Independent Banker - January 2025 - 18

PORTFOLIO
◎FOCUS LENDING
with a decline in investment activity
and new construction.
2025 lending outlook:
Cautious optimism
Falling interest rates are expected to fuel borrowing activity at community
banks. We examine the prospects for commercial, consumer/mortgage
and ag lending in the new year. By Beth Mattson-Teig
Lenders are looking at this year with
more optimism following the start of
what is expected to be a rate-easing
cycle. The Fed's initial 50-basispoint
(0.5%) rate cut in September
is expected to be a key first move in
returning the federal funds rate to a
more neutral level.
As of November 2024, the Fed
also appeared to be heading toward
a successful " soft landing " for the
economy, with strong employment,
lower inflation and good GDP growth.
All of this bodes well for both consumer
and commercial lending.
Of course, despite these positive
signs, no one has a crystal ball. The
timing, size and speed of future rate
cuts remain uncertain. Stronger-thanexpected
job growth or a resurgence in
inflation could contribute to a slower
path forward for rate cuts. And there
is always the chance of unforeseen
events or geopolitical risks emerging
that could change the trajectory of the
economy and alter the lending outlook.
" It's a bit of a mixed picture. I do
expect things to begin improving,
but it's hard to know right now what
that pace of improvement will look
like, " says Todd Crowley, president of
enders are cautiously optimistic
that 2025 will be a bigger year
for both loan origination activity
and profitability as key hurdles-
higher interest rates and general
uncertainty-continue to dissipate.
For the Bank of Zachary in Zachary,
La., that optimism is rooted in recent
performance. Despite a challenging
rate environment that slowed
demand, particularly in the residential
mortgage market, the community
L
bank successfully grew its loan
portfolio by about 8% in 2024.
" That's a win in my eyes with the
rising rate environment we had [in
2023], " says Joshua H. Prejean, chief
credit officer and senior lender at
$400 million-asset Bank of Zachary.
High mortgage rates, construction
costs and higher home prices made
homebuying less affordable, he adds,
noting that there was a similar pattern
in the commercial real estate side,
$3 billion-asset ANB Bank in Denver.
" As that picture becomes a little clearer,
I think you will start to see more
activity and more confidence. And I'm
hoping that happens by the second or
third quarter. "
Lower mortgage rates on the way
Homebuyers continue to face hurdles
in the shape of relatively high mortgage
rates, rising home prices and limited
for-sale inventory. However, the chill
in the single-family mortgage market
was already beginning to show signs
of thawing heading into the second
half of 2024, and lenders expect that
momentum to grow in 2025.
18 // ICBA Independent Banker // January 2025
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Independent Banker - January 2025

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