Here Is How To Calculate Your Bank’s Cost Of Capital [Calculator]

As interest rates go back up and volatility continues to remain high, banks’ cost of capital has undergone a significant shift up. Your cost of capital is essential to know for several reasons. Mostly, it gives your board and shareholders a yardstick in which to gauge a bank’s return. Produce over your cost, and you…

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Should You Be Marking Loans To Market?

Available-for-sale securities are reported at fair value, and any unrealized gains and losses are included in accumulated other comprehensive income (AOCI) in the equity section of the balance sheet.  The AOCI is an accounting adjustment meant to reflect the economic value of assets and is the process of “marking loans to market.”  That same adjustment…

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The Five Problems with Adjustable Rate Loans

A common strategy for community banks, when faced with a borrower that wants a 10-year fixed rate loan, is to offer a five-year fixed rate that adjusts in five years. Historically, this has worked for some customers and banks because, over the last 40 years, five-year rates have generally fallen.  As interest rates fall, a…

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Rethinking The Adjustable Rate Loan Structure

Community banks have structured fixed-rate loans for many years with an adjustable repricing feature where a loan is fixed for a number of years and then resets based on a stated spread and an index. However, adjustable term loans have several drawbacks for banks, especially in a rising interest rate environment.  One of the most…

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