Majority of US community banks post lower Q1 earnings sequentially

Most US community banks booked lower first-quarter earnings on a sequential basis amid intensified funding pressures and the rising-rate environment.

Of the 59 banks with $5 billion to $10 billion in total assets that announced first-quarter financial results as of May 1, 43 reported lower earnings per share compared to the previous quarter, according to an S&P Global Market Intelligence analysis. Only 13 banks posted higher earnings compared to the previous quarter, and three banks reported flat EPS.

On an annual basis, 28 banks registered lower EPS, 29 logged improved earnings, and two reported unchanged EPS.

Earnings deterioration

Among all the banks qualified for this analysis, 22 announced lower earnings both sequentially and annually, including the largest bank on the list by total assets: Englewood Cliffs, NJ-based ConnectOne Bancorp Inc.

ConnectOne's EPS dropped to 59 cents from 79 cents in the previous quarter and 75 cents in the first quarter of 2022. The company's results were negatively affected by accelerated net interest margin (NIM) compression, Chairman and CEO Frank Sorrentino III said in an earnings release.

"During the latter part of 2022, and through the first quarter of 2023, we had success playing offense, deepening client relationships and building core deposits, with inflows during the quarter exceeding outflows. That said, by intentionally addressing increased deposit rate competition earlier than most, we experienced accelerated net interest margin compression," Sorrentino said.

Seattle-based HomeStreet Inc.'s first-quarter EPS was 27 cents, compared to 45 cents in the previous quarter and $1.01 in the year-ago period. The results were "adversely impacted by the now historically record velocity and magnitude of increases in short-term interest rates," Chairman, President and CEO Mark Mason said in the company's earnings release.

HomeStreet expects its NIM to decline for the rest of 2023.

"To mitigate the impact of a lower net interest margin, we have continued to reduce non-essential expenses while being mindful to preserve and protect our high-quality lending lines of business, preserving our ability to grow earnings once the interest-rate environment stabilizes and loan pricing and volumes normalize," Mason said.

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The only banks in the analysis that booked losses per share in the first quarter were Green Bay, Wis.-based Nicolet Bankshares Inc. and Philadelphia-based Republic First Bancorp Inc.

Nicolet Bankshares logged a loss per share of 61 cents, swinging from EPS of $1.83 a quarter ago and $1.70 a year earlier. The net loss came after the company repositioned its balance sheet and sold securities.

On March 7, Nicolet sold $500 million in US Treasury held-to-maturity securities that were depressing its NIM, for a pretax loss of $38 million, or an after-tax loss of $28 million. With the sale of the securities, the company expects its NIM to increase "for at least the next few quarters," President and CEO Mike Daniels said in an earnings release.

Republic First reported a loss per share of 15 cents, compared with a loss per share of 1 cent in the linked quarter and EPS of 8 cents in the prior-year period. The reported loss included the pretax effect of a $3.1 million write-down of an investment in the preferred securities of failed Signature Bank and $5.5 million in legal, professional and audit fees.

Earnings improvement

Six community banks reported higher earnings both quarterly and annually: Greenwood Village, Colo.-based National Bank Holdings Corp.; Coral Gables, Fla.-based Amerant Bancorp Inc.; Wilmington, Del.-based The Bancorp Inc.; Sioux Falls, SD-based Pathward Financial Inc.; San Rafael, Calif.-based Westamerica Bancorp.; and New York-based Metropolitan Bank Holding Corp.

Metropolitan Bank Holding logged an EPS of $2.25, versus a loss per share of 71 cents in the fourth quarter of 2022 and EPS of $1.69 in the first quarter of 2022.

Following the release of its first-quarter results, Metropolitan Bank's share price shot up as executives reassured investors that the wind-down of the cryptocurrency deposits portfolio would not expose the company to liquidity or interest-rate risks.

Two of the five community banks that logged higher earnings sequentially but lower EPS yearly were Newark, Ohio-based Park National Corp. and Fairfield, NJ-based Kearny Financial Corp.

Meanwhile, among the 21 community banks that reported lower earnings quarter over quarter but higher year over year were Chico, Calif.-based TriCo Bancshares, Indiana, Pa.-based S&T Bancorp Inc. and Los Angeles-based Preferred Bank.

Preferred Bank's EPS was $2.61, down from $2.71 in the linked quarter, primarily due to a $4.2 million loss on the sale of a corporate note issued by Signature Bank, but up from $1.74 in the prior-year quarter.