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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.

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Steve Cocheo

Steve Cocheo’s 39+ years in financial journalism have taken him to all 50 states and nearly every corner of financial services in companies from fintech startups to community banks to regional and national giants. He is executive editor of Banking Exchange and digital content manager of Previously he spent 36 years on the staff of ABA Banking Journal and 22 years concurrently as editor of ABA Bank Directors Briefing. 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. In 2017 he received three awards from ASBPE: National Gold, National Bronze, and Regional Silver. Connect with Steve Cocheo and Banking Exchange on LinkedIn. Follow Banking Exchange on Twitter

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