2018 U.S. Community Banking Report Executive Summary

S_P Global Market Intelligence

S&P Global Market Intelligence has prepared the following community banking outlook:

S&P Global Market Intelligence anticipates that community bank margins and earnings will improve, buoyed by the passage of tax reform and continued increases in interest rates.

We expect that to occur in our base case scenario, which excludes the impact of a new reserve methodology, known as CECL, that banks will adopt in 2020. When including the impact of CECL, we project that while community banks will record slightly higher net interest margins, they will see lower capital ratios. S&P Global Market Intelligence created a base case scenario as well as a separate outlook including the impact of CECL to offer an apples-to-apples comparison between results before and after the adoption of the accounting standard. Projections in this report reflect our base case unless otherwise noted.

Assuming interest rates increase as expected, community bank earnings are projected to jump 19% in 2018. Earnings should dip modestly in 2019 as funding costs rise and impede margin expansion. S&P Global Market Intelligence sees earnings falling again in 2020 as credit quality begins deteriorating. The projections also assume that in 2020, GDP growth will slow and the unemployment rate will move modestly higher. The benefits of higher interest rates should also wane as funding costs catch up with the expansion in earning asset yields. To read the full report, click here.