Editor’s Note: BankBeat Editor at Large Jackie Hilgert compiled a summary of the events that shaped community banking this year for the December BankBeat magazine. This is the first in a five-part series chronicling her work.
Twenty twenty-four was yet another challenging year for community bankers. To date, you have faced 11 months of squeezed margins; carried more burdens from regulators; and ear-marked more tech dollars just to stay even, it seems. Yet here you are, still at it, one month left to go. Resilience is the word people toss about to describe you; it’s probably the right one.
Earnings were a little harder to come by this year than they were last year. Through the first half of this year, ROA was running 0.95 percent on average at community banks across the country, according to the FDIC, compared to 1.05 percent last year. ROE for the first six months of 2024 was 9.60 compared to 11.15 in the first half of 2023. Tighter net interest margin (3.27 on June 30, 2024 compared to 3.44 percent a year earlier) is a factor.
Taking a little wider view, all of the nation’s 4,539 FDIC-insured commercial banks and savings institutions made $135.9 billion in aggregate income in the first half of the year, down from $150.5 billion in the first half of 2023.
“The banking industry continued to show resilience,” said FDIC Chair Martin Gruenberg upon release of the second quarter numbers.
Sayee Srinivasan, chief economist at the American Bankers Association, also used the word “resilient” after examining the numbers.
Resilient, but shrinking. At mid-year, the number of FDIC-insured financial institutions was 4,539, down 2.3 percent from 4,645 at mid-year 2023.
It’s the economy, stupid
At the outset of 2024, economists and bankers expected GDP to slow as covid stimulus dollars evaporated and the highest interest rates in years worked to cool inflation. But recessions — much like elections — are notoriously difficult to predict and are often subject to tedious debate. Mark Heinemann, president and CEO of Albert Lea, Minn.-based Arcadian Bank, called predicting the future of the economy a “fool’s errand.”
GDP growth ended 2023 at 3.4 percent, but slipped during the first quarter to 1.3 percent. Growth improved to 3 percent as of June 30, but fell slightly, to 2.8 percent at the end of September, according to estimates.
Inflation was relatively stable through 2024 — 2.4 percent — which in part prompted the FOMC to begin lowering the Fed Funds target rate in September by 50 basis points, and another 25 basis points on Nov. 7. But while 2.4 percent inflation was within the Fed’s target rate, it built upon three consecutive years of higher rates, something that may have led many Americans to decide to return Donald Trump to the White House in November.
All aboard the FedNow train
Eighteen months after it launched, FedNow has steadily grown its adoption rate through the year, and is expected to serve as many as 1,200 financial institutions by year-end, said UMACHA President and CEO Angi Farren.
More than 900 institutions had gone live with the service by mid-summer. “The growing demand for faster and instant payment services suggests that tools like the FedNow Service will continue to play a crucial role in helping financial institutions meet their customers’ needs,” said Mark Gould, chief payments executive for Federal Reserve Financial Services.
Clearly, the wait-and-see approach taken by many banks in the first six months of FedNow is behind us, although most banks using it are only receiving, saving its sending capability for the future when the specter of security risk diminishes.