Some Key Takeaways from Second Quarter Investor Calls

By Claude Hanley. Claude leads the firms Credit Risk Management and Finance Practice Area.

Declining Net Interest Margins
Net interest income will continue to contract as the benefit from declining deposit rates will be offset by declining yields on earning assets.

Slight Weakening in Credit Quality
While it is premature to say that there is a broad deterioration, credit issues have begun to reappear and quality metrics will move toward their historic averages and credit costs will increase.

Slowing Loan Growth
C&I loan demand continues to soften and bankers are becoming more cautious in anticipation of a recession.

Implications for Action

De-risk the Balance Sheet
Evaluate business lines (and loan portfolios) and exit those not considered core. Explore options to enable loan growth while mitigating credit risk exposure, such as via SBA lending or other loan guarantee programs.

Boost Productivity of Existing Resources
Assess branch networks for performance improvement opportunities and productivity of front-line and back office functions.

Clarify M&A Strategy
M&A will become even more important to drive earnings growth.  Decide if you will be a buyer or seller and then methodically identify and court preferred partners.



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