From the end of 2020 to the middle of 2022, both loan yields and deposit cost of funds decreased. On the loan side, contractual runoff was being replaced with new loans at lower rates. Weak demand and competitive pressure for commercial loans kept the rate on new loans below 4.00%. Non-interestbearing and other low-cost deposit balances continued to increase, resulting in the cost of liabilities bottoming out in the middle of 2022. Beginning in the third quarter of 2022, banks began quoting (and receiving) higher rates on commercial loans. The long end of the UST curve, i.e., the Ten Year, also increased, causing higher rates on new residential mortgages. For a short time, net interest margins increased as banks deferred increasing their deposit rates. As you can see in the graph on the next page, by the middle of 2023, deposit cost increases outpaced the increase in loan yields, resulting in decreased margins. This trend is predicted to continue as loan yields are rising at a slower pace and deposit costs continue to increase. Assets < $10B 2020 Q4 2021 Q2 2021 Q4 2022 Q2 2022 Q4 2023 Q2 Loan Growth Rate -7.87 1.24 4.72 15.33 12.11 10.12 Loan/Asset 63.15 59.69 57.70 59.41 63.09 65.25 Deposit Growth Rate 13.79 5.73 10.21 1.08 -1.45 -3.21 Loans/Deposits 73.94 69.67 67.08 67.84 72.93 76.52 ROA 0.98 1.15 0.91 1.02 1.12 1.03 ROE 8.96 10.95 8.74 11.42 13.25 11.50 Equity/Assets 10.67 10.35 10.18 8.85 8.82 9.11 NPLs/Loans 0.65 0.54 0.45 0.37 0.32 0.29 LLR/Loans 1.30 1.31 1.32 1.29 1.24 1.25 Prime Rate 3.25 3.25 3.25 4.25 7.25 8.25 New Volume Rates 3.91 3.67 3.61 4.29 5.76 7.29 Loan Yields 5.08 5.09 4.96 4.76 5.22 5.66 Cost of Funds 0.45 0.32 0.26 0.26 0.61 1.29 Loan Yield/Cost Spread 4.63 4.77 4.70 4.50 4.61 4.37 Bank performance metrics over the last three years. S&P Global Market Intelligence — New Volume Rates from LoanPricingPRO® (www.forvis.com/why-forvis/innovation/loanpricingpro). 8 West Virginia Banker
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