This Could Cost You Millions – Without Knowing

< Back to the C&I Series 

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Previously, we discussed the long-term trend toward commercial real estate (CRE) lending that has community banks passing by significant commercial and industrial (C&I) lending opportunities. These loans are now going to large banks – when really, C&I deals represent the relationship lending strategies that should be at the heart of community banking.


Today, I’m going to break down the opportunity cost of those decisions to show how your bank could literally be missing out on millions of dollars.

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According to data from Spotlight Financial, the average size of the more than 4,600 community banks under $1 billion in assets in the U.S. is $250 million, with $166 million in net loans. Of that, CRE accounts for $50 million of net loans, and C&I represents $22 million. We’re going to use average numbers for the purposes of this example – the impact to your bank could be even greater.


Based on the June 30, 2017 Call Reports for banks under $1 billion, on average, their CRE portfolio generates an interest rate of 4.89%. C&I loans average 5.47%. So, just by focusing on C&I lending, the average bank picks up 58 basis points in interest rate.


If the average bank switches its proportions of CRE and C&I loans, it can earn an additional 58 basis points on the $28 million difference. This amounts to a $162,400 increase annually in interest income, just with a simple change in focus – not adding any new loans.


Over time, this adds up to millions of dollars for an average bank.


We understand you’re not going to change your loan portfolio overnight. But, you can take an important step today.


If you are interested in making more C&I loans, but lacking the experience to lend confidently and profitably – let us help. VITAL Financial Services is an experienced lender service provider with expertise in the C&I space, particularly in the manufacturing, wholesale, heavy construction, mining and trucking industries.


Contact us any time, but especially when you’re ready to improve your income statement – maybe even by millions.