Between low-interest rates, the concerning rise in COVID-19 cases, and tough competition for quality commercial loans, community banking is a tough business. While there has been a nominal deterioration in credit quality thus far, a deterioration in the business environment related to the pandemic and lack of fiscal stimulus may change that. Net interest margins at community banks are declining, and the trend is likely to continue through 2021.
Tag: Balance Sheet Management
During the last ten years of economic expansion, prudent bankers were planning for the next downturn. Everyone knew that the economic expansion would end, but no one could be sure when or how. Smart bankers managed their business by accepting that all expansions do eventually reverse. None of us can predict the future, but enterprising bankers were conducting business to craft better results for their banks by understanding that an economic pivot would come.
Go to any bank conference, bank investor gathering or analyst meeting and the hot topic is the slowdown in deposit growth. As the economy keeps rolling and the Federal Reserve continues to raise rates, the topic of a bank’s increasing cost of funds, slowdown in deposit growth and the jump in liability interest rate sensitivity are on everyone’s minds.
For any bank not convinced that we face a period of inflation and rising rates, last week was an eye-opener. The 10-year Treasury jumped 21 basis points and the probability higher rates increased. Since rates began to rise in December of 2015, we have now seen a 1.50% increase in rates with four more increases currently built into the market. Outside of the market, the Fed’s Open Market Committee (FOMC) expects another three to four increases in 2019.