Community bankers navigated the
The scars of those battles linger: In the wake of the collapses last spring — spurred in part by the flight of nervous depositors — bankers had to pay up to retain or attract new customers and
By extension, net interest margins contracted as higher funding costs more than offset lending profitability. The median NIM among community banks declined 4 basis points in the third quarter to 3.37%.
But those
Against that backdrop, analysts say bankers will inevitably face a battery of questions during the fourth-quarter earnings season in January about their outlooks for the economy and the potential impact on
Daniel Goerlich, U.S. banking and capital markets deals leader at PwC, said high costs across the economy continue to stress consumers and businesses. This, in turn, pushes worries about the potential for loan losses to the front of investors' minds.
"There's still plenty of uncertainty out there," Goerlich said.
While coming off historically low levels, credit costs are already on the rise.
Net loan charge-offs as a percentage of average loans and leases totaled 0.51% in the third quarter, up 25 basis points from a year earlier, according to S&P Global. Charge-off ratios worsened in the credit card, commercial and industrial, construction and auto lending portfolios.
Total net charge-offs reached $15.65 billion last quarter, up 103% from the third quarter of 2022, the S&P Global data showed.
The firm said early-stage delinquencies, or loans and leases past due between 30 days and 89 days, totaled $59.33 billion in the third quarter, 15% higher than a year earlier. Loans and leases past due 90 days or more were up 32%.
"I don't think the odds of a deep recession are significant, but we could still definitely see a slowdown of some kind, and a slower economy does create reason to worry about credit losses," said Jacob Thompson, managing director at Samco Capital Markets. "We've obviously already seen some issues emerge. There is some weakness."
With credit quality a potential issue, banks have pulled back on lending, adding another challenge for earnings, Thompson added.
Total loans at U.S. banks with less than $10 billion of assets
Scott Siefers, a Piper Sandler analyst, said lending in the fourth quarter "remains pretty weak," with sluggishness across business lines. "The trends are all fairly rough all around," he added.
Deposit levels are holding steady in the current quarter, though Piper Sandler expects banks to report higher funding costs again, continuing a yearlong trend. This, combined with lackluster loan growth, is likely to further compress margins, though less so than in prior quarters.
Piper Sandler estimated that banks in its coverage universe, consisting largely of community lenders, would on average report fourth-quarter core earnings per share 7.6% lower than the prior quarter. For the full year, the firm modeled EPS to come in 9% lower than 2022.
