Tag: C&I

Why Specializing in Commercial Verticals Can Boost Bank Profitability


Much has been written about the merits of community banks developing banking expertise around specific verticals.  We recently worked with a bank that won the banking mandate for a family-run funeral home.  At first we were surprised that the term loan was 93% LTV.  But when we looked at the entire underwriting package and the borrower’s financials (showing 3.2X DSCR) we recognized the importance of understanding industry specifics and how the funeral industry might be a perfect fit for many community banks.


The Merits of Specializing


Adding Value Through ESOP Banking [Podcast and Video]

ESOP Banking

In our quest to add more value to our customers, one of the ideas we hit upon was to train relationship managers up to handle the complexities of ESOP lending. Instead of lending to a corporate client, it is more profitable and less risky to lend to the ESOP of that client. Further, few bankers take the time to understand how an ESOP works so competition is limited. Banks can go after existing ESOPs and help refinance their current debt, can work with existing clients to establish ESOPs, or can go after perspective commercial customers and help them establish an ESOP.

Using The “A/B” Structure To Generate More C&I Loans

Increasing C&I Loan Production

Many community banks are attempting to book more C&I loans. However, for various reasons discussed below, many community banks are finding it a challenge to grow this loan category.  There is an interesting technique that we have seen used by smart bankers to drive C&I loan volumes called the “A and B cross-secured structure” (or A/B structure).

What is Important in Borrower Financial Reports

Borrower C&I Credit Analysis

It used to be a banker at a major bank you would go through a credit training program where you would spend weeks learning to tear apart a set of borrower financial statements. We can tell you from experience that it was too much. Unfortunately, these days, the pendulum has swung the other way and with the advent of credit spreading software such as CreditQuest we have almost made it too simple. For young bankers coming up through the ranks, consistent training is hard to come by, and fewer bankers understand what is important and what is not in credit analysis.

How to Book More C&I loans

Most community banks are interested in booking local C&I loans but are unable to generate meaningful outstanding balances.

Adding Value To Treasury Management And Small Business Customers

Forecasting Accuracy

Cash flow is the lifeblood of any corporate client. While understanding cash flow is the stock and trade of bankers, few bankers take the time to add this value to their small business, corporate or treasury management clients by leveraging this knowledge. Before you dismiss this as an unneeded item, consider banks like Well Fargo and Bank of America not only train their bankers on this very topic but offer a robust educational program around cash flow management (HERE for example).

Community Bank Commercial Loan Default Rates – Current and Projections

Quantified Lending Risk

We analyzed default rates through 2015 for banks between $300mm and $3B in asset size.  Historical default rates were measured and analyzed for various loan categories for this bank set.  We also reviewed Moody’s Investor Services corporate default and recovery rates through 2015 and considered which industries may present opportunities for community banks from a yield/risk perspective and as a way to diversify from real estate concentrations. 


Want To Diversify Away From Real Estate Lending? Understand This To Help

Bank Diversification from concentration

For many community banks, a concentration in real estate lending may be an issue. This is especially concerning given the recent decrease in capitalization (cap) rates across many geographies and property classes.  While community bankers have a difficult job trying to diversify their balance sheet away from real estate, we wanted to present a couple quantitative points that will make the job of risk management easier for banks.


5 Simple Things You Can Do This Week to Improve Your Bank

Loan Purchases

The Republicans were not as popular as the ‘Alex from Target’ meme yesterday, but it was enough for a strong win. Ironically, the party that has been in full obstructionist mode trying not to change anything now has to find a way to build consensus and govern for change. For banks, moving control of the Senate Banking Committee is said to be favorable, but we have our doubts as we see little public support for restructuring Dodd-Frank too much.

The Most Important Commercial Loan Underwriting Ratio That There Is

Leverage Ratio, Commercial Real Estate, Credit Risk

We are often asked what is the single best measure of lending risk?  Is it loan-to-value ratio?  Is it interest-coverage ratio?  Is it debt-service-coverage ratio?  Is it liquidity ratio?  While there is no single measure that can be used and each of these measures are important in various underwriting circumstances, if we were stranded on a deserted island and could only bring one tool to measure our underwriting risk, it would be debt-to-cash flow ratio (this is typically called the “leverage ratio”).  The leverage ratio is the measure of the borrower’s debt divided by t


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