December 16, 2023 / VOLUME NO. 292

A Changed Outlook

Markets were jubilant midweek, and not because the Federal Reserve left the federal funds rate unchanged Wednesday, which was expected. More importantly, Fed governors and regional presidents signaled rate cuts for 2024. They communicated this intent through what is known as the “dot plot,” where each Fed official uses a “dot” to register their projections for the coming year. 

The much-watched indicator shows a median expectation for a 75-basis point cut in the fed funds rate next year. The estimate isn’t foolproof — Fed officials create a “dot” even if they won't be voting members that year of the Federal Open Market Committee, which sets the fed funds rate and influences short-term interest rates across the economy. Plus, the inflationary environment or jobs market could change.

Investors, nonetheless, saw good times in those dots. That’s lifted bank stocks as the industry nears the end of a horrible year. Bank indices fell as much as 25% but recovered somewhat in October and November. As of Wednesday, various bank asset categories were down 6% to 10.6% year-to-date, according to an analysis by Jeff Davis, a managing director at Mercer Capital, a business valuation and financial advisory firm.

While not great compared to the S&P 500, which was up 25% year-to-date through Wednesday, investors are looking more favorably at banks. “The market has come to terms with the cost of funds issue and unrealized bond losses and the like,” Davis says. “From a market perspective, that’s yesterday’s news.”

Unfortunately, it’s not yesterday’s news for bank management teams and boards. Deposit competition is tough in many markets, and depositors have increased demands for generous pricing. This may continue into next year. Many banks are still dealing with unrealized securities losses, loan payoffs and reduced demand for loans, all in an environment of heightened regulatory expectations. 

As with all things stock-related, investors are looking forward. But banks are solidly in the here and now.

• Naomi Snyder, editor-in-chief of Bank Director

Deposits Are in High Demand, but Are Branches? 

Small banks have more interest in buying branches than larger banks do, says Bank Director’s 2024 Bank M&A Survey. 

"Just 18% of respondents to Bank Director’s 2024 Bank M&A Survey say their organization is likely to buy branches in the next year. By comparison, 35% say they’re likely to buy another bank."

• Laura Alix, director of research for Bank Director

Tips to Improve Board Governance in the Year Ahead

Boards looking to increase their effectiveness in the year ahead can start by focusing on five key areas.

Specialty Finance Can Enhance Small Business Banking

There are three types of specialty finance that banks should consider and three levels of exposure.

The Latest Trends in Equipment Finance and Banking

The pullback of super regional banks gives smaller regional and community banks a unique opportunity in equipment finance.

How to Keep up With Change

Kiah Lau Haslett and guest Bobby Bean, a former regulator and managing director in Forvis’ financial services advisory group, discuss an old tool regulators want banks to use to keep up with new technology.