To me we it's futile to try and solve for scant loan demand. Loan demand usually is geographically driven and/or niche centric. If the industry adjusts its deposit pricing mindset to a 1% ROA via arbing funds in the bond market, without mismatching term on the AL management front, then you're already there. We should not paint ourselves in a corner by over reliance on the historically highest yielding earning asset for sustainability.
I feel we should dynamically consider new lines of business and other non interest income opportunities. It seems like with every flat loan demand environment, these other paths often surface.
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John Barrett
President & CEO
First Citrus Bank
Tampa, FL
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Original Message:
Sent: 06-28-2021 17:09
From: Barb Rehm
Subject: Tuesday Topic: Liquidity Without Loans = Trouble
In banking, deposits are good. They fuel loan growth, improve margins and produce profits. But you truly can have too much of a good thing. The supply of deposits and the demand for loans is way out of whack right now, squeezing margins, shrinking profits and - depending on how long these conditions persist - threatening survival. As Josh Siegel of StoneCastle Partners put it to The Financial Brand as profits decrease, capital dries up. "If the rate of return isn't attractive enough, then eventually shareholders will decide to get out, which dries up capital and drives banks out of business," Siegel said.
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So let's help each other - what are you doing to deploy or discourage deposits? When are you expecting loan demand to build? How are you amping up profits?<o:p></o:p>
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Barb Rehm
Senior Managing Director
IntraFi Network
Arlington VA
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