Main street banking model is being squeezed
Higher-for-longer interest rates are continuing to weigh on Main Street banks. Regional banks posted steep profit declines in the first quarter and predicted more pain ahead. The results underscore the uneven toll that two years of higher interest rates have taken on regional banks, which tend to have plain-vanilla businesses taking in deposits and making loans.
That model has become less profitable because of the pressure to pay up on deposits. Profit fell by more than a fifth from a year earlier at U.S. Bancorp, Truist Financial and M&T Bank and by around a third or more at Citizens Financial Group, KeyCorp and Huntington Bancshares.
At Comerica, profit declined by more than half. At the biggest banks this quarter, rate pressure began to emerge, but profits were down much less overall. One bright spot for some regional banks: a rebound in fee businesses such as wealth management, treasury management and investment banking.
Noninterest income rose 8% at U.S. Bancorp, 7% at Citizens and 6% at Key. Even select smaller banks enjoyed a boost.
At the holding company for First National Bank of Pennsylvania, F.N.B., noninterest income rose 11%. “The more diversified the revenue this quarter, the better the results," said RBC analyst Gerard Cassidy. Significant fee businesses are few and far between across the nation’s more than 4,500 regional and community banks.
And compared with the giant fee businesses of megabanks such as JPMorgan Chase, those that exist are tiny. The Federal Reserve recently signaled that stubborn inflation may force it to keep rates at their current high levels for longer than expected, a particular problem for banks without much diversity and scale. In the first quarter, most of the larger regional
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