One thing that is underappreciated in our industry is the difference between loan structure risk versus credit risk. While these are intertwined, the two risks are different as we will explore.
One of the best ways to become a better banker is to pay attention to your competition and analyze their strengths and weaknesses. We pay particular attention to term sheets and commitment letters from other banks to learn what other banks are doing well and where they make mistakes. We intend to capitalize on competitors’ weaknesses and to learn to address and respond to other banks’ strengths. We recently reviewed a term sheet that we thought highlighted some in
We believe all banks should have a hedging program to manage interest rate risk while providing a variety of loan structures to satisfy the borrower’s, not the bank’s needs.
Let’s Make a Deal was a game show that originated in 1963 and starred Monty Hall. Audience members were offered a gift and then asked if they want to trade it for another gift of unknown value. Hilarity ensued when we watched people trade luxurious Hawaiian vacations for a pack of goats.
To compete effectively, community banks need to understand who their competitors are; the products and services that competitors offer; plus, how the competition is positioning and selling these products. Conducting competitor analysis allows banks to rank themselves in the industry, leverage competitive insights, discover trends and improve their product offering. Unfortunately, many community banks do not have the resources to conduct a thorough competitor analysis. We would like to share one recent pitch from a small regional bank on how they position and sell a novel prepayment provi
For all banks, the flattening yield curve is impacting profitability. The difference between the Two-Year swap and the Ten-Year swap rate is around 12 basis points. For banks over $15B, this flattening moves net interest margin (NIM) lower and then improves past the one year mark. However, for community banks under $15B, the flat curve not only moves net interest margin down, but this lower profitability becomes worse over time.
Last month, right after lunch, the borrower came into the bank to close his company’s owner-occupied commercial loan for $5mm – it happened to be March 21st. The borrower closed the loan, locked in a 4.50% rate for 10-years, shook hands, smiled and walked out the door. The Chief Lender and the CFO walked over to the business development officer and congratulated him on a job well done. High-fives ensued, and everyone was happy. Should they be? The Bank just lost $238k in one day, and the worst part is, no one knew the difference except the borrower.
In our previous blog (HERE), we discussed the three primary criteria that banks should consider in choosing an appropriate index to price commercial loans. We concluded that, for the time being, LIBOR (surprisingly) was a superior index for community banks to use because of its high correlation to community banks’ cost of funding (better than Prime or US Treasury). We also discussed why LIBOR is a more flexible loan index for community banks becau
Community bankers are often starved for marketing support and sales resources. We face the same challenges at CenterState Bank, where our commercial lenders are scrambling to compete for quality customers, manage existing loan portfolios and address daily administrative tasks. We all wish we had extra help from marketing and assistance for our sales collateral.
Rising rates, regulatory pressure on interest rate risk, competition and the best way to hedge long-term, fixed rate loans is causing a puzzle for many banks. Luckily, we love solving puzzles and take an interest in new and challenging conundrums especially related to banking. A client recently asked us to solve an oldie but a goodie: what is it that a man can do standing up, a women sitting down, and a dog on three legs? The answer is, shake hands.