Tag: Swaps

How Your Bank Can Pick Up 40 Basis Points of Margin

Improving Net Interest Margin
IMPROVING MARGIN

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.

 

Swap Spreads

 

How To Generate More Revenue and Satisfaction with an Inverted Yield Curve

a LOAN TACTIC TO IMPROVE REVENUE AT YOUR BANK
A LOAN TACTIC TO IMPROVE REVENUE

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.

 

Background

 

The Cost of Swaps For Banks

Developing Lending Tools

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.

Understanding Your Loan Competition To Sell More Effectively

Competitive Lending

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

Take Advantage of These Common Misconceptions For Lending Profit

Lending Profitability

Relationships between different variables can be very complex in the real world and banking is a perfect example of this complexity. The human mind, however, is skewed to perceive relationships in a linear fashion and this can lead bankers to make the wrong decisions.  With the odd shape of the yield curve, we are seeing smart bankers making very profitable lending decisions because they understand their business model, the shape of the yield curve and the nonlinearity of commercial loan pricing.

Community Banks Are Less Able To Withstand A Flattening Curve

Swaps and Hedge To Help Net Interest Margins

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.

The $238k Wall Street Journal Prime Mistake

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.

Now Is The Time For Loan Hedging

Loan Hedging Swaps and Derivatives

Success in banking is simple.  Offer the right product, to the right customers, at the right time.  The timing now is perfect to accommodate borrowers who want long-term fixed-rate loans, and the timing is also perfect for banks to convert those fixed-rate loans to a floating rate asset to protect the bank.  At CenterState we created a custom built loan product called ARC (Assumable Rate Conversion) program that is currently very popular with our own borrowers, and hundreds of banks across th

Loan Hedging With A Flat Yield Curve – Part II

Using Swaps for Loans

In one of our blogs last week we discussed why a flattening yield curve has real consequences for the performance of a community bank’s loan portfolio.  The market expects a continued flattening of the yield curve through 2018 and community banks must develop loan products that perform well in such an interest rate environment.  In today’s blog, we review the pressures that community banks will face in this competitive commercial loan environment and how banks can position their commercial loan offering to outperform their competition.

Using The Knock Out Loan For Profitability

Using Swaps and Hedging for Loans

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.

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