Independent Banker - August 2024 - 46

having on the current-year provision
and the ACL-to-loans coverage
ratio. Having a seat at the table for
loan policy review to know that as
an organization we are not making
changes to our credit standards that
could result in lower credit quality
over time is important. I also find it
helpful to be a member of the loan
committee to hear firsthand how
credit decisions are being made,
keeping an eye on exceptions to
loan policy, particularly the use of
personal guarantees and debt service
coverage ratios.
" MOST ORGANIZATIONS HAVE TO
MAKE TOUGH DECISIONS HERE AND
THERE, DEPENDING ON THE CREDIT
OR LOAN CUSTOMER AND WHAT
THEY'RE LOOKING TO DO. "
-MIKE GARGARO, CITIZENS FIRST BANK
fDrentlaw: CFOs have their fingers
on the pulse of the economy because
they are trying to manage all these
other kinds of risk that need decisions
to be made regarding liquidity and
duration management. Sharing
information learned through various
news sources, webinars, conferences
and other areas is a way CFOs can
play a role in being proactive in
helping to manage credit quality. I
also think assisting with stress testing
practices-whether that is helping to
develop how to stress test individual
credits or the portfolio as a whole-
can help to identify credit changes
more quickly. Additionally, being the
position that most likely calculates
the CECL model gives the CFO a
chance to see major changes or shifts
in the portfolio. Since this calculation
isn't an exact science, it can give the
CFO the opportunity to make sure
the bank is reserved adequately to be
able to withstand an increased credit
concern event.
Q: What impact has this current
difficult rate environment had on
your ability to provide solutions
to answer the challenge of
earnings growth?
fNiska: For the most part, I don't
think this year is going to be a
" record " earnings year as rates stay
higher and competition for deposits
remains strong, fueling further
margin pressure-hopefully slowing,
from what we've seen. However,
just because you don't hit records
each and every year doesn't point to
impending doom, and with balance
sheet growth normalizing, it's putting
less pressure on capital levels, which
at least for us, remain strong.
fGargaro: [The majority of our]
lenders have never seen a rate rise
in their career here at the bank.
They're used to a low, flat yield curve,
which it was for many years prior to
this recent steep rate increase. It's
about managing your margin. Most
organizations have to make tough
decisions here and there, depending
on the credit or loan customer and
what they're looking to do. We're
also looking at our other non-interest
income streams. On the non-interest
expense side, we're looking for areas
we can improve upon to help maintain
our net income. And I do think we're
starting to get to the bottom of where
we think margin may settle.
fDrentlaw: The higher rate
environment definitely has affected
our cost of funds, which increases our
interest expense as well as suppresses
DID YOU
KNOW?
>2.5%
The Fed's
expected interest
rate until 2026,
according to
economists
Source: BankRate
46 // ICBA Independent Banker // August 2024
Independent Banker - August 2024

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