Regional Banks Continue to Struggle

The bank crisis is over, but regional and community banks continue to struggle with poor profits and the tolls of higher rates. In the fourth quarter of 2023, profits at regional banks dropped sharply, and those losses were not exclusive to the smaller banks. Net income was down from a year earlier at KeyCorp (about 90%), Citizens Financial Group (about 70%), and PNC Financial Group (more than 40%). Midsize banks like Comerica also struggled, down around 90%.1

If the Federal Reserve cuts rates, banks could feel some relief, but continued uncertainty is obscuring the outlook of when and how that will happen. In addition, even if the Fed cuts rates, it will take time for regional banks to benefit. These banks forecast that net interest income, the difference between what a bank earns on loans versus what they pay out on deposits, would decline for a full year.1

Everyone wants interest on their deposits, from banks of all sizes, but it is harder for regional and community banks to absorb those costs. Larger banks can more easily navigate these times with their scale and diversity. Customers know this, and demonstrated it with the crisis of confidence in early 2023 when they became wary of all but the largest banks, causing depositors to pull their money, and resulting in failures of multiple regional lenders. 1

Meanwhile, in 2023, the four largest commercial banks, JPMorgan, Bank of America, Wells Fargo and Citigroup, collectively earned more than $100 billion, an 11% increase from a year earlier. 1

Regional banks are feeling the pinch and the need for scale. PNC Financial Chief Executive Bill Demchak said especially corporate customers “don’t necessarily trust the regulatory environment to ensure that their deposits at a [smaller] bank are safe” and believe giant banks have more support in times of crisis. 1

But for now, regional banks face steep technology costs as well as potentially tougher regulations, are having to set aside hundreds of millions of dollars for special Federal Insurance Corp. fees, plus take severance charges to cut staff and stash more money for potential loan losses. 1

We Monitor Risk in Banks

In the midst of this uncertainty of what’s to come and the barriers regional and community banks continue to face, IDC Financial Publishing’s ranks continue to be important for bank customers and investors. IDCFP’s 2023Q4 bank ranks will be released mid-February. Visit our website to learn more about IDC’s financial institution rankings and subscribe for access.

1 - Regional Banks Had Another Ugly Quarter Wall Street Journal, 01/24/2024

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John E Rickmeier, CFA

Robin Rickmeier
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