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March 1 — The number of community bank failures continued to decline last year as the industry stabilized, although new bank charters were still rare, according to numbers from the FDIC.
Only seven community banks failed in 2015, fewer than half the number of failures as the year before and only a small fraction of the number of failures at the peak of the financial collapse in 2010.
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Both return on assets and return on equity almost tripled for institutions with less than $1 billion in assets, a trend not seen in larger insured institutions.
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Because of the large-scale collapse of Puerto Rico’s beleaguered Doral Bank, total losses from community bank failures increased in 2015. But Doral, which failed while holding $5.9 billion in total assets and $4.1 billion in total deposits, was an outlier in an otherwise relatively quiet year. The FDIC expected to lose $748 million in a purchase and assumption agreement for the bank, which far surpassed losses by any other bank for the year. Alone, that represented more than 83 percent of the FDIC’s losses for the year.
Without that exception, estimated losses were almost 67 percent less than in 2014 and affected assets and deposits also continued to decline, on average and in total.
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While community banks are stabilizing, start-ups continue to be almost nonexistent . The lack of de novos has mainly been ascribed to rising regulatory costs, but other factors may have been at work.
Chris Cole, executive vice president of the senior regulatory counsel for the Independent Community Bankers of America, told Bloomberg BNA that, combined with the burden of new banking regulations, lower interest rates have taken a toll on interest margins.
“For community banks, it’s not as lucrative as it was pre-recession who still need to compete with commercial banks and growing competition from online lenders,” Cole said.
Besides regulations and low interest rates, Jim Brown, principal of Darling Consulting Group, told Bloomberg BNA that generational changes alongside technical demands and their associated costs have also burdened small, older banks whose plan for the future “devolves into looking for a suitable acquirer.”
Others are simply victims of the decline of small towns, shrinking populations, and fewer small farmers insisted Randy Dennis, president of DD&F Consulting. “But there is still a demand in these communities not being served by the larger banks,” he said. “And banks that have capital and a vision, they have an opportunity.”
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