2022 US Community Bank Market Report

S&P Global Market Intelligence has just released its 2022 US Community Bank Market Report. As the Federal Reserve works to fight elevated inflation, the central bank is expected to rapidly tighten monetary policy. U.S. community banks will benefit from those efforts as the excess liquidity on their balance sheets will result in deposit costs repricing more slowly than earning-asset yields and lead to notable net interest margin expansion. That expansion will occur as credit quality normalizes and fee income declines, limiting earnings growth over the next few years.

Key Takeaways:

• Earnings at U.S. community banks in aggregate are expected to dip 1% in 2022 as higher credit costs and lower fee income mitigate the benefit of net interest margin expansion.
  
• Fed actions to combat elevated inflation through rate hikes and the shrinkage of its $9 trillion balance sheet will boost community bank net interest margins by 14 basis points in 2022 and another 2 bps in 2023. Even after that expansion, margins would remain 21 bps below pre-pandemic levels.
  

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