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Across second-quarter 2026 earnings calls, one theme stood out: banks are originating loans at a healthy clip, yet balance sheets are barely growing because loan payoffs are running just as fast. S&P Global Market Intelligence reported that banks attributed the elevated payoffs to refinancing, asset and collateral sales driven by borrower liquidity events, normal project…

If you are a commercial lender at a community or regional bank, the prepayment provision on your fixed-rate loans is probably the least-discussed and most valuable term in your credit agreement. Most banks either negotiate away prepayment protection entirely or rely on a step-down penalty that borrowers routinely force banks to waive at payoff. A…

We were recently collaborating with a community banker who was trying to win a relationship client from a regional bank. The issue was that the incumbent bank was pricing this client at a credit spread of 1.25% over SOFR and our client banker was told that his bank would not accept less than 2.40% credit…

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…

Prepayment penalties on loans always drive value. However, in 2023, loan prepayment provisions will be essential tools for commercial banks.  Loan prepayment provisions lower prepayment speeds (especially in a stable or declining interest rate environment) and drive higher return on assets (ROA) for banks. In this article, while we have discussed how to sell prepayment…