With a flat and low yield curve, borrowers’ demand for long-term fixed-rate loans is high. Furthermore, based on the forward market and most analysts’ predictions, the yield curve is expected to stay low and flat in 2020. The difference between five and ten-year loan rates is currently only nine basis points, and the difference between five and 20-year loan rates is 21 basis points.
You cannot read a financial paper, business feed, or watch financial television without someone mentioning yield curve flattening and inversion. Google searches for “yield curve inversion” are at their highest level ever. What is all the fuss about, and why should bankers care? We will explain an innovative way that bankers are using the current yield curve to protect existing relationships, increase yield and generate non-interest income, and we will use a recent case study to highlight the specifics loan terms and results.
Many community bankers are experiencing competitive pressures when competing for higher quality credit, relationship-driven accounts.
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
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
As the yield curve flattens, the difference between Prime and ten-year fixed commercial loans rates gets smaller. Community banks face a dilemma in how best to manage interest rate risk – which affects both the bank and the borrower. Banks are further challenged to offer loan structures that maximize their competitive advantage and differentiate their product from multiple competitors. We see one specific strategy that community banks are deploying that utilizes upfront non-interest income in structuring owner-occupied and investor CRE term loans for ten to 20 years, eliminating both the
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.
Commercial lending is currently very competitive with too many lenders suppressing margins and loosening credit standards. Community bankers need all of the help they can get, which is why CenterState Bank created the Knock Out Loan.
Many community banks are starting to embrace loan hedging as an effective tool for risk management, loan production and fee income generation in commercial lending. CenterState Bank does, and it is one of the initiatives that has helped us originate $1B of new loans last year and achieve double-digit organic loan growth.