U.S. community bank earnings for 2024 are expected to be 12% lower compared to one year ago, according to a new report from S&P Global Market Intelligence.
The newly published “2024 U.S. Community Bank Market Report” found elevated interest rates are pressuring the net interest margins within the community banks. Potential rate cuts by the Federal Reserve later this year could provide mild in community banks’ funding costs, but the report warned that more substantial rate cuts are required to drive deposits costs lower.
The report warned that community bank credit quality will decline this year and weaken further over the next two years, a drop that is being blamed on higher delinquencies and losses in commercial real estate portfolios. But the report also predicted this will have a greater impact on earnings rather than threaten the safety and soundness for most institutions.
Furthermore, the report opined that community bank earnings will improve in 2025 as net interest margins rebound and rise again in 2026 as provisions for loan losses decline.
“Even as the market waits for the Federal Reserve to pivot to lower rates, most banks remain in a battle for deposits as rates remain higher for longer and regulators encourage banks to maintain liquidity,” said Nathan Stovall, director of financial institutions research at S&P Global Market Intelligence. “That continued focus on deposits will lead to additional margin pressure for community banks in 2024. When deposit pricing pressures eventually ease, community banks will face a new headwind in the form of higher credit costs, serving as a modest headwind to earnings.”
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