Correspondent Blog

Most customers are borrowing neophytes.  We estimate that the majority of community bank borrowers have a rudimentary financial and accounting understanding, and these borrowers may focus solely on the interest rate on a loan when comparing their options.  Even “sophisticated” and seasoned borrowers do not know how to compare their borrowing options to optimize outcomes. …

Recent regulatory messages have reinforced the importance for commercial banks to prepare for the end of LIBOR after 2021.  However, banks cannot wait until the end of 2021 to find replacement index(es)  because the transition from LIBOR requires changes to systems, vendors, training, and marketing that can take several quarters to finalize and implement.  To…

We have published multiple articles, economic bulletins, and podcasts on inflation (including here and here).  In this article, we will not make a case for or against the market’s expectation of inflation.  We will assume current gauges such as CPI and PCE accurately reflect the current inflation environment (many arguments can be made for why…

The average commercial loan term for amortizing credit facilities at community banks is between four and five years. Banks need to understand the optimal loan term for amortizing credits to maximize profit and minimize risk. We analyzed the average community bank’s preferred loan term based on risk (probability of default, loss given default, and expected…

If you ever wanted to know the most popular strategic planning initiative for a bank over the last three years, it is this one – generate more non-interest income. An estimated 30% of banks have this as their focus. The funny part is that despite this being a major conversation and the source of many…

For decades, community banks have structured term loans as 5-year fixed-rate facilities.  In the last six months, the percentage of 5-year fixed-rate loans at community banks has increased by approximately 25%, but this same bucket has held steady at larger banks (those over $25B in assets).  We believe that now is the right time for…

We recently interviewed a top commercial loan producer at a regional bank who explained how he uses three common principles to beat out his competition. We want to share his principles, philosophies, and techniques in hopes that it might serve as an aid for some of your new relationship managers and a reminder for some…

Both the Federal National Mortgage Association (Fannie) and the Federal Home Loan Mortgage Corporation (Freddie) have aggressive multifamily lending programs and comprise the bulk of the market. Freddie’s total multifamily finance activity in Q1/21 was $14B, and Fannie Mae’s was $21.5B.  Some bankers complain that taxpayers’ dollars are creating an unfair playing field for financing…

Our previous publications discussed current banking industry dynamics for loan pricing, how community banks are responding, and some winning strategies for community bankers.  We contend that excess liquidity and tepid loan demand are the main culprits in driving community bank net interest margin (NIM) to the lowest level in recent history.  With loan-to-deposit ratios dropping…

At SouthState Bank, we are using a tested strategy to increase loan revenue by 20% and decrease interest rate risk by 80%.  We are achieving this result on our better credit quality commercial loans without any gimmicks or confusion to the borrower.  We have developed a technique and a loan structure to assist bankers who:…

Some economists, Fed officials, and pundits are making the argument that while inflation may run hot for the next year or so, the risks of long-term high inflation is not pronounced and inflation will be capped at around 3% in the near future, and the probability of runaway inflation is next to nil.  This is…

Most community banks will find it challenging to meet their loan growth targets in 2021.  Part of the challenge is lack of loan demand, elevated and rising loan payoffs, and stiff competition.  Therefore, most community banks conclude that they do not want to sell participation in a good commercial loan to another lender. However, selling…