Correspondent Blog

If you are a commercial lender at a community or regional bank, the prepayment provision on your fixed-rate loans is probably the least-discussed and most valuable term in your credit agreement. Most banks either negotiate away prepayment protection entirely or rely on a step-down penalty that borrowers routinely force banks to waive at payoff. A…

Fixed-rate lending can create negative economic value for banks. That is, unless the bank upcharges credit spread and enforces meaningful prepayment provisions. Every fixed-rate commercial loan contains two options that the bank writes and the borrower owns. Neither appears on the term sheet as a line item. Neither is invoiced. Both are exercised at the…

We work with over a thousand community banks across the country.  We observe and measure commercial loan pricing, seeing over a hundred commercial loans per week on average.  Our bank customers range in size from under $100mm to over $10B in assets, and we see pricing on commercial loans as small as $200k and as…

Every commercial lender knows the feeling.  The bank took the hardest risk on a project – the construction phase. The bank managed the draws, monitored the budget, inspected the site, and shepherded the borrower through permitting delays and cost overruns.  Then, just as the project stabilizes and the loan finally becomes easy to hold, the…

Few questions matter more to a community bank than how its earnings respond when interest rates move. Yet little research has been published to answer this question or how variable-rate lending contribute to risk and profitability. A recent study in 2026 by James W. Kolari, Ivan Pastor Sanz, and Wei Liu (ssrn-6898599) tackles that gap…

Less competitive markets can boost returns for community banks. Specialized lending refers to customized financing tailored to specific industries, asset classes, or complex business transactions. Unlike standard commercial loans that rely on simple financial ratios, specialized lending requires expertise to evaluate unique collateral and cash flow structures. There are some specialized lending opportunities that fit…

During the pandemic, some banks extended asset duration as if they were convinced that interest rates would not rise again in the future. At that time, we published multiple articles warning banks to dynamically assess their asset-liability management (ALM) assumptions and consider alternative paths of interest rates; paths that looked normal just before the pandemic….

When it comes to winning loans for commercial relationships, community bankers need to know who they are competing against. Understanding your competition allows you to better innovate your products, define your delivery channels, highlight your differentiation, and establish pricing methods (among other business strategies).  Bank managers often believe that they can differentiate their service to…

We talk to thousands of lenders across the country each month about structuring and pricing loans.  We have never fielded so many questions and debates surrounding pricing differential between fixed versus floating-rate loans.  We believe that this development is primarily driven by the uncertainty of the future path of interest rates (a perennial issue for…

In a competitive lending market, community banks are looking for an edge to win quality loans. On quality credits, many community banks are eliminating loan origination fees and prepayment provisions to differentiate from competition. Since it is easy for any bank to eliminate fees and prepayment provisions, that competitive advantage quickly becomes commonplace and no…

In recent articles (last one HERE) we discussed the importance of commercial loan prepayment speeds.  We explained the importance of keeping loans vs. making loans in driving bank profitability.  The key factor affecting a loan’s expected life, after contractual term of the loan, is the specific loan prepayment provision.  The most acceptable, marketable, and enforceable…

With regard to commercial real estate, an assumable commercial loan allows a buyer of the property to take over the seller’s existing mortgage, keeping the basic economics of the loan in place. The basic economics of the loan include rate, term, prepayment provisions, and other key features. However, the basic economics may be adjusted to…