Correspondent Blog

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 (HERE) we discussed the importance of commercial loan prepayment speeds.  We explained why loan prepayment speed is a major factor influencing a bank’s profitability, and how national banks use historical analysis, quantitative modeling, and predictive analytics to structure loans to increase loan retention (decrease loan prepayments). We also outlined how various input…

In a recent article (HERE) we discussed the importance of loan prepay speeds.  We explained why loan prepayment speed is a major factor influencing a bank’s profitability, how national banks use historical analysis, quantitative modeling, and predictive analytics to structure loans to increase loan retention (decrease loan prepayments).  We introduced the crucial factors influencing commercial…

When pricing and structuring commercial loans, few community bankers consider factors that affect commercial loan prepayment speeds. Further, even many sophisticated loan pricing models do a poor job of modeling commercial prepayment speeds. But loan prepayment speed is a major factor influencing a bank’s profitability and, in this article, we will outline why this is…

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

In today’s competitive commercial lending environment, banks must continually balance the risks and rewards of different loan structures. Nowhere is this tension more visible than in the decision to offer a standalone construction loan versus a construction-through-permanent (construction-to-perm or “single close”) loan. Though construction lending inherently involves elevated risk and complexity, banks that opt for…

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…

Expected average loan life measures the amount of time that principal is outstanding on a loan.  This average life is driven by many factors, including amortization period, economic circumstances, nature of the loan and the expectations of the borrower, and most importantly, by contractual term and prepayment provisions.  The biggest surprise for many lenders is…

In a competitive market for commercial clients, each loan feature can be valuable to a community bank. One such loan feature is a prepayment provision on fixed-rate loans.  Some community banks offer fixed-rate loans through a hedging program and utilize a symmetrical prepayment provision, others community banks will market their fixed rate loans based on…

In the 4th quarter of 2024, commercial loan pricing has materially changed. The new administration with its lighter regulatory stance, the potential for tax relief and threat of higher inflationary has generated new optimism for credit, and new risk of higher rates. In this article, we quantify commercial loan pricing trends from our Loan Command…

A credit tenant loan (CTL) is typically structured as a loan secured by the real estate pledged as collateral, with or without personal borrower guarantees, and, most importantly, the obligation of a credit-rated tenant of that real estate to pay rent.  These loans have both bond and loan qualities.  They are like a bond in…