Correspondent Blog

This week the FOMC increased the Fed Funds rate by 75 bps, as expected to the 3.75% to 4.00% target range. The Effective Fed Funds rate jumped up and should stabilize at 3.83%, as did the 1-month term SOFR, to 3.79%.  The futures market now expects close to average odds of a 75bps increase in…

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. We also shared a table that summarized the two strategies. In this article, we will discuss what community banks should look…

Competition is intense, and every bank is looking for a competitive advantage. Better products, faster service, or insightful advice can translate into additional loans, better credit spreads, or extra fee income. Sometimes just a graphics tool can help a banker win more loan business. At SouthState, our commercial lending teams use an online proposal generator,…

A yield curve is a relationship between yield and different maturity dates. The yield curve’s slope can provide insight into future interest rate changes and economic activity. There is much discussion in the market about the current inverted yield curve between the two and ten-year Treasury yields. However, for bankers, the critical dates on the…

In a recent blog [Here], we argued that banks are almost always in an inferior position by not re-quoting the loan rate with market movement until the loan closes. We think that when banks book a fixed-rate loan, the fixed-rate must be finalized at the closing table; otherwise, banks give borrowers a free option that…

The FOMC’s recent hawkish pivot and indications of multiple rate hikes in 2022 have created market volatility and an increase in longer-term interest rates. In a period of rapid change (or high volatility), we see about 50% of banks fall into a common trap of mispricing their commercial credits.  This loan pricing mistake does not…

The Federal Reserve Chair, Jerome Powell, was clear last week that the central bank is highly likely to start reducing asset purchases in November and complete the process by mid-2022.  As shown in the dots plot, the FOMC members also expressed an inclination to raise interest rates next year (see graph below) – a shift…

We have published multiple articles, economic bulletins, and podcasts on inflation (including here and here).  In this article, we will not make a case for or against the market’s expectation of inflation.  We will assume current gauges such as CPI and PCE accurately reflect the current inflation environment (many arguments can be made for why…

For decades, community banks have structured term loans as 5-year fixed-rate facilities.  In the last six months, the percentage of 5-year fixed-rate loans at community banks has increased by approximately 25%, but this same bucket has held steady at larger banks (those over $25B in assets).  We believe that now is the right time for…

At SouthState Bank, we are using a tested strategy to increase loan revenue by 20% and decrease interest rate risk by 80%.  We are achieving this result on our better credit quality commercial loans without any gimmicks or confusion to the borrower.  We have developed a technique and a loan structure to assist bankers who:…

Some economists, Fed officials, and pundits are making the argument that while inflation may run hot for the next year or so, the risks of long-term high inflation is not pronounced and inflation will be capped at around 3% in the near future, and the probability of runaway inflation is next to nil.  This is…

This year may be the right time for your bank to embrace a loan hedging program.  With the economy recovering from a pandemic and the possibility of stoking inflation, banks that can offer borrowers more flexible loan structures may be in a better position to win more and better quality loans.  While the Federal Reserve…