Community Bank Outlook - January 2023

Healthy loan growth, higher interest rates and modest increases in deposit costs have resulted in far stronger community bank margins in 2022. However, liquidity pressures have begun to emerge and will cause community banks to record notably higher funding costs in 2023 as institutions increase their reliance on more expensive wholesale funding and CDs. Credit costs will also rise off historically low levels serving as a headwind to earnings but are expected to fall short of losses witnessed during a severe downturn.

S&P Global Market Intelligence.

Key findings include:

• Rising funding costs and growing liquidity pressures at community banks will begin to stand in the way of additional net interest margin expansion in 2023.
• Community bank margins have expanded notably from recent lows as increases in interest rates pushed loan yields materially higher, even as institutions boasted much stronger loan growth in 2022.
• Credit costs remain historically low for community banks, and even publicly traded banks during fourth-quarter earnings season continue to see minimal stress in their borrowing base.  
• Credit trends remain benign, but there are signs of weakness in the market, with an increasingly inverted yield curve, which is often a precursor of a recession.

If you are a client of S&P Capital IQ Pro, you can access the complete U.S. Bank Outlook here.

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S&P Global Market Intelligence. We provide essential insights for our clients through powerful business intelligence solutions that combine comprehensive data, actionable analytics

S&P Global Market Intelligence. We provide essential insights for our clients through powerful business intelligence solutions that combine comprehensive data, actionable analytics