CSBS survey reveals growing NIM, cybersecurity concerns

Community bankers are growing increasingly concerned over dwindling net interest margins and cybersecurity risks, according to the 2021 Conference of State Bank Supervisors National Survey of Community Banks

Sixty-five percent of bankers named NIM as a “very important” external challenge, the highest of any category. The trend reflects a drop in margins for the banking industry to 2.65 percent in 1Q 2021, according to CSBS. The Paycheck Protection Program added approximately $145 billion in loans to bank balance sheets at the end of 2020, although that number declined to $111 billion at the beginning of June.

 Views of business conditions flipped from last year: 34 percent of surveyed bankers said in 2020 that business conditions were the single biggest challenge, quadruple the number who cited loan demand as their biggest concern. This year, only 28 percent described business conditions as a “very important” challenge, while 52 percent cited loan demand. More than 40 percent of bankers said the changes during the pandemic will permanently increase their efficiency. More than 70 percent of bankers said long-term lending prospects had improved by new or closer relationships with customers.

 Eighty-one percent said cybersecurity concerns are on the rise, more than doubling the rate of other types of operational risk, higher than the 60 percent reported last year and the issue community bankers said posed the most important internal risk. Community bankers said they were “under siege from a proliferation of diverse, competitive threats,” including fintechs, the Farm Credit Administration and Rocket Mortgage, which all vie for consumer, ag and mortgage loans. Surveyed bankers said it is difficult to compete with banks that offer below 3.5 percent interest for 10-year terms. Competition remains dominated between community banks, the report stated, with one banker expecting the industry to “cannibalize itself.” 

Other key report findings included:

  • Nearly 47 percent called the cost of technology a “very important” challenge, ranking it among the most important issues bankers face. As recently as 2019, technology costs ranked among the least important issues for bankers. More than 34 percent said the adoption of new technology is “very important,” compared to 23 percent last year and 8 percent the previous year.
  • Twenty-two percent said the cost of funds increasing is a “very important” risk. 
  • Half view regulation risk as a “very important” challenge.
  • Approximately 45 percent considered credit risk to be “very important,” considerably lower than the 57 percent recorded in last year’s report. 
  • More than 37 percent said worker retention was a “very important” issue. Management succession was named as “especially important” by 21 percent of respondents. 
  • Less than 7 percent said they had received an acquisition offer this year, and 12 percent reported having made a bid. Last year, the percentages were 14 and 25 percent, respectively. Nearly 20 percent said that their interest in making an acquisition or in being acquired was reduced or greatly reduced by the pandemic last year. Those disincentives lessened this year.  

Of the surveyed banks, 70 percent had assets between $100 million and $1 billion, which reflects the makeup of banks observed in previous surveys. Nearly half of respondent banks operated between one and five branches. The survey was developed by CSBS staff meeting with key industry, academic and regulatory stakeholders. The survey, featuring 470 respondents, was distributed by state banking regulatory authorities from April to July.