Independent Banker - August 2023 - 46

DID YOU KNOW?
3.1%
The projected global
growth percentage
in 2024-up from
a projected 2.9%
in 2023.
Source: January 2023 World
Economic Outlook Update
 D'Aniello: The depressed asset values
haven't affected us much, because
we have sufficient collateral that's
secured by mortgages at the FHLB
(Federal Home Loan Banks). We
haven't crossed the point where
our borrowings are affected by
our tangible net equity. The new
borrowing facility made available by
the Fed has been very helpful. It's a
really appealing way to borrow funds,
because the rate is fixed for a year,
and it can be paid off at any time
without penalty.
 Anderson: We have been in this
low-rate environment for almost
a year and a half now, but it still
feels disjointed. It doesn't feel
like we've gotten used to it yet.
So, it's important to keep the
communication lines open with
senior management, ownership and
the board. We've had a lot more
 Anderson: I don't think it really
has changed much. The entire
management team is concerned
about this, but it's my job as the CFO
to oversee rate risk mitigation and
look at the balance sheet on a daily
basis. That has always been part of
the gig.
 D'Aniello: My role in interest rate
risk mitigation is more highlighted
now. It has always been an important
focus, but it is more difficult in the
current environment.
communication about our liquidity
position and different projections
that we didn't have to do in a lowrate
environment.
Q: How has your role in the
bank changed as management
addresses interest rate
risk mitigation?
What's the impact of the yield curve inversion?
In March, the yield curve reached its deepest
inversion since 1981, which many economists
consider to be a recession signal. How is this
affecting the outlook of community bank CFOs?
" I don't know if this is impacting customers, but
it's impacting the bank, " says Michelle D'Aniello,
CFO at Dean Bank in Franklin, Mass. " It's just
bad news overall for banks. Our funding is more
expensive. " She also notes that lending rates,
unless they're tied to the prime rate, aren't high
enough to cover the increase in funding costs.
D'Aniello points out that interest rates are high
enough that it's not appealing for customers to
refinance, but they aren't proportionally as high
as the bank's funding costs. " It's going to be a
difficult year until we see some steepening of the
yield curve, especially with inflation, " she says.
" Our net interest margin is being compressed. "
According to D'Aniello, Dean Bank's net income
is also experiencing
pressure due to inflation.
" For customers who
have a variable rate
or a balloon that's
coming due, it looks
different today than it
did five years ago, " says
Cameron Ohlendorf,
finance officer at First
Community Bank and Trust in Beecher, Ill. " We're
stress testing these scenarios to see what it looks
like for each customer and having conversations
with borrowers to make sure everyone
understands where rates are now.
" The good news is that many customers who
were on variable rates have been moving to
fixed rates over the past year and a half or so, "
Ohlendorf adds.
46 // ICBA Independent Banker // August 2023
Independent Banker - August 2023

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