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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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If You Are Tired of Being Transactional, You Need A Hedge Program

South State Correspondent

An inverted yield curve, continued bank failures, and the desire to manage risk and offer clients higher service are all factors that are driving more community banks to adopt a loan hedge program. Community banks do this profitably by turning transactional accounts into relationships.

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If You Are Tired of Being Transactional, You Need A Hedge Program

South State Correspondent

An inverted yield curve, continued bank failures, and the desire to manage risk and offer clients higher service are all factors that are driving more community banks to adopt a loan hedge program. Community banks do this profitably by turning transactional accounts into relationships.

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How to Practice Loan Pricing Discipline

South State Correspondent

Community bankers need to practice realistic loan pricing discipline. However, we need to understand the meaning of pricing discipline and its effect on community bank performance. Many banks target profitable commercial clients. Only about 20% of community banks (banks under $10Bn in assets) are using such a model.

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How to Choose a Hedge Provider as a Bank

South State Correspondent

Last week we wrote about loan-level vs. balance sheet hedging for community banks and provided our loan proposal generator ( HERE ). We compared and contrasted the two strategies and sized the market for community banks. A community bank may transact one or only a few balance sheet hedges over many years.

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Fair Value Accounting for Loans

South State Correspondent

Fair value accounting measures assets and liabilities at current market value instead of historical or amortized value. Nonetheless, with the recent collapse of sizeable regional banks, regulators, investors, analysts, accountants, and bankers are now scrutinizing the fair value of banks’ securities and loan portfolios.

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Guest Post: Financial Markets and Economic Update - First Quarter 2024

Jeff For Banks

In the markets, we watched helplessly as real GDP plummeted -5% in 1Q20 and -31% in 2Q20 before rebounding by +33% in 3Q20. I’ve previously theorized that China would try to reclaim its global market share lost during the pandemic by flooding the markets with cheaper goods. This development could give us good news on inflation.

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