Independent Banker - August 2024 - 33
Next: What's replacing the FICO credit score model?
point that current market yields are
historically very attractive.
Take MBS
A similar cause-and-eff ect is taking
place in the housing fi nance market.
The rapid rise in costs for any and
all mortgage products in 2022 and
beyond has had profound eff ects on
community banking at several levels.
For institutions that have full
mortgage lending operations, loan
volumes for both new purchases and
refi nances have been barely a trickle
of that experienced in 2020-2021.
In turn, the dearth of refi s and new
closings has caused seasoned loans,
and seasoned MBS pools, to throw off
next to no cash fl ow in the past two
years. The entire 30-year mortgage
market, which accounts for 85% of
all loans on single-family residences,
has averaged annual prepayments of
barely 5% for more than a year.
This also is nothing new. What
makes the story a little bit diff erent
this cycle is just how far out-of-themoney
most current mortgage loans
are from being " refi nanceable. "
At the moment, the gap between
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
Figure 1: Portfolio yields vs. 3-year UST
TEY
3-year UST
Source: Stifel, Federal Reserve
30-year loan rates and the average
outstanding borrowers' rates is well
over 300 basis points (3%), which
is really more of a yawning gulf that
may be around for quite some time.
A couple of Federal Reserve easings,
when and if they come, will narrow
that gap, but with all that ground
to cover, it looks like we're in for a
long road trip.
Education on Tap
Balance sheet webcast in August
ICBA Securities and its exclusive broker Stifel will host their
Quarterly Bank Strategy webinar on August 8 at 1 p.m. Eastern.
Several strategists and economists will make presentations, and
up to 1.5 hours of CPE are off ered. For more information and to
register, contact your Stifel rep.
CFO Forum this month
ICBA Securities is sponsoring and speaking at the 2024 ICBA CFO
Forum. The event will be in Indianapolis, August 26-27. Up to 12
hours of CPE are off ered. For more information and to register, visit
icba.org/events
Getting better all the time
So, believe it or not, portfolio yields
have recovered pretty well. As of
March 31, the average tax-equivalent
yield was up to 2.83% after
bottoming out in September 2021
at 1.77%. Every month, some bonds
with 1%-something yields are rolling
off and hopefully being replaced with
" fi ve handles " (5%-plus yields).
As a fi nal reminder, call protection,
in the form of non-callable bonds or
those with deep discount prices, will
probably be your friend in 2025. That
can help your portfolio not just to
catch up but to get ahead.
Jim Reber, CPA, CFA (jreber@
icbasecurities.com), is president
and CEO of ICBA Securities, ICBA's
institutional, fixed-income brokerdealer
for community banks.
independentbanker.org // 33
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Independent Banker - August 2024
Table of Contents for the Digital Edition of Independent Banker - August 2024
Contents
Independent Banker - August 2024 - Cover1
Independent Banker - August 2024 - Cover2
Independent Banker - August 2024 - Contents
Independent Banker - August 2024 - 2
Independent Banker - August 2024 - 3
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