US community bank NIMs improve in some regions; loan growth still weak in Q3

Median net interest margins at US community banks improved year over year in three regions during the third quarter.

For US banks with total assets of less than $10 billion, the Midwest, South Central and Southeast regions reported improved median net interest margin (NIM) in the quarter, according to an S&P Global Market Intelligence analysis. The Northeast region posted the lowest median NIM at 2.86%, while the median NIM of the West region worsened, though it did come in at 3.73%.

About 64% of the total community banks in the South Central region included in the analysis reported improved NIMs year over year during the third quarter.

Loan growth weakens

Year-over-year loan growth for community banks across all US regions slowed, with the Northeast showing the lowest median growth at 2.9%. The South Central, Southeast and Northeast regions showed improved median returns on average assets compared to the same period in 2023, while other regions experienced declines.

The median efficiency ratios for covered community banks worsened in three regions, with the South Central region having the highest median efficiency ratio at 65.99%. The median efficiency ratios improved in the Northeast and Southeast regions.

Community banks in the Northeast, Southeast and West reported better median year-over-year deposit growth in the third quarter, while those in other regions experienced slower growth. Only South Central community banks showed an improved median net charge-off ratio as a percentage of average loans, while the West remained unchanged and other regions reported worse ratios.

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Largest US community banks

Among the public community banks that had reported third-quarter earnings as of Oct. 25, Greenwood Village, Colorado-based National Bank Holdings Corp. remained the largest community bank by assets, followed closely by Ruston, Louisiana-based Origin Bancorp Inc.

"The quarter's strong financial performance was highlighted by an increase in our fully taxable equivalent net interest income of 20% annualized, driven by average earning asset growth and net interest margin expansion," National Bank Holdings CFO Nicole Van Denabeele said during an earnings call.

Origin Bancorp experienced the largest increase in the net charge-off ratio among the 20 largest community banks, with a rise of 34 basis points year over year.

"While we did experience an increase in net charge-offs for the quarter, year-to-date net charge-offs continue to be in line with expectations," Chief Risk Officer Jimmy Crotwell said in an earnings call.

Chico, California-based TriCo Bancshares' net charge-off ratio improved 28 basis points year over year in the third quarter, marking the biggest improvement among the 20-largest community banks analyzed.

Topeka, Kansas-based Capitol Federal Financial Inc. reported the highest year-over-year decrease in total assets in the 20 largest community banks at about 6% but had the most improved return on average assets and NIM in the analysis for the third quarter.

Also during the third quarter, Defiance, Ohio-based Premier Financial Corp., and Wheeling, West Virginia-based WesBanco Inc. agreed to merge in an all-stock deal worth approximately $959 million. Tupelo, Mississippi-based Renasant Corp., the parent company of Renasant Bank, agreed to acquire Hattiesburg, Mississippi-based First Bancshares Inc., the parent company of First Bank, in an all-stock transaction valued at about $1.2 billion.