The Upcoming FOMC Meeting, Outlook on Interest Rates, & What it Means for Bank Investment Portfolios with Geetika Bansal, Chad McKeithen, and Tom Fitzgerald
This week we bring it back to the Fed, economy, and what it means for community banks’ investment portfolios. We’re joined by Tom Fitzgerald, Chad McKeithen, and Geetika Bansal.
To learn more how SouthState can help your bank win more loans, effectively manage investments, and operate at maximum efficiency, visit www.southstatecorrespondent.com
The views, information, or opinions expressed during this show are solely those of the participants involved and do not necessarily represent those of SouthState Bank and its employees.
Intro: Helping community bankers grow themselves, their team, and their profits. This is The Community Bank Podcast.
Erik Bagwell: Welcome to The Community Bank Podcast, I’m Erik Bagwell, director of sales and marketing for the correspondent division of South State Bank. Joining me, Caleb Stevens, Caleb’s the biz Spelman officer in our division, and also works on the podcast. Caleb, how are you today?
Caleb Stevens: Hey, Erik, I’m good and really excited about this show, we’re kind of taking it back to the bond portfolio. We really haven’t had a technical show in a while, we’ve done a lot of culture and leadership, and that all is good, but this is a great discussion on the recent Fed comments, bond portfolio strategies, and what our bankers need to be thinking about as we wrap up the year.
Erik Bagwell: And we have the group to actually talk about that, we have assembled three folks for this podcast, Tom Fitzgerald, who’s on a decent amount of the podcast. Tommy’s our lead strategist here in the correspondent division, Chad McKeithen, and Geetika Bansal, are in the strategies group with Duncan-Williams. And if you remember on a show, gosh, it’s probably been seven or eight months ago, we had them on, we actually are partners, now. We merged with Duncan-Williams, so we have a pretty good strategies group, now they’re a broker-dealer out of Memphis, Tennessee, and they do a great job selling bonds all over the country.
And we’re excited to have Tom and Chad and Geetika on today with some really good insights. But before we go to that, I know Caleb, you want to talk about our loan hedging product, ARC, and you’re out there selling it every day, talk about that just for a second.
Caleb Stevens: Well, as bankers think about growing loans and fee income as part of their strategic plan in 2022, a big question that I see a lot of bankers asking is what are we going to do when a customer asks for a long-term fixed-rate loan? Do we try to put that on our balance sheet and take that risk? Do we sign up for a back-to-back swap program and have to force the customer to sign an ISTA document; we have to do hedge accounting and Dodd-Frank reporting and all that fun stuff.
That problem is why we created a program called ARC and it allows you to offer up to a 20-year fixed-rate loan to your borrower while at the same time booking a floating rate loan on your balance sheet without any hedge accounting, no Dodd-Frank reporting, no collateral. All you have on your books is a floating rate loan. We help about 300 banks all over the country, offer a customer, a structure and a rate they can’t refuse while the bank gets to have that floating rate loan and mitigate that interest rate risk. But don’t take my word for it, here’s a quick soundbite from Rich Solomon, who’s the chief lending officer with American State Bank in Tyler, Texas.
Rich Solomon: So, when we reached out to you guys, we were looking for a competitive advantage against the banks that we’re dealing with, not only in our marketplace but also in the Northeast Texas area. And so, this ARC program allows us to obtain customers we would never have been able to do, it allows us to mitigate the risk of interest rate changes up or down. And so, that has been really huge and really it also provides for some of our customers now that we’re working with the ARC program, they have a level of sophistication and understanding of a swap hedge that we would have never been able to talk to them about because we couldn’t offer that.
We have some national customers now that we would have never been able to talk to because we were not on their sophisticated level, we could not offer them a swap or a hedge and furthermore, we could not have offered them the creative financing that the ARC program allows us to do for those folks.
Caleb Stevens: Well, thanks Rich for that sound bite, we really appreciate it and if you’re in his boat and you’re trying to figure out how to offer your customers a long-term fixed-rate loan without the interest rate risk, go to southstatecorrespondent.com/arc, that’s southstatecorrespondent.com/arc and we would love to show you more. Well, Erik, let’s go ahead and hop into our discussion today with Chad, Tom, and Geetika.
Erik Bagwell: Absolutely, and listen, we get comments from folks that you’re listening, enjoying the shows. We love to get those and thank you for listening to us each week.
Tom Fitzgerald: Well, Chad and Geetika, it’s great to have you on the program, some of these investment discussions tend to be some of our most listened to, and I’m sure this one will be as well because I think Chad, we did one about two months ago in September. So, it seems like it’s just kind of light speed as to the way things are changing in the markets. As we record this, Chair Powell was in front of the Senate banking committee and basically talked about just speeding up the tapering schedule.
And that’s one of the reasons why we brought Geetika in, and Chad, I know she sort of has a lot of expertise in the mortgage market and the area that’s going to be impacted I think a lot if we start to see an accelerated tapering schedule which we just might but if you can just speak a bit to some of what Geetika’s expertise is and talk about that just for a few minutes.
Chad Mckeithen: Yeah, no, that’s good. And yeah, it’s kind of this week that the Fed comes out and basically says, it’s going to drop the word transitory from its language. So, things are morphing a little quicker than maybe some have even expected, you go back to their last tapering periods in the unwind of QE it really was focused on the treasury market back in 14, 15, and 16, this time around the big tool they used was, of course, the mortgage market. And Geetika Bansal who heads up all of our mortgage strategies has probably been our hardest worker over the last couple of months, as far as that’s concerned being asked to speak, et cetera.
So, I thought it was a good opportunity to get her in here and kind of talk about the mortgage market a little bit; maybe some of the expectations given that we’ll start to pull back on some of the mortgage back buying. Along with the treasury buying, but the nominal yield treasury side’s a little, the market gives you a good expectation of what it’s pricing in and where futures are expected to go on that side of the market, the mortgage markets you have spreads and nominal yields to deal with, and she’s the expert.
So, I can get on this podcast and of course, copy some of her comments and try to give my thoughts but we’ll get out of the way and let the expert kind of come in and give a little thought.
Tom Fitzgerald: Right. And I think two, not only with the expectation of possibly a faster tapering, that ends somewhere in the late spring, probably of next year. The yield curve, obviously, the front end has moved up in anticipation that the Fed might be hiking rates after we get done with tapering a little bit quicker than what the expectation was. And that again, kind of plays into why we wanted to get Geetika on the show to kind of talk about some of the products, some of the things that she sees that maybe can kind of help in that area where we’re getting more yield on the front end of the curve.
Are there products; are there issues that can help in that regard? So, I guess first Geetika, I want to kind of talk about, what are your thoughts in general with the tapering? First, let me ask you, do you think we will see a faster tapering and secondly, kind of give us your views on what you think that may do to the products that you trade as far as spreads and other types of relationships there?
Geetika Bansal: Okay, Tom, yes. I wanted to say first, thanks to Chad and to you for such a warm introduction and regarding my thoughts on whether we think that there’s going to be a more accelerated pace of tapering before Chairman Powell came out and made his comments, I think that the market was expecting it no earlier than the second half of 2022. And definitely, we have seen a big shift in that now that it’s been priced even earlier than that, maybe as early as the first quarter of it and they’re looking to that December 15th meeting for more guidance, if he is going to elaborate or at least solidify that.
That being said, Chad and I were talking earlier this morning, this rate hike or the possibility of higher rates now has been so much priced into the market, it almost a little bit begs the question of how much higher can the long end of the curve go. As we’ve already seen over the last few days, it’s really the front end of the curve that has gone up significantly and that has absorbed the sort of bearish move, whereas the long end has sort of stayed anchored. And I think with the Fed’s heavy involvement, with the Fed being such a big buyer in the mortgage market over the last two years it wouldn’t be exaggerated for me to say, to be the buyer, it behooves Chairman Powell to not disrupt this, even though they may taper faster than anticipated.
And they’ve definitely revised their stance towards tapering and dropped the word transitory regarding inflation; it is still in their best interest to leave the mortgage market as stable as possible. They are going to be interested in leaving that long end anchored or stable and that’s a little bit also got to do with this new variant that we’re seeing with Omnichron. I think a lot of the perception for the Fed even though some people say that they have largely ignored Delta, is that the inflation is arising more from a supply chain issue, which is causing that price dislocation and not so much from an unemployment situation in our country or a demand situation over here domestically.
And as long as that view holds, again, they’re going to be interested in leaving that long end very stable. So, what does that mean? What does that mean for investors in the mortgage market that over the last two years have been adding a lot of these lower coupon, lower premium MBS to the portfolio because of, A, the huge refi wave that took over or the last 24 months? And because of the tremendous shift that we have seen in mortgage rates, I think that a lot of people are understandably a little concerned about extension risk or cash flow risk.
They are concerned about what they would consider some spread widening if the Fed were to go away as the biggest buyer, and they’re concerned about price volatility in their portfolio. So, how do you address some of those concerns and keep it as brief but also as informative as possible, I would think? Normally you would think that if the Fed were to go away with them being the biggest buyer, that you would see some spread widening. But despite what they have already said, spreads have kind of held in, they haven’t really blown out or gapped wider and I don’t think the expectation is going to be for that.
You might see some nominal ones, but I don’t think it’s going to be anything to the point where we need to be seriously concerned and I think part of what’s driving that is that there is a tremendous amount of liquidity still in the market and the Fed knows that. Even if they were to go away, there is a significant amount of issuance in 30-year lower coupon TBAs out there that can be absorbed still by the market. And so, generally, you see that with rates going up and unemployment robust, you tend to see unemployment going down, you tend to see some spread widening, but that is not the expectation this time.
Also, with the Fed so committed to keeping the long end stable and if you assume that mortgage rates are tied to that long end, they’re tied to that 10-year rate, I think cash flow extension is not going to be as material or as significant, and it’s not going to spike up all of a sudden, you’re not going to wake up overnight and see extension risk just blow out and the investment portfolio. And that’s because the expectation is that mortgage rates are probably going to be lower for longer.
And so, I can understand how as an investment portfolio manager, you might have some concerns about price risk creeping in which is understandable, and which is always there when interest rates start to go up. And we are already seeing some portfolios come in from our clients wanting to isolate pockets of price risk, or investments that might be problematic down the road if the taper starts to take effect or the next six to 12 months. And we are isolating those opportunities for them or the bonds that they have bought over the last two to three years, which might cause problems, but there is still enough room to get ahead of it and to have more of a measured approach.
Whereas having to wake up one morning and be concerned that spreads have widened out significantly, and your cash flow duration has gone from four years to seven years overnight. I think that kind of drastic shift is not anticipated and that’s really going to come from the Fed wanting to keep that mortgage market anchored. So, for me to say that this is what I and my team are looking at in the mortgage market in terms of color, that we are trying to get ahead of it and help our clients navigate this change over the next few months and isolate areas and opportunities where they may have for increased price risk.
But I think they can breathe a little bit easier after Chairman Powell’s comments if they have been concerned about significant extension risk and significant price widening. And the last thing I would like to conclude is we always say this internally here, you want to work with what the curve is giving you. And if you’re trying to find value in the mortgage market and you are sitting on a significant amount of liquidity the three-year part of the curve really is where you’re seeing a lot of promise right now, the three-year part of the curve has gone up significantly.
And there are a lot of short, attractive CMOs and on the pass-through space are like a lot in the 15-year collateral space that can provide opportunities for our clients that are trying to stay short on the cash flow, work with the shape of the curve and not have to go out with the flattening that we’ve seen, but still also add yield because that’s really where the curve has shown the greatest movement. But if you’re portfolio has shortened significantly over the last two years, and you want to add some duration, but you want to control for extension, spreads and the CMBS market are looking very attractive right now, or at the very least they have started to widen and improve from where they were just a few months ago.
So, we also have some clients that like to partner that product with short CMOs or short cash flow pass-throughs in order to achieve sort of what I would call the best of both worlds.
Tom Fitzgerald: And I would ask you too, Geetika, looking at the whole banking industry is sort of awash in liquidity right now, and it’s been that way for a while, and it’s probably going to continue to be that way, but there’s always that fear with clients that, well, if I invest some of that liquidity all of a sudden is there going to be a deposit outflow that causes some heartburn. And I think your market as you said, you can really dial into a certain segment of the curve a little bit better perhaps than a pass-through can.
So again, can you talk a little bit of if somebody is sitting on a lot of cash, he understands he’s losing money by doing that, but he’s just still afraid of investing and then seeing some of that liquidity start to march out the door? I’m sure that you can talk to some products that in the CMO world can generate a large amount of cash flow over the next year or two, but still generate a yield that’s going to be above what any expectation of Fed funds is going to be over the next year or two as well. Can you kind of just speak to that a little bit?
Geetika Bansal: Yes. We’re seeing a lot of clients come in following Chairman Powell’s comments, but even a little bit before that, I think that people try to be forward-looking and the expectation is we’ve been sitting here on these low-end rates for so long, eventually, we have nowhere to go, but up. And so, we’re starting to see clients take one of two approaches; one is that they are working with the shape of the curve and the interest has flopped heavily to shorter collateral CMOs, the average life being more in the three-year part of the curve, trying to control that in a rising rate environment, it doesn’t extend beyond six to six and a half years.
And that’s really trying to maximize because that’s where they’re seeing the spread and the yield look attractive for them based on what everything else is doing in the portfolio. The other part that we are seeing, and I would say it’s gradually coming in, over the last 18 months there has been strong investor preference for controlling both premium exposure and coupon exposure, understandably so with the refi wave that we have.
But clients are slowly starting to feel a little bit more comfortable in going up towards that higher coupon space, now higher is a relative word these days, when I talk about higher coupons, I’m saying that I’m starting to see more sustained interest in the two percent coupon, in the two and a half percent coupon even, in an effort to be a little bit more defensive towards rising rates. You are starting to see a little bit more yield there as well and from a price volatility perspective, those coupons will hold up better, especially if you think that the pace of this taper is going to be faster, we may see more than one rate hike, and we may start earlier than the second half of next year.
So, there is this gradual shifting of the mindset that let me start focusing on the five-year and under part of the curve while I’m being rewarded for doing that. And also, let me start thinking about maybe looking at some of these higher coupons because, from a price risk perspective, which is something a portfolio manager is always concerned about, these are going to perform better.
Tom Fitzgerald: And I think too, as you talked about when you looked at the longer end of the curve, it’s kind of survived a lot of hits that normally would have caused yields to back up, and they really haven’t. You look at the inflation numbers; of course, you look at just the outlook for growth over the next couple of quarters still being fairly strong. I know that we’re probably going to moderate back towards sort of a pre-pandemic rate, but when I look for a catalyst to move rates on the longer and higher, it’s hard for me to come up with a really good one that says, this is it.
And so, I think that you’re right, I think we’ll still see kind of this range-bound on the longer end, it’s probably not going to back up as you said overnight to any significant degree, but again, that yield curve is really giving you some extraordinary opportunities on the shorter end that we haven’t had, obviously, since the early days kind of pre-pandemic almost. And so, sometimes you say, okay, I don’t see a big move on the longer end, I can move into that three to five-year part of the curve, get 75, 80% of the yield, and feel comfortable with my duration risk versus something that’s longer.
And again, a lot of your product, you can really dial into that aspect of yield and duration and cash flow and that’s why we wanted to have you on today just to provide some of that insight, and so we really appreciate that and thank you for what you have discussed today.
Geetika Bansal: Thanks, Tom, I appreciate the opportunity
Chad Mckeithen: Hey, Tom and I think one thing to add to what she did because we look at this from a big portfolio standpoint with our bank clients. I think that she added a good piece of this, it’s not one product sector over another, and she highlighted kind of, I think, a backbone to when you’re looking at mortgages and you have highlighted this in your trend analysis quarterly. Mortgages have been the big grower for banks over the last two years, but she mentioned a style of investing that I think anybody can sort of incorporate on the front-end right now, CMOs have kind of been that way to kind of corral cash flow into a specific area.
So, the three-year part of the curve has been very attractive, the spreads, the yields have been very good, the curve’s steep on that front-end. A lot of our clients have focused on the CMOs in that short space because they can kind of structure the cash flow into a tight little window, you don’t want to forget about the agency or the 15-years, and she mentioned 15-year collateral. That’s going to give you your pristine liquidity, the one thing that Fed’s done in pass-throughs is make them second to treasuries but that gives you that nice smoother cash flow ladder say over a four or five-year average life.
And then for that longer piece some might use municipals that are extension protected, Geetika mentioned CMBS, which is, of course, it’s going to be your Fannie Mae DUS or your Freddy Ks, that have that balloon maturity out there. So, if you’re trying to get out there on the 7-year, the 10-year part of the curve and get a little bit more yield, I think that her value plays there has been that we want to really kind of limit that extension risk. Not that we think rich is going to blow or the 10-year is going to go up or even the Fed’s going to hike aggressively, but there is some uncertainty starting to pop up with that market.
So, I think that’s a great little structured type of scenario of maybe on the front-end CMOs kind of the intermediate ladder is in those pools. And then not so worried about rates flying up, but if we do want to get out there and get a little bit better yield, maybe it’s in some of the extension-protected multi-family type sectors.
Tom Fitzgerald: And I think that kind of plays into, I know you have been kind of beating the drum this year, as far as most bank balance sheets, being more asset sensitive than they probably suspect. And, obviously, that might shift a bit when we look at that the Fed’s tapering schedule may be accelerating and then kind of maybe getting quicker into the rate hiking schedule. Do you still see that to be the case as we move into 22 with that kind of dynamic changing a bit with the Fed that we’ll still probably see fairly asset sensitive balance sheets that are probably going to be a little bit more sensitive than what the CFO is expecting?
Chad Mckeithen: Yeah, well, we’re grappling with a different instrument now, and that’s the amount that deposits have gone up. So, everybody is extremely asset-sensitive because in their balance sheets or bank balance sheets, we have a lot of core deposits and any time you inject, of course, a lot of core deposits that make you even see more asset-sensitive to normal. So, we are juggling what is the exit of those deposits, which would reduce some asset sensitivity, but let’s go back to before this current stimulus injection, banks have been asset sensitive for the last 20-years and the injection of stimulus is just starting to increase that.
I think net interest margin, I know that I’ve talked to Billy that runs our AOL group, I think 80, 90% of most of the banks that we run AOL for are asset sensitive, meaning that their net interest margin should benefit if rates start to go up. There’s been a big shift over the last 20 years, most banks have more floating-rate loans and therefore, I really think the durations of bond portfolios should be shifted out. I think the bond portfolio should be more for NIM protection when rates fall, than so much worrying about, well, I’ve got a four or five-year duration portfolio when rates start to go up because the loan side of that, the asset yield should increase if its rates go up.
The goal is not to win a rate scenario and be all asset-sensitive or be all liability-sensitive, I think that diversification with a slightly longer duration bond portfolio, kind of coupled with morphing into maybe a more of a floating rate type of loan portfolio; I think that’s going to benefit both environments.
So, it’s not to say, well, let’s just go along let’s buy all 20-year bonds or all 30-year mortgages or long munis but I think that you want to develop as a portfolio manager at a bank, you want to have a consistent profile no matter whether rates are high or they’re low. And if you like a five-year duration bond portfolio, and that satisfies your AOL scenario in an up or down rate environment, you consistently keep buying that, now, again, there’re parts of the curve that are attractive right now.
The three year part of the curve is very attractive, it’s very steep there, so we want to add some value too, but I don’t think you get away from your primary AOL goals or your primary portfolio management goals and try to gauge whether rates are going to go up next year and I’m trying to shorten up as a result of that expectation. And so, I do, still, institutions are very asset-sensitive, most of the ones that we work with on OutCo, and we get into portfolio management, decision-making on, they’re very asset-sensitive when rates go up, they’re expecting that their net interest margin will rise.
Tom Fitzgerald: And I think that plays into another point that you have kind of really also beat the drum on this year, and that is that the banks had it pretty good on a revenue front with the PPP fees that was sort of a windfall and it really helped to buttress a lot of the net income or the net interest income that maybe was a shortfall. That is going to be a challenge in 22, for sure, and then if you kind of couple that with maybe loan demand still is not going to be where we thought it might be.
And the fees that come from those loans that, as you said, that investment portfolio is probably going to be leaned on a little bit more in 22 to sort of generate kind of as you said, NIM protection and try to help buttress some of that revenue that we had this year that may not be there next year.
Chad Mckeithen: Yeah, that’s a good point, this has been a good year, the last two years revenue-wise, you take away the provisioning in 2020, and in early 21 and revenue was pretty good at banks, this year it was great because the provisioning actually started to reverse and we started to realize the PPP fees. Well, most banks did or they had mortgage refi fees that they were generating but this third quarter and into the fourth quarter, we’re starting to see some of that go away and the non-interest income is not as robust. And so, as we’re finishing up budgets with a lot of clients right now the focus does get on going into this next year, what are we going to do with cash, deposits have state stickier?
So, that is a big process that we’re going through right now, as far as if deposits are high, if liquidity is high, what’s that excess cash, maybe there’s an expectation okay, if 10% of those deposits runoff, what is that remainder of excess cash. And starting to put some game plans into work of what we’re going to do with that cash into 2022, we’re not going to have that luxury of kind of government revenue and p’s next year. And I think that some of Geetika’s points about layering in different types of diversification play into what to do with some of that cash, I think another big thing, we were on a call yesterday with the guys over at the fee income side of it.
And the guys over in our ARC program that do a lot of the loan hedging, and they were mentioning how this last month or two have been huge months for them and I think that’s also something that you’re going to see a lot more of, loan growth is still going to be low, we believe that next year because personal savings are still going to be high. So, most borrowers are still going to be de-leveraging, you’re going to have to be very attractive to go into some of these commercial borrowers and win that business.
And a lot of that’s going to be done on offering them longer fixed rates and the guys over there were talking about how much that had grown, where bank clients were starting to offer those longer fixed rates and swapping that back to floating. And I think Ed Kaufman, who heads up that group was talking about two to 3% of that asset value can be generated in fee income. I think that programs like that are going to be useful for the fee income side of it, but also being a little bit more attractive than your competitor in some of those offerings.
So, you’re going to see banks really start to use cash that they didn’t have to use this year, I think that you’re going to see that into 22, and then you’re going to start to see a lot of these other different types of fee targeting programs like that ARC loan program, or other programs to generate and kind of offset the loss in fees from mortgage repos in the triple P program.
Tom Fitzgerald: And that’s a good point, I was doing a little analysis yesterday for a bank and I went back and looked at the third quarter for basically all of the banking industry, the average securities to assets ratio was about 27%. And that’s been creeping up obviously over the last year as the lack of loan demand and the liquidity has been kind of slowly funneled into the investments. And so, you’re looking at just under a third of the balance sheets on average in the investments, and so it becomes a very key part of the earnings equation and certainly, as we go into 22 with some of that fee income, as you talked about, kind of maybe starting to wind down.
And so, it’s certainly a challenging time for CFOs and for investment portfolio managers to kind of navigate, but as you said, there’re opportunities in the yield curve and I think taking advantage of those opportunities when they come and exploiting that is probably one of the ways that we get through this. And also looking really hard at that liquidity and just how sticky is it and how much we can start to put into higher-yielding type investments. Because even if we do get rate hikes you’re only looking, I think the market is priced in at just under three hikes, which might be fairly aggressive, I think the Fed at their FOMC meeting coming up, they’ll have one, maybe two penciled in for 22.
So, you’re still looking at a real slow creep in the Fed funds rates and just kind of sitting there, waiting for that is going to be, I think, a strategy that needs to be kind of thought through a second time.
Chad Mckeithen: Yeah. I think that there’re a lot of bright spots in this market, the cash is very high with most of our clients but a year ago you had to get out into some really long reiterations, or you had to take some chances with that cash and was the return there for that risk and that was questionable. If you go back a year ago where the curve was and where spreads were at, but you have the front-end of the curve, that’s extremely steep, we keep highlighting the one to three year kind of the overnight to three-year position on the curve is one of the best spread levels that we’ve seen in five to six years.
So, that means a bank doesn’t have to when they’re looking at putting that cash to work, and if they have a 27% securities to assets, that is getting into that higher category, but they don’t have to get out there very long to generate some yield, where you go back a year ago, you had to get out to the 10-year part of the curve sometimes the 15-year part of the curve to make that yield equation work. So, bright spots, the front-end of the curve is very steep, one of the things that have happened since the last Fed meeting too is volatility has started to come back.
So we’re starting to get some better spreads, we talk about the treasury curve a lot, but most of our clients don’t buy a lot of treasury bonds, they buy bonds that have spreads to treasuries. Volatility creeping up over the last three or four months has widened spreads out in different bond sectors, I mentioned this on another strategy call this morning, but callable agencies have doubled in spread over the last six to seven months. Because option-adjusted spreads have started to come back, volatility has started to pick up, and we’re starting to see credit spreads widen out just a little bit.
The muni curve, which was abysmal a year ago, has slowly crept back up, you get into the ratios and the 10-year tight munis, and they’re up there in the 70% range. So, we’re getting a steeper curve and in some areas, we’re getting some wider spread and the front-end of the curve has become very steep and that’s very good for those banks that have been very worried about coming off that cash. So, the actual bond market is much more attractive right now than it has been over the past two years.
Tom Fitzgerald: And that’s a good point because as you said, sometimes you get fixated just on what the treasury yield is, and there’re other moving parts in there that kind of factor into the value equation as well, so those are good points. Chad and Geetika, I want to thank you both so much for taking the time this morning, I know typically as we record this it’s in the morning, and that can be a really busy time for a trader like you Geetika, so I want to thank you for all the insights that you provided for us this morning and Chad also for all the more macro look at things as well.
And again, I’m sure that we will circle back on this probably early in next year as we get past the December Fed meeting and kind of look where we are in January, and probably revisit a lot of these topics and discussions as banks start to really look at what 22 may look like, kind of coming out of the gate. So again, thank you both for taking the time with us this morning, we appreciate it.
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This week we are throwing it back to one of our favorite episodes featuring Jesse Cole. Jesse is the founder of Fans First Entertainment and owner of the Savannah Bananas. The Bananas have sold out every game since their first season and have a waitlist for tickets in the thousands. The team has built a social media…
This week on “How to Create a “Small Bank” Environment within a Large Bank” we are joined by SouthState team members Mark Bryant and Chrissie Casas. Mark is the Director of Government Lending and Chrissie serves as Director of Digital Banking. Mark gives us an update on SBA and PPP, and then we discuss what…
This week on Pricing Loans in a Rising Rate, we sit back down with Ed Kofman to discuss his outlook for rates and why banks may need to put more floating rate loans on their books. Learn more about the ARC Program here: https://southstatecorrespondent.com/loan-hedging/ The views, information, or opinions expressed during this show are solely…
This week we are excited to bring back one of our most popular guests, Lee Wetherington from Jack Henry. Caleb and Lee discuss open banking, the lasting effects of Covid on digital adoption, and what community banks need to be thinking about for the future. The views, information, or opinions expressed during this show are…
This week we are revisiting a topic we last discussed in 2020: funding costs. We sit down with Jeremy Lucas, Director of Balance Sheet Strategies for SouthState, to get his take on how community banks should be thinking about the recent rate hikes from a deposit perspective. The views, information, or opinions expressed during this…