52 NOVEMBER / DECEMBER 2020 Stock Analysis Review as of Sept. 30, 2020 INDIANA BANK & THRIFT STOCK UPDATE Michael A. Renninger Principal Renninger & Associates LLC mrenninger@ renningerllc.com Renninger & Associates LLC is a Diamond Associate Member of the Indiana Bankers Association. Securities offered through Ausdal Financial Partners Inc. Member FINRA/SIPC. 5187 Utica Ridge Road, Davenport IA 52807 563-326-2064. Renninger & Associates and Ausdal Financial Partners Inc. are separately owned and operated. Indiana Statistics Click on the hand icon in HB Digital to access statistics through Sept. 30, Aug. 31 and July 31, or visit: indiana.bank/bank-thrift-stockupdate. The Size, Pricing and Profitability Reports for Indiana Banks and Thrifts as of Sept. 30, Aug. 31 and July 31, 2020, are available by clicking on the icon on this page in HB Digital or by visiting the designated website location. These reports present the stock price changes for the 30 Indiana banks and thrifts that are traded on the NASDAQ and Over-The-Counter markets over the prior two years, one year and year-to-date, in addition to pricing and performance metrics. Selected banks headquartered outside Indiana, four broad market indices, and five bank and thrift indices are also tracked. We live in interesting and uncertain times. The U.S. and the world continue to struggle with the health, social and economic impacts of the persistent coronavirus pandemic. We are in the midst of a highly divisive political climate involving all three branches of government. There are international trade and military tensions, civil unrest both domestically and abroad, and numerous natural disasters. Nevertheless the tech-rich NASDAQ is up over 24% year-to-date, while the S&P 500 is up only about 4%. Meanwhile the S&P 500 Bank and NASDAQ Bank indices are down YTD over 37% and 48%, respectively. The median stock prices for Indiana’s NASDAQ and OTC/ Pink banks are down over 31% and 12% YTD, respectively. Financial institutions continue to be plagued by contracting net interest margins brought on by low interest rates and asset quality concerns brought on by borrowers’ business interruptions. The heavy loan loss provisions in the first and second quarters of 2020 are not expected to be necessary in the third quarter. There is cautious optimism that progress on COVID vaccines and therapeutic treatments will allow the economy to more fully restart, limiting potential loan losses. In the second quarter of 2020, many banks saw significant increases in deposits, some over 10%, caused largely by extraordinary government stimulus and unemployment payments, and cautious customers stockpiling cash in the face of economic uncertainty. At this writing, third-quarter financial results are not yet available. It will be interesting to see when this “COVID bloat” dissipates, and the impact it may have on capital adequacy in the meantime. While regulators are considering temporary relief, there appears to be increased interest in buttressing capital through the issuance of subordinated debt and preferred stock. Financial institutions are already wrestling with how best to invest the excess liquidity, which is expected to increase when most Paycheck Protection Program loans are inevitably forgiven. Excess liquidity will likely be exacerbated with expected additional government stimulus, however the timing and size of the next package is in doubt. Loan demand appears to be weakening in all areas except mortgages. Mortgage activity is being driven by lower interest rates and presumably homebuyers’ changing needs to accommodate in-home work and school. To offset lower net interest margins, some banks have announced plans to reduce staff and close branches. With bank stock prices at relatively low levels, acquisition activity is expected to involve largely cash transactions. HB
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