Correspondent Blog

On October 23, 2020, the International Swaps and Derivatives Association (ISDA) published the much anticipated IBOR Fallback Protocol (Protocol).  Firms that sign up for the Protocol agree to the spread adjustment and the fallback rates if LIBOR becomes unavailable in the future.  Most community banks have some loans or deposits tied to LIBOR, and many…

Since the election falls right in the middle of bank’s budgeting and planning cycles, it is worth spending some time looking at potential outcomes. With a little more than two weeks before the election, the current polls and betting odds favor a Democratic Administration and both houses of Congress.  According to FiveThirtyEight, Biden has a +10.5%…

Last week a seven-year-old asked us what banks do.  That question got us to pause.  How do we explain a whole industry to a seven-year-old in less than a minute, keep his interest, and do justice to the answer?  The simplest answer is that banks allow customers to change the timing of their cash flows….

The Covid-19 pandemic has decimated the US economy, and the recovery may take longer than initially suspected.  However, currently, community banks have an opportunity to identify and win or retain longer-term, credit-worthy relationships at better credit spreads. There are also substantial challenges facing the entire banking industry. One major challenge is to understand is that…

The combination of the COVID-19 pandemic and the interest rate environment drives every bank to rethink their branch delivery. In a world with six percent net interest margins, banks can have all the branches they want. However, in an environment with sub-three percent margins, banks can no longer afford an extensive bank network. Banks that…

While lots of banks talk about culture and innovation, few can execute. If you are looking to capture the mindset of what a culturally strong and innovate bank looks like, listen to the 30-minute interview with Jill Castilla, the CEO of Citizens Bank of Edmond. Jill talks about experimentation, marketing, the customer experience, the meetings…

Based on our observations, we estimate that somewhere between 20% and 25% of community banks have adopted a policy requiring minimum yield or credit spreads for their newly originated commercial loans. The strategy requiring minimum commercial credit spreads may be well-intentioned, but the results for banks may be less than optimal. We understand and are…

Chances are, even if you limited your Paycheck Protection Program (PPP) origination to just customers, you still have some fraud. If you took on new customers, you likely have between 5% and 10% fraud, even with a medium level of screening. According to an Aite Group survey done in June, financial institutions are only catching…

Uncertainty creates significant challenges for business managers, and while variability in outcomes is a business constant, the degree of uncertainty during a pandemic is extraordinary. Therefore, how do community banks distill today’s interest rate forecasts and position their loan portfolio for optimal performance? Choosing the duration of your loan portfolio isn’t a passive decision. Banks…

It was only two years ago when we were in the golden age of banking. The ten-year treasury was above 3%, loan growth was strong, funding cost was low, and credit quality was near its high – if not at record highs for some banks. Fast forward today, and you have a 0.67% ten-year, a…

As any lean six sigma practitioner will tell you, banks need to continuously define problems, measure against benchmarks, analyze, improve, and control their PPP Forgiveness application process. With a couple of thousand applications processed over the past five weeks, we are improving our process daily. In this article, we focus on the back end of…

The economic consequences of Covid-19 have altered average credit quality and created a flat and shallow yield curve.  Community banks are working diligently to support their local communities and survive in these challenging times.  One tool that many community banks have utilized in this business environment is a loan-level hedging product. There are several benefits…