Automated Financial Systems, Inc. (AFS)’s Post

A recent report for January from the U.S. Federal Reserve highlighted that lending standards for commercial and industrial loans (C&I) tightened in Q42023. Conversely, they also found the number of firms that had engaged in further tightening of their lending policies decreased to levels we haven't seen since 2022. This indicates that although the ability for a business to get a loan remains a difficult process in the U.S. - the peak of tight lending conditions may be on the horizon, especially with the prospect of a lower rate environment that is expected to begin at mid-year. #businesslending #interest rates #economicactivity

As the state of loan growth remains murky, banks are still showing caution when it comes to credit. Get the details in latest Commercial Credit Quality Bulletin from AFS and RMA, now available! On their recent earnings calls, banks generally reported limited loan growth, stabilizing deposits, and weakening credit trends. January saw another contraction in C&I lending and the results of the recent Fed Senior Loan Officer Survey on underwriting practices revealed that lending conditions largely remain unfavorable. We also saw that, while the prospects of a Fed pivot have improved considerably in recent months, borrowers are still faced with high lending rates, which will serve as a headwind throughout 2024. Read more about these and other important trends now!https://lnkd.in/eWkFsf2g #CommercialLending #CommercialCredit @RMAHQ #RMACRNpoweredbyAFS

Unrealized Losses and Delinquency Rates: The Quiet Challenges for Banks Our discussion on interest rate risk in my international finance class this week coincided with the Bank Earnings Season at the end of this week. While the banking sector demonstrated strong performance in the first quarter of 2024, banks are currently holding an unusually high $517 billion in unrealized losses on their balance sheets. These losses are mainly driven by treasury and mortgage-backed securities purchased during the pre-pandemic low interest rate era, which are now maturing (bond prices fall when rates rise). Additionally, higher delinquency rates in commercial real estate and credit card investments are compounding the issue. Over $38 billion of U.S. office buildings are facing loan defaults, and credit card delinquencies have surpassed 3%. This situation puts regional banks in a particularly tough position, as they hold a higher share of commercial real estate loans aimed at developing properties in their local markets. Sources: Federal Deposit Insurance Corp Wall Street Journal (April 30 and July 10 2024)

The quarterly US Senior Loan Officer Opinion Survey (SLOOS) from the US Federal Reserve, which looks at bank lending standards, has traditionally been a useful leading indicator for the economy. The latest survey shows that there has been a marginal improvement in banks’ willingness to lend compared to the previous quarter, with the net balance of banks reporting tighter lending standards falling from 50.8 to 33.9 for Commercial & Industrial (C&I) loans to large and medium firms. Historically, this has shown a degree of correlation with trailing earnings growth, and suggests that if the latest improvement holds, this might be a relatively constructive signal for the earnings outlook more broadly. For professional advisers only. The information in this graph does not constitute advice or a recommendation and investment decisions should not be made on the basis of it.

Based on the current #CBRE Lending Momentum Index it appears that the commercial real estate lending market is leveling off. The index fell by 3.0% quarter-over-quarter and 47.9% year-over-year in Q3, as acquisition activity remained subdued. However, the rate of decline slowed in Q3, signaling that lending activity may be bottoming out. Banks and Life Insurance Companies were the top lenders in Q3. With loosening of credit, rising cap rates, and the Fed's rate hikes pausing there is an expectation that there will be an upturn in lending volume in the third quarter of 2024. Check out the full report below. #capitalmarkets #commercialrealestate #commercialrealestateinvesting

Yesterday’s Senior Loan Officer Opinion Survey pointed to tightening lending standards and low demand. The degree of tightening over the last two quarters has been fairly significant with the March regional banking crisis accelerating a decline in credit creation.  Historically, the survey has preceded credit moves by 2-3 quarters and recent tightening suggests the economy should slow into year end. (Note the survey doesn’t account for the recent shift away from traditional lending channels, meaning the predictive power of the SLOOS report could be diluted.) #InsideMarkets #Economy #Markets

As reported in American Banker (https://lnkd.in/gV6zsbrU), while demand for loans weakened and underwriting tightened in the 4Q2023, senior loan officers believe demand for credit will improve in the second half of 2024 (assuming rates fall). This tracks with the results from the most recent IntraFi Bank Executive Business Outlook Survey, with 43% of respondents expecting loan demand to improve over the next year. Get the full report: https://lnkd.in/ezR7TrJk

Bank Loan Officers say NO to Bulls... The Q3 “Senior Loan Officer Opinion Survey on Bank Lending Practices” showed banks further tightening lending standards for Commercial & Industrial loans — and marks the 5th quarter in a row where survey respondents reported a net-tightening of the standards and criteria by which they make lending decisions. The last time we saw such a significant tightening of lending standards was in 2020, but it’s important to note during that time interest rates were falling, fiscal stimulus was pumping, and the world was awash with liquidity. Outside of 2020, the other 2 key examples in recent history were the lead-up to the bear market and recession of the early 2000’s, and then again in the lead-up to the financial crisis in 2008. It is somewhat different this time in that a lot of firms (and households for that matter) locked-in low rates during 2020/21. But with ongoing monetary tightening, signs of strain in the global economy, and multiple leading indicators pointing to recession, it’s well worth pondering this bear market warning indicator (just as a new bull market appears to have been established!). #stockmarket #economy #banks #markets

Is your Association using a bank which may fail in 2024? 5 banks have failed in 2023 and a recent study found 186 more banks are at risk of failure. Here is the timeline which may lead to another banking crisis: 2020 to 2021: The Federal Reserve increased the money supply by over 40%. 2022 to 2023: The Federal Reserve raised interest rates by 5 ½%. 2nd half 2023: US Treasury bond 10-year yield jumps from 4% to 5%, causing banks to report a $620 billion marked-to-market loss on US banking bond portfolios. Possible 2024: A wave of defaults on commercial real estate loans due to post-Covid low occupancy rates and regional banks have exposure to commercial real estate lending.    If your association has more than $500k in Reserves, Lynn Wealth Management can review your association’s Financial Statements and provide specific recommendations which may significantly improve your association’s overall financial strength.   Start off the new year on a sound financial footing with a professionally managed Reserve portfolio. Call or email us today for a no-cost, no-obligation analysis: Dave@lynnwm.com                      (858)529-1951

Middle market direct lending has shown resiliency in recent years. We expect that trend will persist. Read more in this week's commentary from CIO Saira Malik.