What is with all the waving we do at the end of Zoom calls? Should we start waving as we back out of the room for in-person meetings in the future? By the same token, many banks are baffled by what to do with the Main Street Lending Program (MSLP), as this is not something we would do in normal times. Yet, we found ourselves both participating and waiving at the end of those MSLP Zoom calls. No matter if your bank is going to participate in MSLP or not, understanding the risk involved is a master class in loan structuring and credit.
Tag: Loan Structuring
Covid-19 and the responses to the pandemic are exerting various pressures on community banks. How a community bank underwrites and books commercial credit through the end of 2020 will have a significant impact on the bank’s profits and credit quality through the entire next business cycle. In this article, we focus on four key steps of what banks can do to continue to add earning assets to their balance sheet.
With a low and flat yield curve, generating profits through investments has become more challenging. There are some very poignant lessons that CFOs are learning about investment strategies that apply directly to commercial lenders. In this article, we look at several basic capital market precepts that the average investment officer lives with every day but lenders may not notice.
Since March of this year, many community banks have been working to provide cash flow relief to customers who have sound business models but require some temporary payment restructuring caused by business disruption as a result of the Covid-19 pandemic. CenterState has been involved in those same restructurings both as a lender and as a hedge provider under the ARC program. We have learned some valuable lessons that we would like to share.
We work on thousands of lending transactions every year with hundreds of community banks across the country. We participate and help structure financing on commercial real estate, C&I and Ag properties ranging in size from a few hundred thousand to over $100mm, and we collaborate with community bank lenders and underwriters that span the whole gamut of experience. We witness the good, the bad, the ugly, and occasionally the very bizarre in bank marketing, under
Community banks face intense competition from different institutions and various industries. There is currently a market phenomenon that is creating an unusually challenging environment for community banks that compete for real estate financing. This phenomenon is creating an advantage for some lenders in the amount of seven to 42bps, and community banks must be aware of this aberration if they want to win more quality borrowers.
It sometimes pays to be opportunistic in marketing your community bank’s products. There is currently an exceptional market opportunity for community banks to win profitable business from larger competitors. The recent decrease in interest rates presents an opening for smart bankers to poach good quality clients and lock them in as customers for a decade. Our bank recently did just that, and in this article, we would like to share this strategy through a case study.
Interest Rates Dip
One battle currently waged in the banking industry is amortization terms and interest-only (IO) periods. Borrowers often have legitimate needs to extend the principal repayment on term loans to 30 years. Banks prefer 20-year amortization terms on real estate-secured loans, but most banks are willing to extend to 25-year amortization terms.
Sometimes how we choose to measure something can lead to incorrect conclusions. While mathematically 30 is 50% more than 20, a 30-year amortizing loan is not 50% riskier, or 50% longer than a 20-year amortizing loan. The amortization term is often a poor measure for bankers to use to make credit decisions. In this blog, we will explain why the amortization term can be a misleading measure, why bankers should be using average life, and we will provide readers with a downloadable average life excel calculator for bankers to use for their own analysis.
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.