Community banks in most US regions generally reported improved year-over-year deposit growth in the fourth quarter of 2023.
A year ago, community banks across the US faced a liquidity crunch when the Federal Reserve tightened monetary policy, and deposit growth either slowed or reversed. By the fourth quarter, there were signs that banks were adapting to the high interest rate environment.
US banks with assets under $10 billion that reported earnings up to Jan. 26 posted a median deposit growth rate of 3.1% in the fourth quarter of 2023, up from 1.8% a year earlier.
Only in the West region did community banks report a year-over-year decline in median deposit growth, with a rate of 0.8% in the fourth quarter compared to 1.2% a year earlier. Covered banks in the Midwest, Northeast, South Central and Southeast regions logged improved median deposit growth rates year over year.
The West was the only region with an unchanged median net charge-off (NCO) rate as a percentage of average loans from a year ago. All the other regions had worse median NCO-to-average loan ratios.
US community banks' overall median NCO as a percentage of average loans rose year over year to 0.04% from 0.02%.
Profitability metrics worsen
US community banks' profitability metrics worsened further across all five US regions in the last quarter of 2023 as industry concerns persisted.
The banks' median return on average assets (ROAA) worsened to 0.85% from 1.24% the year before. The median net interest margin (NIM) narrowed year over year to 3.25% from 3.73%. Median efficiency ratio also deteriorated to 65.31% from 57.29%.
The sector's median year-over-year loan growth rate was roughly halved at 6.7%, down from 13.5% in the fourth quarter of 2022.
According to the Conference of State Bank Supervisors, which monitors community bankers' sentiments, its fourth-quarter 2023 survey indicated that community bankers were less pessimistic than they were in the previous two quarters, but concerns lingered. With narrower NIMs, community bankers' challenge will be to assiduously manage their banks' assets and liabilities to maintain profitability, the industry group said.
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Largest US community banks
Among US community banks that reported earnings up to Jan. 26, Greenwood Village, Colo.-based National Bank Holdings Corp. was the largest US public community bank in the fourth quarter of 2023, with total assets of $9.95 billion.
Chico, Calif.-based TriCo Bancshares followed, with $9.91 billion in total assets, while Englewood Cliffs, NJ-based ConnectOne Bancorp Inc. was third, with total assets of $9.86 billion. Newark, Ohio-based Park National Corp. landed in fourth place, with $9.84 billion in total assets.
National Bank posted net income of $33.1 million, or 87 cents per share, in the fourth quarter of 2023, up from $16.7 million, or 44 cents per share, in the year-ago period. Its loan book grew 6.5% year over year to roughly $7.62 billion from $7.15 billion.
Its ROAA was 1.34%; NIM was 3.99%; efficiency ratio was 56.03%; and NCO to average loans ratio was 0.02%.
During the company's fourth-quarter 2023 earnings call, National Bank CFO Aldis Birkans partly attributed the bank's improved core deposit base and liquidity to completing its acquisition of deposit processing platform Cambr, officially named StoneCastle Digital Solutions LLC, in April 2023.
National Bank saw a significant slowdown in the outflows of noninterest-bearing deposits, Birkans said.
