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Loan Hedging for Community Banks in 2024

South State Correspondent

Community banks’ use of swaps (banks’ primary tool to hedge interest rate risk on loans) has increased substantially over the last ten years. The market expects the current inverted yield curve to remain through much of 2024 (based on long-term interest rates and the expected rate cuts in 2024).

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1Q 2024 Commercial Relationship Credit and Pricing Trends

South State Correspondent

Since our last update on pricing and credit HERE , commercial loan pricing trends for the first quarter of 2024 continue to be driven by the perceived increase in credit risk, tighter credit supply and banks’ need for wider margins. percentage points bringing forward looking LGD to 44% of the average community bank loan amount.

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How QT will Impact Cost of Funding in 2024

South State Correspondent

Bankers must understand the relationship between money supply and their bank’s COF. Even if the Fed does not increase the Fed Funds rate or even decreases the rate in the future, continued QT is expected to put pressure on the cost of funding in 2024. The graph below shows COF for the same three groups of banks.

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Derivatives Usage By Community Banks

South State Correspondent

Of the largest 250 banks, 90% are using interest rate swaps, and because these largest 250 banks hold 83% of all loans, interest rate hedging tools are widely used in approximately 75% of the loan marketplace. The market expects deposit betas to increase through 2023 and 2024.

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Predicting Community Bank Cost of Funds

South State Correspondent

Community bank cost of funds is jumping up. As shown in the graph below, the net interest margin (NIM) for community banks declined 22bps in Q1’23. The question is – what will happen to community bank’s cost of funds from here?

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Why community bank stocks could rally in 2024

American Banker

A resilient economy and the potential for interest rate cuts could infuse further bullish sentiment into markets and bolster the shares of small lenders.

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CDFI Fund received $1.55B in funding requests in 2024

ABA Community Banking

billion in awards from the CDFI Fund in fiscal year 2024, which is more than three times the amount of available. The post CDFI Fund received $1.55B in funding requests in 2024 appeared first on ABA Banking Journal. A total of 948 organizations from across the U.S. requested a combined level of approximately $1.55