While funding cost pressures have likely peaked, institutions could still feel pain from customer balances repricing at current market rates when certificates of deposits mature. Absent notable declines in interest rates — which some market watchers expect given recent weakness in employment trends — deposit costs are unlikely to drop significantly in the near future, but net interest margins should still expand as fixed-rate assets reprice at higher rates. Some of those assets will not find lenders willing to refinance the credits, particularly in the commercial real estate segment, leading to higher loan losses. Community banks will incur some of that pain, but the loss content will not match the fears of some investors, who believe the credit deterioration will claim scores, if not hundreds of banks.
