We asked our friend Brett Rabatin, Director of Research at Hovde Group, for his insights on the Community Banking industry over this entire past year, as Brett leads a team responsible for coverage of the U.S. regional and community bank sector. Here are Brett's comments:
"In one of the more interesting years for community banks, 2022 has been nothing less than tumultuous with nearly unprecedented increases in interest rates. The year began with the industry striving to replace PPP and mortgage banking income with NII/loan growth and NIM expansion, while at the same time being cognizant of a potential recession and credit risk. Fintech and crypto fell out of favor as the technology sector cratered, despite investors and banks continuing to realize gaining customers, market share, and efficiencies through innovation will still occur. Banks fell out of favor late in the year particularly as investors began to discount forward estimates, with lower confidence on earning power due to credit concerns, a slowing economy, and a wider range of potential outcomes generally due to Fed action. The challenge for community banks moved quickly from competition for talent and growth to concern about underwater securities portfolios, balance sheet liquidity and how to retain deposits at reasonable costs. While some NIM pressure is undoubtedly around the corner for the industry, community banks are nonetheless positioned well historically for the future and any eventual credit weakness with solid levels of profitability, and should be even stronger as the higher level of interest rates increases the value of low-cost stable funding (DDA) over time."
Thank you to Brett for this valuable summary! We're excited for what 2023 will hold... but we know, without a doubt, that it'll continue to have a strong focus on fintech and how banks can best be leveraging it for their own operations and competitive strategy.
If you'd like to get in touch with Brett to learn more, you can find him at <BRabatin@hovdegroup.com>.