In this episode, Chris visits with Shane VerDught, CFO at First National Bank, about the current interest rate environment and its impact on consumers. When looking at your financing or savings plans, ensuring that you're familiar with where rates are headed is an important part of the planning and budgeting process.
In this episode, Chris visits with Shane VerDught, CFO at First National Bank, about the current interest rate environment and its impact on consumers. When looking at your financing or savings plans, ensuring that you're familiar with where rates are headed is an important part of the planning and budgeting process.
Welcome to DreamMaker a podcast brought to you by first national bank of Syracuse at FNB, we strive to make sure that every life we touch is improved. Join us for each episode. As we cover a wide range of topics from financial wellness and marketing to mental health and ways to enjoy life overall, we may even teach you a thing or two about cultivating healthy soil. We are here to improve your life. And so glad you've joined us today. Now, here are your host for today's episode of dream maker.
Speaker 2:Well, this is Chris Floyd present CEO of the first national bank, and we're here with wow of our season three episode four of our dream maker podcast. And we've had a lot of questions about interest rates and where they're going and how they're moving. So, so this week I thought I'd get our local arthouse expert. Uh, Shane Vette, Shane is our CFO and, uh, actually lives and works in Kansas city. So, um, he started for us in March of 2020 of all times, right there. So he was, we were, uh, remote and cool before the pandemic made people get remote and cool that way. So, so we'll start off, Shane, how about give you a little introduction in your history and, and how you, uh, help us manage money?
Speaker 3:Sure. Um, you know, Chris Setta started here, uh, you know, basically two years ago, you know, I've been in, uh, basically on the treasury side of community banking for, you know, a little over 20 years, I guess, basically any range from, you know, current size, you know, the 400, 450 million asset size up to over 20 billion. So kind of a broad range of different sizes and whatnot. So, um, even worked on a, a suite bank, little bit different, you know, part of a brokerage, so a little bit different on that front, but all kinds of different issues with rates and, and money movement and all kinds of stuff. So all kinds of fun learning activities within the, the rate world and investment side. So,
Speaker 2:Yeah. And you think man, in 20, some years we've seen a wide variety of rates. I remember, like she would 20 years. Yeah. I've been like in our current home, I've been just a little over 20 years and I think my first mortgage rate was over 9%, maybe nine and a half or something, you know, and, and, you know, in this last, you know, 20, 20 and 21, you know, we had done a lot of right at 3% 30 year mortgages. So, you know, there's a wide swings and it makes a big impact for, um, us and our customers, both. Um, so I guess why don't you give us, you know, we're here, so maybe to date this March, April 28th recording us. And so we have the, the federal reserve meeting next week. Um, can you just give like a quick overview of kinda what, uh, I guess is expected, how they do things and, and then kind of, I guess too, well, maybe what their goal is,
Speaker 3:Right. So, you know, I guess the federal reserve, the, the, uh, the F OMC kind of rechange, or to kind of, you know, reassessed how they, they communicate to, to the market and to the world in general, you know, after the financial crisis hit in 2008, so they became a little bit more transparent. Um, you know, it even put a dual or dual target, uh, an upper lower bound on the fed funds target, which is the only rate really they can, can, can control. Um, so, you know, we always hear about the upper target and that's, that's their main target, and that's how, you know, that's what banks trade. So the, the rates that the banks would trade, uh, to borrow money back and forth between other banks. So, you know, but they do have a dual mandate as set per Congress, um, you know, inflation to keep that basically under wraps and not too outta whack, which that's the big topic these days, but, you know, their goal of that is around 2%, they, they feel that that's enough to keep growth continuing, but not, uh, you know, restrained at any and get outta whack or, and it's not too low that there's other issues there. Um, and then of course, maximum unemployment, so, or maximum employment, keeping unemployment rates down. So that's kind of where they work there. They've of course, you know, implemented dot plot and where they expect rates to go, you know, assuming there's lots of assumptions that go into that, and you don't know which fed president, you know, or board member, you know, submits what dot plot. You just see it as a whole and kind of as a consensus where they kind of where, where their thoughts and, and goals go from, you know, where rates could end up assuming certain things. So lots of information, you know, they, and of course it's the fed. So they have all information available at their fingertips without any type of issues there. So they're trying to make sure, basically that we continue at a high, high employment, low inflation and keep that growth engine continuing that's their main goal there. So,
Speaker 2:And you mentioned like, you know, the fed funds rate that they control. And basically it's pretty much directly correlated to, like, for our case, what New York prime, you know, we actually have an internal base rate we use too. And so, um, pretty much they go together. Wouldn't you say? Or, or there's not much, I don't know if there's ever been very much deviation that I can remember, but I can't remember.
Speaker 3:Right. Yeah. They pretty much go hand in hand. Yeah. There might be a slight every now and then here there's something different, um, where, where prime would, would be different, but generally thinking, you know, prime, New York prime is always, uh, 3% higher than the, the fed funds rate. So that's the, the general take on exactly how that, that fits in, in, into the, the rates. And then of course, if you're looking at other rates, if you're looking at the treasuries rates kind of the, that three month, uh, treasury is kind of very close to what the fed funds target rate is as well.
Speaker 2:Okay. Three month treasury. So like, um, you know, of course the know New York prime and, and kind of the fed funds rate drives a lot of our short term borrowing, you know, costs for our customers, whether it be operating notes or, you know, financing, whatever, um, on kind of the seasonal basis. But, uh, the term stuff gets a little more interesting, I guess. Um, uh, you know, we were talking beforehand, um, you know, a lot of times I believe was a tenure or tenure treasury usually tracks the mortgage rates or kind of a moves as it moves. Is that about right
Speaker 3:There? There's a correlation between the two. Yes.
Speaker 2:Yeah. Probably not perfect ever, but right,
Speaker 3:Exactly. But,
Speaker 2:Um, you know, one thing is kind of interesting, of course, you know, we price loans for one thing unique about us is we do, you know, we'll do a 15 year fixed loan and I guess it's a changed job that hedge our money and make sure it works for the bank so we can help our customers, but, um, or to make sure the bank's okay, I guess, or not okay. Is doing really well. Um, but, um, you know, our, we kind of, our model uses federal home loan banker rates as the base. How does that vary or do you see that very, those very much from treasuries or, you know, because I don't, those aren't published to the customer, I guess, so they don't see those ever, but right. Our customers can't see those. Yeah.
Speaker 3:Uh, you know, for, for the home loan bank. And generally speaking, they've been pretty close to treasury. I mean, there's always changes and whatnot. So I mean, you know, you go back to the home loan bank system that was established right around early 19 hundreds, late 18 hundreds, that time period area. Um, and it was a, it was a way for, basically for the federal government to help banks and it it's a lender to other banks or to the banks. So that's, you know, yeah. Other districts and it's that, that front. So they're setting up rates to, you know, and of course they're like everybody else, and it depends on how banks are, you know, the supply and demand of, of funding needs for the banks. So generally speaking, they're gonna track pretty close to treasury rates, but times like, you know, basically times like today, where it's a little bit different and how, how the money supply is changed a little bit than, you know, historical standards, it has changed how the, the demand for funds from the home loan banks is a little bit different. So they're not quite as tight, uh, or, you know, less spread between the home loan bank rate and treasury rates as, as it has been in the past. So
Speaker 2:Yeah, that, spread's kind of an interesting term too, because, you know, like, I guess you'd say, you know, in, in, I guess we're talking about bond markets and things like that, your treasury, rate's kind of the, I guess you call the gold standard, I guess you would say of debt. If there's such a thing, some people may disagree as a gold, but yeah.
Speaker 3:Yeah. You, you think of the treasury rates as, you know, the us government will not default on their debt, so you will always get your principle back. Uh, and that's kind of why that's the, the gold standard and that's where, where it comes from is that's the base. And then anything else on top of that is any type of spread being is like, is there any type of question on whether or not rates would, or that, that principle would come back, that's where those, those terms spreads start to come into play and then how that relates into how much more, um, interest rates would be applied to certain terms.
Speaker 2:Yeah. That's kinda its and I think part of it is like, it's unreal. How much those move, I guess you would say, you know, especially I guess, and probably not the home loan bank that we're talking about, but you know, spreads for whether it be corporate debt or anything like that or mortgages and things like that. They kinda seem to, I guess it's more of a supply demand that's generated from all kinds of factors, I guess that people,
Speaker 3:Yeah. Yeah. I wish it was simple and we could throw in just a couple different factors or assumptions, but it's never that easy. Right. So yeah.<laugh>
Speaker 2:Or else we'd be on the yacht somewhere, right. That's right. Not have to worry about any of this stuff. So, um, so one of the reasons, um, you know, I think, um, uh, that makes Shane such a good fit to our bank is, you know, how he learned to invest in things like that. And, and, uh, we were talking the other day and really how we invest would be almost the opposite of how customers would want to borrow would be fairly close to say, or, I mean, it's kinda the same reasoning, but maybe in a different you're on the other side. Right.
Speaker 3:You're on the other side. Yeah. Yeah. Yep.
Speaker 2:So, um, you know, part of it, I think the thing our customers get into a little bit is, you know, um, and it's kind of funny, I've talked to two or three prospects for sure here and customers in the last, you know, four, well, since the beginning of the year, that would, uh, basically live through the eighties and they remember the interest rate changes in the eighties where I don't know how prime got, what 21 or some percent, or
Speaker 3:It was over the twenties. I know that much. Yeah.
Speaker 2:Um, I'm kind of glad I wasn't around to have to worry about that part, but<laugh><laugh> but uh, you know, they remember the, the big changes in interest rates and, you know, that was, you know, very stressful. Um, and really kind like I say, destructive, oh, well I guess, you know, we had bad inflation, so yet, you know, inflation's not good either. So you had a control inflation, but you know, a lot of ripples between the SNLs and even the, was it farm credit system struggled and, you know, just farming in general struggle because it kind of really messed with land values and whatnot. But so, so hopefully we don't get to that way, but you know, that's not saying it could. Um, so, so I guess when they're sitting there, like, you know, as an option, you know, uh, most banks that go three to five years fixed, I can mention, we'll go up to 15, but there's always, um, well, like one of our guys, you know, say there's no free moves, right. So you're always kind of giving up something to do that. Um, how, um, I'm trying to think is what's the kind of factors to look at, to decide, do you think where, how long would I go? I guess it'd be the same way we borrowed money to, you know, hedge our, you know, loans we make interest cost, I guess. So I guess when you're looking to fund our liabilities, I that's a better way to put it. I kinda rambled. I dunno if I got to, you know, finally get to halfway decent questionnaire, but I guess the things, when you looked at how long the fund or when you fund our liabilities, what are kinda the big factors you look at?
Speaker 3:Yeah. So, you know, when we, you know, funding our liabilities, we like to, you know, if rates are low, you'd rather go out long. I mean, it's, it's the same thing, I guess, as a, as a general thought process of, of a homeowner, you know, if you can borrow it at that 3% for 30 years, that's a lot better than 6%. So you you've doubled your interest expense there. So, you know, we would borrow in wise, it's always, you know, you'd prefer to go longer of course, at a shorter rate. So, and of course doing that, you can also take on more and that's kind where, you know, as you talking about the fed and the movements to cut inflation is if rates are low, companies can usually, you know, in general you could take on more debt cuz the interest expense, um, is possible because you, you actually more debt limited expense or interest expense because you can have that more debt now as rates, right? Dry of course, you know, if interest rates basically doubled, you know, you're gonna have to cut your debt in half to have the same expense. So that's the general thinking on what's going on. So we would, you know, we would, um, I guess as if we can always fund, you know, a lot of banks have match funded. A lot of times, that's, that's always a possibility where, you know, if, if a customer is borrowing for 10 years, you can match fund that and go out the same way. And it's just a general, general spread that you're kinda working on as a bank. But you know, there's always op um, options, opportunities within that let longer term. So that's where always the questions come into play on how assets and liabilities change throughout the term, uh, time period. So what kind of option is, is embedded within, um, you know, we'll just use mortgages cause that's the easiest for people to understand is although it's a 30 year term, there's always a possibility you could refinance, um, you could move. So of course it has to change the, the term so, and change the loan. So there's, there's little things like that. That's not just, you know, straightforward and that's also, you know, I think why the, uh, mortgage rates usually trend towards that 10 year treasury cuz generally speaking, it's, you know, it's not the same as a 30 year. So people do move refinance, all kinds of different things on that front. So we always like to look at, you know, where things kind of cash flow purposes as well. So there's a lot of different factors that come into that, but it's never quite as long as, you know, stated maturity I guess is the key. So
Speaker 2:Yeah, that makes sense. So like if, um, you know, one of the things, um, you hear a lot about too, and, and they'll mention like even, oh man, especially at certain times of the month on CNBC, you know, something like that, talking about, you know, the yield curve, getting inverted and, and whatnot and how that affects, um, not only the, what the, I guess what we borrow at the customer borrows money at. Um, so I dunno, they throw around the slope of the yield curve. How does that kind of affect your decision making? I guess as far as,
Speaker 3:Yeah, so generally speaking, the yield curve is an expectation of future rates. Uh, the market's expectation of future rates, um, you know, as an, as an aggregate. So, you know, as you, you see now, I mean you, you go out basically the treasury the two year treasury, I think it's like 2 60, 2 65 right now. Um, so as basically generally speaking and thinking, okay, the Fed's gonna move the short end up. Um, you know, that's kind of the general thought on that front, but at two years is the 2 62 65, well the 10 years, about 2 85. So we're only talking 20 basis points give or take, uh, between the two year and the, in the 10 year from term that's eight years difference. And you're only picking up 20 basis points. Uh, historically that slope is about 125 basis points. Um, so the expectation is of course, you know, you always think of this as a personal level, but you know, bank wise is, you know, lending money to somebody and, or, um, company personal on two years, okay, you're gonna tie up those funds and it's, you know, we're gonna get something well, if you're gonna tie up those funds for 10 years, we want to get paid for that. And that's the general thought on why a longer term, you know, is a higher interest rate. So knowing that basically there's little spread or little slope in the treasury curve right now between like the two years and the 10 years is saying that probably the growth expectations going forward, um, is limited. So they're not thinking maybe the fed will move up and that's a lot of its inflation driven at this point, but when they do that, is that gonna choke off growth? Um, and that's probably why the treasuries on the longer terms, be it five out to 10 years, um, have not moved up as much as the, the short end, uh, being like the two year. So, so that kind of, you know, changes how we think of course as a bank is alright. If, if the fed has to move and is gonna choke down the, the economy to make sure that inflation is under control, how does that affect all of our customers as well? So, you know, there's a lot of different things that go into that, but we want to, you know, make sure that we're not caught by surprise, I guess, going forward.
Speaker 2:Yep. So the bit like, you know, the situation you mentioned today, like, so like we had a customer where, and, you know, one thing we ought to loan officers gonna help you kind of measure this, you know, exactly how your interest rate would change and what scenario or your interest cost, depending on what rates do. So like in today's scenario, if like we had a customer that wanted to avoid paying more interest expense, like you're saying there's really not much cost for them to go longer, I guess, do fixer rate longer today than what compared to
Speaker 3:Correct. Right. So, yeah, cuz basically paying in paying interest rates for you, the interest rate for two versus five years is probably minimal difference. So, um, kind of helps you, you know, like you said, loan officers can help with that, but that's a thing where you start to you look forward and see plan out some of cash flow issues and how that expense will, will affect, you know, kind of the, the general thought process on where business could be going forward and you know, how that, that cash flow, that interest expense cash flow, um, the difference between the two could, could change your, you know, expectations.
Speaker 2:Yeah. So I guess, and so one of the thingss been kind of crazy watching is how that, and the 10 years is the fancy one to talk about are, I guess gets more publicity I guess, because I don't know if tens around numbers I suppose, but, um, and then it's the correlation to the mortgage market, like you mentioned earlier. Um, but you know, it's kind of interesting, like the fad course start of the pandemic just went to pretty much zero, but that tenure Treasury's been all over the place. And so that kind of creates opportunity, I guess, for, uh, everybody, I guess if they're wanting to control their costs on interest expense or, um, or whatever they want to do, I guess, as far as that goes, but so what kinda range have we seen in the last couple years or how much variation I guess is variation, right? How much is moving,
Speaker 3:You know, daily, daily it's, you know, I guess it always is. It's always interesting. It, it can jump and jump and move depending on some economic numbers and releases, but back at the end of, of 2020, uh, going to finish out the year in December, we were down around 50 basis points. So 0.5%, uh, started to of course creep up as we moved into 2021, starting to see maybe the pandemic was gonna be a little bit more under control in, in that front. But so, you know, you're thinking, you know, 50 basis points and we're now, you know, 225 plus higher than that. So, you know, we've moved 2.2, 5%, uh, since the lows and that can make a big difference. Um, you know, and it, you know, that's why it's, you know, we're talking about 225%. That is, you know, four times over four times what it was. So basically that 400% move in rates, uh, you know, percentages are always fun when you use'em like that. Right? Yeah. Um, as opposed to just the absolute level, so big movements, um, and you know, and it's, it's, we always talk about us cuz that's where we are. Of course. Uh, and that's, what's gonna be our deciding factor, but you know, we're, we're on a grand stage now and there's all kinds of, you know, other, all other, uh, countries are involved in how things move now and you know, just that's the world we live in. It's truly a global world, global environment, global economy. And you know, we're not, we're not the highest, of course we're not the lowest, um, we're kind of right there in the middle with rates and I guess that's, that's the defi deciding factor on how all that continues to play into effect, uh, with each other.
Speaker 2:Yep. Now do you think, okay, that's kind of interesting because, um, you know, earlier we talked about, you know, um, you know, United States, you know, treasury being almost the gold standard of risk, but you know, seven government, there are negative rates and, but we've never really seen that in the us treasury market. Um, primarily I know my opinion is I don't see if you agree or not that a lot of the negative rates is because that government's really just buying their own debt back and just flushing cash, I guess, into the economy, their economies. But is that right? Or is I'm just dreaming?
Speaker 3:No, that's, that's definitely part of it. So, um, and a lot of that too was, was growth as well. Um, so they, yeah, they were pumping money to make sure everything continued and try to get whatever growth they could. Uh, everything else was very limited. So, um, they just, there wasn't enough growth to, to support it. Um, they kept pushing money and that's, that was part of it. And we haven't had that problem. Although we've had some growth, we slowed down a course with different recessions over time, but we have not had enough even, even with the government programs, it hasn't, you know, the consumer stability there was still growth and that's what kept us, uh, moving forward I guess, and kept our rates positive.
Speaker 2:So one of the things, um, also too, I think when you're thinking about as, I guess if you're one of the customers thinking, you know, our loan officer throws you out different rates at different terms, you know, is actually where we are in the interest rate cycle, um, would make a difference, I guess. Um, cuz like today we're at the real bottom, um, how does that affect kinda one, how you invest or one how you, you know, get the, you know, do our liability structure. Um, how does that change your thinking? I guess where rates are at in the interest rate cycle as a whole,
Speaker 3:Right. So, you know, with, like you said, the interest rate cycle, you're always, you know, ideally, um, investing wise, you wanna be at the top, right. You know, you always wanna buy, buy highest, low type, um, top process. So you wanna invest of course of the highest you wanna, you know, if we had to borrow you wanna be at the lowest. So we're starting, we're not the lowest anymore. We're in the middle here. Um, you know, life cycle wise of everything, you know, there, you know, I know I keep mentioning inflation, but that's the hot topic and that's, what's gonna drive how much growth will continue going forward and how the fed reacts. And we're gonna see that at least throughout this year of 2022 and see how that moves into 2023, but you know exactly how they react and how the consumers and the rest of the economy reacts to those rate changes from the fed, you know, kind of puts us, but we are in the middle of the rate cycle. So we're expecting rates at least to move up a little bit, um, to some degree, some different points, different terms at all, you know, but ideally, you know, you know, so we're, you know, generally speaking, you know, we're, we're gonna be like a lot of banks and we're hit, we'll call it the belly of the curve in that middle term, that three to five year area, just because that's, you know, you're not too short that that you're hurt by any major changes, but you're also not too long that you're, you're stuck if you, you know, we don't guess rates of course, but you know, if you're, if you're stuck on just the wrong end on how things change. Cause um, you know, you're not in control of anything it's, it's the market and things can change and you never know what's exactly gonna happen. You just wanna make sure you're prepared for, for where that could go. So
Speaker 2:Yeah. Yeah. I like what you say, you know, one thing that, you know, I think, and, um, and we kinda learned from the same spot, you know, as far as investing goes and like, you know, you can't know, you can't guess rates, but some point you gotta have some kind of perspective of, you know, where you're at in the world, right. As far as the, the, the rate cycle and, you know, good example, we love our, you know, mortgage department, we did a tons of low 3% 30 or fixed cuz it probably, you know, I don't know if it ever, you know, you don't say never cuz then something bad enough will happen where get rates that low again. And, and uh,<laugh>, it'll slip up and we'll do that again. But you know, we always have to have that perspective, I guess, of where things are at and um, cuz it makes a difference. So
Speaker 3:It does. I mean, yeah, we, we did, like you said, we did lot lots of mortgage rates at 3%. I mean it was very possible. Rates could have gone down to one. Um, you know, but knowing that that's where rates were, it's a good opportunity for, for us to, to underwrite those, those loans that for our customers, at those levels, knowing that we were towards the bottom of probably that rate cycle and, and as you, as of, as of right now, of course it's moved the other direction, so good for the customers that we're able to get those
Speaker 2:<laugh>. Yeah. So I guess that's one perspective too, is the customer's like, you know, cause I think your mortgage rates are probably, I don't know, today's rates would be five or maybe a little under or five-ish, but you know, they can actually, you know, rates did go back down, you could always refinance'em again, right. Or the, the mortgage customer could. So that's one thing they can do and you know, and rates as they get higher and give'em more flexibility and to be able to watch that. So like one thing, um, you know, I guess the concept, especially for us investing, so it'd work a little backwards for our customers are borrowing, is the concept. Um, um, I think I always call it head start. Right. So how would, I guess, can you explain that a little bit? Cause I probably wouldn't explain it very good, but uh, and how maybe that would apply liability wise or our liability, our investors, our liability, our S loans,
Speaker 3:You know, generally speaking, you know, the head start is always, you know, if you're guessing rates you're, you're never gonna be right. Um, I guess, you know, that's kind of where we go with that. So, but a head start, uh, if you do it, you know, I guess my general thought on like thinking of a head start is if we went ahead and invested, uh, we'll just use treasure rates, but if you invest like a two year treasure right now, you know, like I said, it's about 2 60, 2 65, that's what you're gonna earn. Or, you know, you stay at the shorter end and, and not really do anything with cash on the fed fund side at that type of rate. And you just, you, you know, rates are going higher. So it's like, okay. And that just keeps repricing wise. Right. So that's for us. Do we, you know, our head start is we're already, we're gonna go ahead and pick up that higher rate today, um, as opposed to pick up the higher rates as they continue to move forward. So that's kind of the key difference. There is like, well, we're gonna pick up how much over, you know, the longer term over the shorter term and our head start then is, is, um, you know, how much do rates have to move in order to be beneficial or to outpace what we've already, what we've put into the longer term. So customers can do kind of the similar type of an aspect, um, you know, for them is, you know, I guess they would wanna borrow a little bit longer as opposed to staying a little bit shorter, cuz then they're not gonna pick up on those repricing aspects going forward. So,
Speaker 2:So like just like work through an example or like, well, and we'll just use that to your treasury and the fed funds. So that's kinda easy to use. So like where we put, we're getting today on fed funds,
Speaker 3:Uh, well the fed funds targets 50 basis points today,
Speaker 2:50 basis points. Okay. We'll use good round numbers. So like we got cash in at 50 basis points or you could go by a two year treasury at 2 65.
Speaker 3:Right.
Speaker 2:So that makes so, so that would make, we make 2.15% more. So the question is, what happens if rates keep going up,
Speaker 3:Keep going up.
Speaker 2:So like, so the federal reserve like next week, there's I guess pretty much baked in the cake, right. They're gonna raise 50 basis, 50
Speaker 3:Basis points. Yep.
Speaker 2:So I guess if you're, if, you know, say you bought the 2 65 treasury, you would at some point be unhappy. If the fed funds rate got over the 2 65
Speaker 3:Got over 2 65 and then the question then is, well, when does that two, when does that fed funds rate hit 2 65? If it takes a while to get there, it's like, it's gotta go over 2 65 for your, to be worse off. So that's your head start is you've earned your 2 65 over how long of a period before that short term rate hit that 2 65. So
Speaker 2:Right. And really even fed funds get to get above 2 65 of so much before you, right? Yeah. At some point you're basically calculating a break even where cash wise or, you know, income-wise when income-wise, so I guess the flip side would be for, you know, guys borrowing it'd be, they would be going short, that'd be their head start, right. To keep a more variable rate or shorter fixed term versus longer. So, and I guess in today's environment, there's not much head start. Is there
Speaker 3:There's very limit as you yeah. Other than that's why we used two year. Cause it was a lot easier between the fed funds and two year as opposed to two year to 10 year, like you're not getting a head start 20 basis points is very limited. So
Speaker 2:Yeah. So that would like, so if you have a flat yield curve, this will encourage our customer to go longer versus a steeper one, I guess, because of that,
Speaker 3:Because of that.
Speaker 2:Exactly. Same factor. Yeah. Yeah. And sometimes it's kind of, it takes a little while to kinda get used to thinking that way. I think too, that, you know, I guess, and, and that's another thing too, you know, you, our loan officers and we can kinda actually run that and kinda I'll say model it out, but you can kinda, you can make it too complicated I think, or run too many scenarios what could happen. But, and generally speaking, you can kinda run, you know, kind of different interest costs and things like that. I guess one challenge too, you run into is like, or for us is like, you know, and, and our customer would be the same way. You know, you have, you know, you analyze bank performance in like, whether it be this quarter or for this year, for example. And so, but you know, you may have part of that advantage this year, but then next year you might not make as much or like for a customer, they may save money. This year interest expense goes up next year, over the two year period. They may be way better off, but it's kind of, so that's kind of a, I guess, um, psychological challenge, I guess, cuz you're feeling, you know, that extra expense in a different year. Does that make sense or
Speaker 3:Right. Yeah. So yeah, you're getting that extra expense next year versus this year. Um, but hopefully customer wise, you know, business is better, so you're actually bringing more revenue. Um, so there's all kinds of, you know, I, I guess that's you, like you said, we don't wanna complicate it. You don't wanna run, you know, we're not gonna run some crazy forecast that's or forecast multiple forecast where you gotta run so many scenarios and whatnot that it's too complicated, just a couple and you know, try to make sure that it's, I guess understood of possibilities of where things could go.
Speaker 2:And the big there too is like, you know, like you said, you can't guess rates, but you ought to know how your life changes. I guess if rates do crazy things or not crazy things or stay flat, go down, you know, who knows what? So. Yep.
Speaker 3:Yeah. You like to, you like to know what, what, what's your possibility if rates move. Yeah. And you can just kind use it as a base. Let's just say rates would move a hundred basis points. So a hundred, you know, a hundred up, all right. What does that do? And then you can kind, just use that as a base, but only one 50, you know, you can kinda just do a quick math off the top, off the top of that and then same way on a down. It just kind of gives you a good understanding of what could happen. Um, just to make sure you are prepared customers be prepared for those type of changes.
Speaker 2:Yep. And cuz yeah, cuz the big thing is like, you know, and one of the things why we do fix those rates too for our customers is, you know, or, you know, at least make that an option I guess, that they can pick that is cuz if, you know, a lot of times they want to have me able to plan on this is my payment. I know it's not getting worse than this. And then they can manage a lot of the rest of their business too. Cause there's a lot of, you know, uh, you're on a small business or farm. It's not like you're sitting, watching a Bloomberg screen every day and trying to maximize your, or minimize your interest expense or can't have that much time. Right. So
Speaker 3:Right. Yeah. We try to make make it. So it's one less, uh, one less thought process within the business, uh, environment form. Right. You know, the joys with interest rates is, you know, and I mentioned it earlier, we're on a world stage now. So anything can happen news from wherever. I mean, I know Russia's in Russia and Ukraine are, you know, always a topic. Um, you know, China's always a topic that China's been a topic for how many years, how many hundred, you know, for whatever long period now. And of course, you know, how things happen in Europe, you know, and I know, like I said, we're a global economy, we're waiting on different things for this and that. And I know there's parts from different parts of the world that customers wait on and you know, everything else. So anything like that can always change, um, change the, the thought process of where things are going in the future and always that's always gonna change rates. So that's kind of the key is interest rates are always dependent on what else is going on with the economy. Um, and once that happens, they will change again.<laugh>
Speaker 2:And it seems like, yeah, it could be something happened 15 minutes from now. It can change everybody's thoughts wildly. It seems like anyway.
Speaker 3:Exactly.
Speaker 2:Yeah. Do you ever feel like, and I don't know, and maybe it's because of, you know, you have some, I will say more global uncertainty with, you know, um, cuz you know, China's what, you know, anyway, this time locking down some really big cities trying to, you know, uh, control the COVID in their area and then you throw the Russian Ukraine deal in. Does that kind of make some think more volatile, I guess, do you think, or,
Speaker 3:Well, I think, you know, I mean, you know, I guess China's always been a question, so we're not really sure. Um, you know, I think there's always been questions exactly what kind of information we get from, from the government there. So it's always been a, a question and you can probably say the same thing about a lot of different countries, uh, as well. But so that becomes the question on is like where does their growth cuz I mean all the, the amount of people in a country, you know, that size, um, that, that amount of people is going to change the global economy just it's just natural. I mean, they're, that's, that's a lot of people, you know, that's drives a lot of things. Um, and of course, you know, Russia, you know, we are in a, in energy world and a commodity world and I know our customers know that, you know, ag based and so stuff like that, commodity wise, anything that changes those things, be it, you know, the energy from Russia or even, you know, their, their like their wheat or whatnot, how that changes the rest of the global supply and how that comes back and affects our current, you know, our customers here, um, that, that does make a lot of different changes. And so those, those geopolitical aspects are gonna, you know, change a lot of different things. And of course, you know, like I said, once those start to change, that changes thoughts on interest rates. So<laugh>,
Speaker 2:You know, it's kind of interesting you think about, you know, I wouldn't, you know, like even myself, you go like 2019 before the pandemic who'd ever imagine, you might like might not be able to get something right. You know, where it'd be vehicles or famous chemicals. We had customers deal, you know, can they get enough chemical parts? And you know, it's like even two years in it's like, I would've never dreamed we'd have that many issues getting stuff, you know?
Speaker 3:Yeah. I mean, we were talking, everybody was talking about, you know, with Amazon delivery being within a day, same day next day, you know, I mean, and now we're, I don't know, months, months delivery years of whatever it is. It seems like now it's like, oh, well I guess we're not quite where we thought we were.
Speaker 2:Yeah.<laugh>, that's the exciting part of living it. Like I say, a global economy that we are relying on lots of other people and who knows what's going on. All right. Well, I think that's got most of our topics that I think I had on my list, Sarah Shane, but uh, appreciate you taking the time. And again, if our customers, you know, need help run some SNAs something, you know, issues like that, they worry about, you know, we can get probably as detailing in the weeds as you want us to and, uh, can kind of follow up. And I know one of the things we do too, is, uh, uh, have Shane of all of our loan officers to kind of keep them abreast of what's going on in the markets and interest rates and cuz they're all tied together. So, uh, appreciate you taking the time to join us Shane and uh, uh, we'll let you get back at it. All right. Thanks for having me. Appreciate it.
Speaker 1:Thanks for listening to DreamMaker making dreams come true. We'd love to connect with you. Find us on social media@fnbwindmillandonlineatfnbwindmill.com heard a topic that could enrich someone else's life too. Be sure to share this podcast with friends and family and check back regularly for new episodes or subscribe. So you never miss a show. See you soon.