Correspondent Blog

In our previous article (HERE) we discussed differences between how various banks price commercial loans. We contrasted ideal pricing and real-world pricing strategies employed by banks. We highlighted the objectives of loan pricing and summarized seven tools that community banks can use to price commercial loan relationships. In this article, we would like to further…

We are often asked by lenders about pricing differentials for fixed-rate commercial loans with and without prepayment provisions.  For example, if a bank were to price a loan with a yield maintenance provision the loan would have a much longer expected life, and under most circumstances the bank would not have negative impact if rates…

We are often asked by lenders about pricing differentials for fixed-rate commercial loans with and without prepayment provisions.  For example, if a bank were to price a loan with a yield maintenance provision the loan would have a much longer expected life, and under most circumstances the bank would not have negative impact if rates…

In our previous article (HERE) we discussed differences between how various banks price commercial loans.  When it comes to setting commercial loan rates, we contrasted “ideal” and real-world pricing strategies employed by banks. We highlighted the objectives of loan pricing and summarized seven tools that community banks can use to price commercial loan relationships. In…

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…

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…

We are strong proponents that bankers should be focused on keeping loans instead of making loans. While it is true that banks make loans, originating a loan is an unprofitable business. Banks earn an acceptable return on capital by keeping loans, not by making them. We recently worked with a bank that kept, and increased…

We talk to many community bankers who are seeking ways to expand their commercial and industrial (C&I) loan portfolios. Yet, despite the strategic importance of this category, growth has remained elusive. The A and B cross-secured structure (“AB structure”) has recently been utilized by community banks as a practical, risk-managed method for increasing C&I lending…

If not properly structured, fixed-rate commercial loans can become one-way floaters. The term refers to a loan where the bank retains the fixed rate when interest rates rise, but the borrower refinances the loan when interest rates fall resulting in declining yield for the bank. In this article we explain why this reduces profitability for…

The Fed Funds futures market is currently pricing in a high probability of a September interest rate cut – although that is not a certainty.  Many clients with financing needs are looking to their commercial relationship managers for advice on how to structure and price their credit facilities.  We recently worked with a lender who…

When banks price loans, they stress the borrower’s ability to repay the loan under adverse credit conditions. For example, credit officers will underwrite to various interest rates, vacancy rates, revenue projections, EBITDA or NOI assumptions. However, most banks will not subject that same credit stress analysis to calculate that loan’s ROE. This is unfortunate because…