Thought Leadership

Community Banks Outpaced Big Banks Q4 2014

Many analysts celebrated Main Street and the “little guy” as community banks across the country outperformed the rest of the banking industry at year-end 2014.  According to the FDIC’s Quarterly Banking Profile report for the fourth quarter of 2014, the banking industry saw a robust performance by community banks.  Community banks earned $4.8 billion during the quarter – a 28 percent increase in income from the year before – while the rest of the industry reported a $2.9 billion decrease in income, or 7.3 percent slump down from Q4 of 2013.

Some industry-watchers attribute the strong returns in community banking with the gangbuster activities in the oil and gas industry.  Especially in places like the Bakken fields of North Dakota, where the economic volatility of the “gold rush” environment may require the nimble versatility of local community banks, who may be better suited to keep pace – and capture economic opportunities – with the frenetic environment in their areas.  The same holds true for community banks in the Dallas region, with states like Texas and southeast New Mexico, heavily concentrated in the oil and gas industry.  The Dallas geographical region of community banks outperformed most other regions of the country except for the New York region, which includes most of the East Coast.

However, as oil prices fall to almost half of what they were, what may be a boost to consumers at the pump will likely spell a drop off in the local economies of these oil and gas regions as the industry narrows and slows somewhat throughout this year and next.  This could have an adverse impact on community banks servicing these regions.  Additional factors that could lead to a slowdown in growth of the banking industry in general include the potential interest rate increases by the Federal Reserve looming later this year.

Some suggest that the strong showing by community banks was also driven by the comparative losses between some of the largest banks, including Bank of America, JPMorgan Chase, and Citigroup, due to litigation costs and settlements (JP Morgan Chase alone has dished out tens of billions of dollars in fines and settlements to federal regulators and the U.S. Department of Justice from the fallout of the Great Recession.)  Nonetheless, in light of the core function community banks play in securing the stability and prosperity of local communities, especially in rural areas of the country, the robust numbers of last quarter for the community banking industry is a further indication of the overall health of the Economy, and is something everyone should feel good about.