Sustained margin expansion in sight for US community banks

US community bank earnings are set to rise in 2025 and 2026 as higher net interest margins will trump increases in credit costs. Modest decreases in interest rates will allow community banks to decrease their deposit costs. The funding relief will come as fixed-rate assets purchased or originated when rates were low move off institutions' books and are replaced with higher-yielding assets, resulting in margin expansion. Credit costs should also rise but are not expected to rise to levels that would limit earnings growth over the next few years. Community banks will operate in a more favorable fundamental environment, which, coupled with increased investor interest in the sector, should create greater optionality to raise capital or pursue acquisitions.

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Sustained margin expansion in sight for US community banks

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