Correspondent Blog

Unfortunately, disruptions from a federal government shutdown are all too familiar to the American population. More unfortunately, this one is different from all that have come before. This shutdown will test both Democrats and Republican’s resolve like never before. As such, this shutdown could go past the 35-day record during the first Trump presidency. Banks…

Many clients are relying on their commercial relationship managers for advice on how to finance their business or real estate assets in the face of Fed rate cuts.  We work with thousands of community bank lenders across the country, and some have been advising their borrowers to finance long-term assets with short-term loans in the…

Most bankers understand that they are in the business of keeping loans versus making loans.  Originating new loans drains bank resources with acquisition, processing, and onboarding costs.  By identifying the right customer at inception and structuring the appropriate products, community banks can create a long-term, growing banking relationship.  Short-term loan commitments decrease cross-sell and upsell…

In contrast to 2Q where the market overreacted (in retrospect) to tariffs, government cuts, and immigration reform, 3Q is built around a return to normal theme. Banks increased lending supply and credit performance remained stable. In this article, we will break down detailed commercial loan pricing data and highlight both trends and insights into 4Q….

We estimate that roughly 10% to 15% of community banks use a loan pricing model and fewer use a risk-adjusted return-on-capital (RAROC) loan pricing version. Most bankers are aware of loan pricing models but choose not to use them for the following reasons: 1) The cost of acquisition and implementation, 2) A lack of time…

The Fed just finished their July meeting and there are many banker that will be further waiting for rates to drop. By the same token, many borrowers are grappling with the decision of when to lock their permanent financing. Some borrowers are choosing short-term financing in anticipation of the Federal Reserve embarking on an interest…

We are not big proponents of loan pricing grids. We find pricing grids to be rudimentary – lacking the myriad of inputs that distinguish risk-adjusted return on capital (RAROC), such as acquisition and maintenance costs, fees, interest rate, credit risk, and cross-sell opportunities (some of the most important drivers of banking profitability).  We believe that…

Community bankers need actionable recommendations.  For example, if your bank has a higher efficiency ratio, lower fee income, or higher loan prepayment speeds than its competitors, then advising management to decrease efficiency ratio, increase fee income, or reduce loan prepayment speeds is not actionable.  How does management achieve those recommendations?  We are big proponents of…

We have the privilege of using our risk-adjusted return on capital pricing (RAROC) model, and various other profitability tools, to analyze individual and multi-bank performance.  Our data and analysis strongly suggest that banks that can measure instrument and relationship-level performance for return on assets (ROA) and return on equity (ROE) can improve simply by reallocating…

We compared community bank profitability on hedged commercial loans to those same banks’ reported return. The goal of our analysis was to investigate if community banks can improve their performance by utilizing a hedging program.  We want to caution readers that our analysis may not extend to all banks, borrowers, or regions, but the results…

In previous articles (here and here), we discussed how a portfolio of commercial loans with various expected average lives results in different net present value (NPV) of income and return over a ten-year period.  We also identified ten variables that are responsible for extending the average expected life of a commercial loan. As we continue…

“Liberation Day” brought a 10% baseline tax on all imports plus a 15% to 49% tariff rate on a defined set of nations (below). The move shook the markets, threatening to upend much of the architecture of the global economy and fueled broader trade wars. The recent uncertain shifts in trade policies, particularly increased tariffs…