Correspondent Blog

Should borrowers pay commercial loan points to lower future interest payments? Loan or mortgage points are upfront fees paid by the borrower to the lender to reduce the interest rate on a loan or mortgage.  For example, assume that a borrower is considering a loan, structured as a 25-year amortization, due in ten years, at…

Over the last few years we have published various articles on the pros and cons of commercial loan prepayment provisions, how those prepay provisions impact marketing and sales, loan prepayment speeds, and the relationship between prepayment provisions and customer return on equity (ROE) (some of the recent articles are here, here, and here).  We are…

In a previous article, we discussed how a loan’s maturity and amortization impacts credit risk and profitability from the bank’s perspective (HERE). In that article, we pointed out that the average commercial loan term at community banks has been decreasing and is now between 3.5 and 4.5 years.  Much of the explanation for the decrease…

We recently worked with a community bank in the Southeast that wanted to win a piece of credit business for a manufacturing company.  The manufacturing company had a long-time relationship with a national bank and the community bank lender was struggling to make inroads with the company’s CEO and owner.  The CEO finally agreed to…

In Q2/24 the average return of asset (ROA) for community banks (under $10B in assets) was 1.08%.  But within the community banking sector, performance varied among banks significantly and a large swath of banks need to improve ROA.  While the average ROA was 1.08%, approximately 5.7% of community banks reported negative ROA.  Another 16.2% of…

Commercial lending is more competitive than ever. To effectively differentiate their services, commercial lenders will need to be thought leaders, understand their market and industries, and provide more insightful advisory services.  Commercial lenders can differentiate themselves by running return on investment (ROI) scenarios for their borrowers to help them make better financing decisions – especially…

If your bank is interested in banking more profitable commercial relationships – those customers with multiple bank products, where the bank holds over 50% of bank wallet, provides long-term sticky banking services and recognizes over 20% return on equity (ROE) – then the case study described in this article will be of interest to you. …

We estimate that the average contractual loan commitment for term credit at community banks has decreased from just under five years in 2022 to just under three years currently. The primary reason for this shift is not a change in borrowers’ business models or banks’ preference for repricing term loans, but rather, borrowers’ decision to…

Many economists and analysts predict that the Federal Reserve and other central banks will start easing monetary policy in 2024.  Many bankers and borrowers are convinced that a recession is imminent despite no clear evidence for such a conclusion.  How should lenders discuss interest rates in 2024, and what advice should relationship managers provide their…

Most borrowers have a rudimentary understanding of interest rates, the yield curve, forward rates, and forward premiums.  Commercial bankers are trusted advisors and have a unique opportunity to understand their client’s specific financial and personal situations, explain the basic concepts of capital markets, and offer prudent and objective advice to help customers reach their goals. …

Community banks are striving to increase loan yield and maintain their cost of funding (COF).  Unfortunately, pressure on COF is expected to remain, and loans will reprice slower than expected as borrowers with below-market rates will wait until the last maturity day to refinance their credits.  We have created and used a novel structure to…

Our article last week (HERE) discussed the “power of three” marketing rule and how to use it for loan proposals.  The rule states that human brains make better decisions when given a small selection of appropriate options but not too many to become confused. One or two options are usually insufficient, and five or more…