This article summarizes the findings of a recent study that discusses the factors that most influence community bank net interest income and the extent to which these factors are contributing to the current low levels of net interest income [1]. Additionally, the article examines whether net interest income (since the crisis and recession began) is abnormal relative to historical experience. The results of the study suggest the lack of recovery in community bank net interest income seven years after the start of the financial crisis and recession is not unusual given economic and banking conditions.
by Charles S. Morris, Vice President and Economist, Federal Reserve Bank of Kansas City and Kristen Regehr, Assistant Economist, Federal Reserve Bank of Kansas City Reprinted with permission of Community Banking Connections®. Copyright 2015 Federal Reserve System. Legal Disclaimer: The analyses and conclusions set forth in this publication are those of the authors and do not necessarily indicate concurrence by the Board of Governors, the Federal Reserve Banks, or the members of their staffs. Although we strive to make the information in this publication as accurate as possible, it is made available for educational and informational purposes only. Accordingly, for purposes of determining compliance with any legal requirement, the statements and views expressed in this publication do not constitute an interpretation of any law, rule, or regulation by the Board or by the officials or employees of the Federal Reserve System. Community bank profitability declined sharply during the 2007–09 financial crisis and recession. Profitability has improved since the crisis, primarily due to declines in loan-loss provisions. Net interest income — the largest source of revenue for community banks — has remained flat, however, and is below pre-crisis levels. According to many observers, including community bankers, the low interest rate environment has made it difficult for financial institutions to earn an adequate spread on loans since the recession ended. In addition, bankers say weak lending opportunities and loan demand have contributed to reduced interest income.
This article summarizes the findings of a recent study that discusses the factors that most influence community bank net interest income and the extent to which these factors are contributing to the current low levels of net interest income [1]. Additionally, the article examines whether net interest income (since the crisis and recession began) is abnormal relative to historical experience. The results of the study suggest the lack of recovery in community bank net interest income seven years after the start of the financial crisis and recession is not unusual given economic and banking conditions. Two CBI Member banks have made Bank Director magazine's list of the 300 top performing public banks with assets of $1 billion to $5 billion. Hills Bancorp. in HIlls ranked #17, and West Bancorporation Inc. in West Des Moines, #19. The scorecard used five key metrics that measure profitability, capitalization and asset quality.
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