Independent Banker - January 2024 - 30

PORTFOLIO PORTFOLIO MANAGEMENT
demand for C&I, commercial and
residential mortgages, and consumer
loans. That pretty much runs
the gamut.
Shakeout coming?
As 2024 gets underway, the lending
market is perhaps at a crossroads.
To be sure, loan demand is never
uniform across the country, and
various regions could see differing
levels of borrower health and
availability of credit. It's been well
documented that mortgage rates
are more than double the average
homeowner's outstanding cost of
borrowing, which was around 3.70%
late in 2023. It may therefore be
time to revisit the robust secondary
market for performing, high-quality,
non-conforming loans.
Give credit where
it's due
Secondary market for whole loans is deep and active.
By Jim Reber, ICBA Securities
necdotally, and empirically,
community bank lending has
been relatively productive during
this multi-year rate cycle. Many
conversations I've had with bankers
in all regions of the country sound
alike: Loan demand has been healthy,
and, even better, credit quality has
held up very well even though rates
hit a 15-year high toward the end
of the year. It sure seems like the
industry learned its lessons from the
last big downturn just prior to the
Great Recession.
Through September, lending
A
activity by community banks had
improved about 5% year-over-year
and reserves had increased only
about half as much. Virtually all loan
sectors showed growth, especially
consumer loans.
The resilience of the domestic
economy has been on display through
the appetite for credit, although
the aggregate rate hikes may be
finally taking their toll. The Federal
Reserve's quarterly senior loan officer
survey released in October indicated
tightening credit standards; higher
borrowing spreads; and declining
The conversation with a potential
seller of whole loans often begins
with a concentration issue. Perhaps a
bank's portfolio has too much longerduration
fixed rate credits. Or maybe
it's exceeding policy limits as it relates
to sector weight in consumers or
commercial real estate. Or possibly,
a given loan production office has
created too many loans in a given
geographical area.
If so, analysts can help your team
identify saleable blocks of your loan
portfolio and estimates of secondary
market prices. It's also possible to
negotiate the servicing of these blocks
as either retained or released by
the seller.
Two-way street
At the same time, there are all sorts
of depository institutions that are
looking to add loans. The root of
their inquiries is that the desired
mix of volume and quality can't be
filled internally. Again, it's possible
that concentrations are part of the
dialogue, and perhaps a given buyer
is looking to add to a sector (for
30 // ICBA Independent Banker // January 2024
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Independent Banker - January 2024

Table of Contents for the Digital Edition of Independent Banker - January 2024

Contents
Independent Banker - January 2024 - Cover1
Independent Banker - January 2024 - Cover2
Independent Banker - January 2024 - Contents
Independent Banker - January 2024 - 2
Independent Banker - January 2024 - 3
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Independent Banker - January 2024 - Cover3
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