2019 and Beyond: Trends in Community Banking

2019 and Beyond: Trends in Community Banking

As we quickly approach the end of the second quarter, now is a great time to evaluate the trends we have seen to date within the community banking industry and where things are headed as we prepare for the last half of the year.

Performance increases reach new highs for community banks in 2018

According the Federal Deposit Insurance Corporation’s fourth quarter community bank performance report, the community banking industry set record-breaking numbers in 2018. Data collected from 4,979 FDIC-insured community banks revealed a 29.4 percent increase in full-year net income from a year prior to $26.1 billion. 2018 was a record setting year with only 3.41 percent of community banks reporting to be unprofitable.

Loan and lease volume rose to $1.6 trillion, a 6.5 percent increase from the previous year, while small business loans increased 3.1 percent in 2018 to $299.3 billion. Banks have also seen an improvement in their asset quality as noncurrent loans and net charge-off rates have declined.

Demand for small business loans continue to rise

Research by the Small Business Credit Survey, a national collaboration of the 12 Federal Reserve Banks, shows that there has been a steady increase in the number of small business loans and lines of credit issued through small banks. A key indicator to the profitability and success of community banks relies on the loans they issue to small businesses. The FDIC reported that 42.1 percent of small loans to businesses in 2018 were held by community banks.

The announcement of the Federal Reserve’s decision to slow the continuous interest rate hikes, proves to be good news for borrowers. The target rate will remain between 2.25 and 2.5 percent with no foreseeable increases in 2019.

Merchants are demanding a more personalized banking experience

When it comes to selecting a bank to trust with their hard-earned dollars, merchants desire an experience that is tailored to their business, not a one-size-fits-all approach. Having the ability to pick and choose various offerings from a community bank instead of a traditional bundled package is becoming more desirable.

A recent Gallup poll shows that roughly 3 out of 10 Americans are confident with banking institutions. Community banks can help shift that confidence by providing a quality, custom experience to all of their merchants.

Millennials are up for grabs when it comes to acquiring new customers

While big banks continue to gain market share due to the numerous mergers and acquisitions that have recently occurred, millennials seek a different type of relationship when it comes to selecting a bank partner. They seek a personal experience that is customized specifically for them and will remain loyal to a bank that is adding value to their experience.

Millennials should not be discounted when considering new customer acquisition. The demographic is composed of 83 million people who will have $1.4 trillion in spending power by the year 2020. As this generation grows and starts even more new businesses of their own, they will seek out bank partners who keep their best interest at heart.

By staying ahead of the curve and keeping up with industry trends, community banks have infinite opportunities to make an immediate impact within their local community and the merchants they serve.