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4 reasons more capital may make sense

The good news: Community banks hold $324 billion in equity capital. The bad news: They need $90 billion more.

That’s the best estimate of investment banker and community bank investor Joshua Siegel, who said at ABA’s National Conference for Community Bankers that the $90 billion is broken out this way:

Chargeoffs. $28 billion, due to additional loan chargeoffs. While Siegel believes the community banking sector is making a turnaround, some banks still have to clean up, and it will come at a price.

Acquisitions. $43 billion, for healthy banks to acquire CAMELS 3,4, and 5 banks that don’t have an independent future.

ALLL buildup. $12 billion, for permanent increases to loan loss reserves. While some banks have trimmed their allowances, many community banks still have to bulk up theirs.

Organic asset growth. $7 billion, for new lending. “There are some community banks that are still growing,” said Siegel.

Managing principal at Stone-Castle Partners LLC, Siegel is a believer in community banking’s future. His firm manages $3.5 billion-plus in client assets invested in community banks, and has made $2 billion-plus in direct bank capital investments.

The firm stopped making new community bank investments in 2007, as analysts detected lending philosophy changes. As community banking’s condition improves, it may be active again.

Steve Cocheo

Steve Cocheo’s career in business journalism has taken him to all 50 states and nearly every corner of banking in institutions of all sizes. He is executive editor of ABA Banking Journal, digital content manager of ababj.com, and editor of ABA Bank Directors Briefing. He coordinates the popular Pass the Aspirin and First Person features and wrote the booklet series Focus On The Bank Director. He is the only journalist to have sat in on three federal banking exams, was a finalist for the Jesse H. Neal national business journalism awards, and a winner of multiple awards from the American Society of Business Publication Editors.

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