Borrower’s Loan Protection
Interest Rate Swap / Hedging Solution

A loan hedging solution with simple logistics and mechanics—including no derivative accounting or ISDA documents. Give your customers the long term, fixed-rate loans they want, while you reduce your interest rate risk.

Hedging Addresses Your Top 3 Concerns:

  • Growth: the opportunity to offer competitive loans to your customers
  • Defense: the means to protect existing loans with attractive refinancing
  • Risk: helps you manage interest rate risk and related credit risk

BLP Loan Hedging Solution

7 Reasons to Hedge Loans with BLP vs. Interest Rate Swap

  1. Your borrower receives a fixed rate coupon
  2. You book a floating rate loan
  3. You keep the credit relationship with no derivative on your balance sheet
  4. No regulatory capital to be held
  5. No collateral posting
  6. No derivative accounting
  7. We take the interest rate risk and host a derivative on our balance sheet

BLP runs smoothly, and has been easy to implement and manage. We keep our margin and the borrower gets the fixed rate. Win-win.

President, New Mexico

Hedging Loans Gives You a Competitive Edge

Are you losing loan deals because you can't provide the long term fixed rate loans your customers want? Often, the large banks (and other competitors) are willing and able to offer such loans to borrowers—and you're left looking for a way to compete. In order to protect your customer relationships, meet your customers' needs, and manage interest rate risk and related credit risk, consider hedging long term credits through the BLP program.

Case Study: How we helped a rural community bank compete with the big banks and win
Interest Rate Swap Case Study

We can be competitive with the bigger banks and offer our customers the fixed rates that we weren’t willing to offer before.

Joshua Grassham VP of Commercial Lending, Lea County State Bank

Compare BLP to Other Interest Rate Hedge Options

  Our Solution Back-to Back Swap Fixed Rate Loan Swap
  Bank provides floating rate loan to borrower, we provide rate protection to borrower. Swap between bank and broker.
Another swap between borrower and bank.
Fixed rate loan to borrower. Bank enters into a swap with broker.
Derivative-free balance sheet for financial institution Yes    
Eliminates need for ASC 815 (FAS 133)/Hedge effectiveness accounting Yes    
Eliminates need for financial institution to post collateral against mark-to-market Yes    
Eliminates master ISDA agreement for financial institution Yes    
Eliminates master ISDA agreement for borrower Yes   Yes
Eliminates multiple invoicing and payments Yes   Yes
Borrower must be an Eligible Contract Participant (ECP) Yes Yes Yes
Can financial institution receive an upfront fee Yes Yes Yes
Does the borrower receive any gain that exists at prepayment through symmetrical yield maintenance Yes Vendor Specific Vendor Specific

How Interest Rate Swaps Work

BLP transactions use “swaps” to fix your borrower's rate. Here’s how a swap rate is derived:
  • A swap rate is basically the average of expected future reset rates for an interest rate index over a given term to maturity
  • A swap rate can be based on any rate index, for example, fed funds, LIBOR, CMT etc.
  • LIBORs are the predominant indices in the swap market and are used by the majority of swap participants globally
  • BLP swap rates are based primarily on 1-month LIBOR; this is the prevalent index for CRE loans as mortgages typically pay monthly

Derivative-Free Rate Swap Procedure (Step-by-Step)

Documentation is the legal framework of the BLP swap program. We keep documentation as simple as possible for both you and your borrower. BLP uses your loan origination and credit underwriting documents, keeping the process consistent with your current practices.

  • Step 1:
    You complete a Servicing & Intercreditor Agreement (SIA).This one-time agreement governs all servicing obligations for all future transactions between your financial institution and PCBB.
  • Step 2:
    Your borrower completes your financial institutions' loan documents, floating rate promissory note, and mortgage or deed of trust.
  • Step 3:
    Execution of the Rate Protection Agreement (RPA)*. This is the hedge agreement entered into between PCBB and your borrower. It guarantees the borrower's fixed rate for the desired fixed rate loan term.

    *Completion of the RPA is the only direct interaction we have with your customer.

Example Scenario: Hedged Loan Pricing and Cash Flows

You offer your borrower a floating rate loan in the amount of $3mm, for 10 years, with a 20-year amortization.

You've assessed the credit margin for this loan at 2.5% over LIBOR. The 10-year term swap rate for this structure is 2.1% (as of this scenario).

The fixed rate to your borrower is then your credit margin of 2.5% plus the term swap rate of 2.1%.

Your borrower pays 4.6% fixed rate every month, and you, get 1-month LIBOR plus 2.5% for each month of the 10-year term.

Close Deals Faster with BLP Marketing Tools

To assist you in gaining a competitive edge through hedging loans, we’re pleased to provide you
with two do-it-yourself marketing tools.

Mobile Pricer
Get loan pricing, anytime, anywhere with the Mobile Pricer, an easy-to-use calculator
  • Convenient, mobile access to pricing—no need to be near your computer
  • Quickly generate multiple loan pricing scenarios—target fixed rate, term to maturity, loan amount, amortization, credit margin
  • Get current market-based pricing—plus, the Historical Log keeps date and time stamped reference of previously researched rates
Customer Presentations
In addition to live phone support from the BLP team, you can prepare your own simple and professional BLP fixed rate pricing presentation that features your logo.
  • Create loan proposals whenever you need them
  • Give your customers easy-to-understand rate information
  • Prepare and print as many presentations as needed to show various rate scenarios

The Silent Partner in Your Success

Simply put, BLP is a trusted loan hedging solution that gives you the means to compete—over 150 financial institutions nationwide have partnered with PCBB's BLP for nearly a decade, without any accounting or regulatory issues.

Hedging loans is simplified with BLP as your behind-the-scenes partner. BLP is fully integrated within your community bank’s loan package process. You still provide all loan servicing, relationship management and remain your customer's primary contact.

We work with you throughout the process to assist your loan growth goals and help to protect your customer relationships.

Next Steps