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Small bank NIMs reflect reality of low rate environment

For most community banks, the first quarter of 2016 proved another tough one for margins.

Lee Kyriacou, director of research at Novantas, pointed to the “counterintuitive” fact that margins have historically tended to fall when rates rise. But he said that scenario might not play out as dramatically in the current environment since the loan book has essentially “been run down to current low rates.”

“Unlike other rising rate environments, it may be this time that NIM doesn’t decline as much,” he said. “You’re starting finally in the last quarter or two to see an increase in NIM.”

Kyriacou said that banks with assets that reprice more quickly will do better in the rising rate environment, and larger banks are generally better positioned for increasing rates because more of their assets have variable rates or are repricing in less than a year.

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