial needs.

But the thing is, many of them are not. Instead, they are looking for features that the country's biggest banks can offer, as well as the unique and convenient services that online lenders provide.

The number of community banks across the nation is shrinking, and has been for quite some time now. During this extended low-interest environment, banks are finding it challenging to grow their net interest margins. And with recently introduced regulations from the government, many community banks are being hit with increasing costs.

In an effort to keep up and improve profitability, many community banks are considering merging with other banks. By doing so, banks can absorb some of these costs.

But community banks still play a key role in the health of the US economy, and act as a major player for lending to small businesses and home loan borrowers. And as their presence dwindles, non-bank firms are quick to swoop in and fill the void.

The loss of community banks across the country through consolidations is being felt, and will continue to be as over half of bankers in the US have intentions of acquiring another bank at some point in the new year.

Community banks are also lagging somewhat in the technological department. Whereas bigger banks with more capital are investing in more advanced lending platforms, community banks aren't necessarily keeping up. And the more banks fall behind in technological innovations, the more they miss out on business.

Savvy consumers are increasingly turning to online and digital platforms to do their banking and get loans. They're less likely to shop during traditional banking hours, and are more likely to tap into their laptops and smartphones at any time of the day to access their financial information.


Community banks are still viewed in a positive light among Americans, but they're having a tough time getting consumers to bank with them.

Banks that are increasingly investing in channels to make loans to consumers and small businesses can make money on smaller loans.

Community banks that are not approving as many loans and are struggling to compete will quickly be consolidated in the banking industry. They'll either close altogether or perhaps be bought out by larger banks.

So What Can Community Banks Do?

Although community banks may face some challenges, there are some things they can do to help ensure a bright future. For starters, community banks need to make an effort to adopt some level of technology that their larger counterparts have already taken on. By investing in or partnering with these platforms, community banks can realize sizeable returns in small business or personal financing by opening the doors to consumers who expect faster, more convenient banking and lending platforms.

Community banks also need to start focusing on specializing their services. These smaller banks simply don't have the means nor the finances to fulfill the needs of every walk of life. Instead, community banks should hone in on a niche market that will help put them in a position to be able to more fiercely compete.

Instead of trying to go head-to-head with the heavyweights in the financial industry, community banks may find more success and be better able to level the playing field by focusing more on a specific type of customer.

Of course, community banks stand to make more money when interest rates start to increase, as higher rates will allow for beefed up profit margins and a ramping up of small business lending portfolios.

Now that the Fed has decided to boost rates, banks still need to place a good deal of focus on their loan portfolios. After all, banks that make fewer loans ultimately make less money. And in our current competitive market, community banks will likely continue to struggle to compete without supporting their lending practices and balance sheets.

Community banks are very good deposit gatherers, and despite the fact that they may currently be finding it challenging to make good, profitable loans, there are avenues of support to tap into.

Garnet Capital has helped numerous banks add high quality earning assets and shed loan portfolios that otherwise are non- or under-performing, or simply do not meet strategic goals.

Cleaning up the balance sheet is an important part of becoming an attractive M&A target. And at Garnet Capital, we can help you do just that.

Register for our online portfolio auction system today to discover more about the important role we can play in helping to ensure that your community bank doesn't fall by the wayside.