We have witnessed some banks position their senior secured loans as quasi-equity financing. This plays well to borrowers who are looking for long-term banking relationships, and it has helped these innovative banks secure quality clients, increase relationship lifetime value and drive core deposits. In this blog, we will outline how these banks structure these credits and how they position these loans for maximum effect.
If a commercial real estate loan fails to pay on time, what is the probability of bringing the loan current?
While most community banks do not use LIBOR extensively for their loans and deposits, many community banks have at least a handful of loans or other cash instruments that do reference LIBOR as the benchmark rate. This article outlines what community banks need to know at this stage of the LIBOR transition period.
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
Knowing who your competition is, what they are offering, their delivery channels and service levels can help community banks differentiate their services and enhance their competitive advantage. Understanding the competitive banking landscape helps community banks set proper pricing, effectively respond to rival marketing, and compete more effectively. Analyzing the competition can also help a bank be realistic about which products it can sell and at what price.
There are vast opportunities for community banks to differentiate themselves from their competition and create substantial value-add. One technique that we and other banks are having success with is the use of forward commercial loan commitments. This is a structure where your bank locks in loan terms that may start in the future. Forward periods range up to 24 months and average about 13 months.
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.
Many executives at community banks fulfill many functions and wear numerous hats. However, we are advocates of separating the Chief Lending Officer (CLO) and Chief Credit Officer (CCO) functions at community banks from both an operational and strategic perspective. We still see some community banks that either do not have an official CLO role or combine the CCO and CLO roles. We feel that CCOs cannot be effective fulfilling the true strategic objective of drive lo
Top performing banks use prepayment protection (PP) on commercial loans to deliver superior value and gain a competitive advantage against their competition. The connection between PP and bank value is not always apparent, but we can measure this relationship and quantify when it makes sense to remove or insist on PP. Some banks mistakenly avoid including PP in commercial loans as a competitive strategy. We feel that eliminating PP on commercial loans materially detracts from profitability, degrades credit quality and attracts the wrong commercial customers.