Independent Banker - April 2017 - 83

Rate term (years)
2-year
3-year
4-year
5-year
6-year
7-year
8-year
9-year
10-year
12-year
15-year
Floating rate
3-year
Loan-hedging swap rates
Amortization term (years)
10-year
5-year 7-year
15-year 20-year 25-year
LIBOR + 2.00% 3.37% 3.43% 3.45% 3.47% 3.49% 3.49% 3.50%
LIBOR + 2.00% 3.46% 3.64% 3.67% 3.70% 3.71%
LIBOR + 2.00%
LIBOR + 2.00%
LIBOR + 2.00%
LIBOR + 2.00%
LIBOR + 2.00%
LIBOR + 2.00%
LIBOR + 2.00%
LIBOR + 2.00%
LIBOR + 2.00%
3.73% 3.79% 3.83%
3.85%
3.76% 3.88% 3.94% 3.97% 3.98%
3.93% 4.02%
3.95% 4.09%
4.13%
4.16%
4.17%
4.18%
4.25%
4.31%
4.36%
Customer pays fixed, monthly, Act/360
Customer receives 1-month LIBOR + 2.00%
4.07% 4.09%
4.15%
4.22%
4.27%
4.31%
4.50%
3.86%
3.99%
4.10%
4.19%
4.26%
4.33%
4.38%
Bullet
3.50%
3.72% 3.72% 3.73%
3.86%
3.88%
4.01%
4.12%
4.22%
4.29%
4.36%
4.42%
4.37% 4.43% 4.46% 4.52%
4.39%
4.54% 4.61%
Source: Vining Sparks, Weekly Pricing Matrix, Feb. 6, 2017
They simply construct the corollary
to the loan strategy explained above:
Borrow floating, and execute an
interest-rate swap to fix the cost.
Recently, a community bank borrowed
$2 million from its FHLB
advance window. The term was for
one year, and the floating rate was
three-month LIBOR minus 11 basis
points, which today equates to 0.92
percent. Concurrently, the bank
turned it into a five-year fixed-rate
instrument that cost, all in, 1.94
percent. In other words, it costs 1.02
percent today to extend the duration
of an advance from 90 days to five
years. If rates go up in the future,
your cost does not, and the swap
potentially could be accretive to the
bottom line.
Custom-built financial strategies
are not beyond the grasp of community
banks. In fact, nearly 20 percent
of FDIC institutions under $1 billion
in assets had some type of interestrate
product in play at the end of
2016. Many of these strategies had
principal values of less than $2 million.
Our advice: Talk to a respected
interest-rate strategies firm about
Sign up for market data
The table above comes from
Vining Sparks' Weekly Pricing
Matrix, which displays indications
of levels at which a community
banker can execute an interestrate
swap contract. To receive
this week's edition, contact your
Vining Sparks sales rep.
how your community bank can use
financial architecture to dress up its
risk profile and its bottom line.
independentbanker.org
ICBA IndependentBanker 83

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Independent Banker - April 2017

Table of Contents for the Digital Edition of Independent Banker - April 2017

Table of Contents
Independent Banker - April 2017 - Intro
Independent Banker - April 2017 - Cover1
Independent Banker - April 2017 - Cover2
Independent Banker - April 2017 - Table of Contents
Independent Banker - April 2017 - 2
Independent Banker - April 2017 - 3
Independent Banker - April 2017 - 4
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Independent Banker - April 2017 - Cover3
Independent Banker - April 2017 - Cover4
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