The nationwide loss of community banks through consolidations is being felt in Charlotte once again.
In the latest example, East Morehead Street-headquartered CommunityOne Bancorp announced last month it will be acquired by Florida-based holding company Capital Bank Financial Corp.
The pending deal is expected to expand Capital Bank’s presence in Charlotte, giving it branches in parts of the region where it didn’t have them before.
But it also adds to the list of community bank names that have vanished from Charlotte as a result of acquisitions. It’s a trend that has been going on nationally for decades and that raises concerns about a key component of the U.S. banking industry.
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In 2007, before the Great Recession, you needed two hands to count the number of community banks headquartered in the city of Charlotte. Now, you can count them on just one.
Over that period, the city’s community banks dropped from seven to four. The four are Carolina Premier, NewDominion and Park Sterling, in addition to CommunityOne.
Nationwide, the number of traditional banks fell by more than 800 from 2007 through 2013, according to a report the Federal Reserve Bank of Richmond released earlier this year. Most of that decrease was due to the dwindling number of community banks, the report said.
The CommunityOne purchase comes after Asheville-based HomeTrust Bancshares last year acquired Charlotte’s Bank of Commerce, giving HomeTrust a foothold in the Charlotte market.
It’s worth pointing out that Capital Bank’s CEO and chief financial officer, both former Bank of America executives, live in Charlotte, where they run the 6-year-old bank holding company. Executives have not said whether they might change the headquarters address from Florida to Charlotte.
Why are they shrinking?
The banking industry and regulators cite a variety of reasons, including:
▪ During this era of low interest rates, banks are having a hard time growing their net interest margins, the difference between what a banks pays on deposits and receives for loans.
In addition, loan growth remains challenging while the economy is still recovering.
Those factors are motivating some banks to grow and improve their profitability by other means, such as through mergers and acquisitions.
▪ Banks are facing rising costs from new regulations and the need to spend more to bolster their mobile-banking platforms and cybersecurity. By merging, banks can gain economies of scale to absorb such costs.
Biggest getting bigger
As community banks consolidate, more market share is being concentrated in the hands of the nation’s biggest banks, one recent study finds.
Since 1994, community banks’ share of the U.S. lending market has fallen by approximately half, while the top five largest banks’ share has more than doubled, according to the study this year by Harvard's John F. Kennedy School of Government.
Over roughly the same period, the number of community banks has shrunk from 10,329 to 6,094, while the number of large banks has increased from 73 to 100, the study says.
Why should we care?
The study notes that community banks play a “critical and unique” role in the U.S. economy, serving as large lenders to the agricultural industry, small businesses and residential mortgage borrowers.
Another noteworthy finding: As community banks’ share of small business lending has declined since the financial crisis, non-banks are entering small business lending aggressively.
Those non-banks are not regulated, the report notes.