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Key Takeaways
- Profitability hinges on immediately optimizing the Net Interest Margin by shifting the loan portfolio toward higher-yielding assets, such as Small Business Loans yielding 85%.
- Aggressively lowering the overall Cost of Funds is critical, achieved by prioritizing the acquisition of low-cost Business Checking Deposits (1.25% cost) over higher-cost funding sources.
- Achieving significant EBITDA growth requires disciplined expense management, ensuring non-interest expense growth remains below the rapid asset scaling rate ($218M to $581M by 2030).
- To maintain efficiency during rapid expansion, invest in automation to reduce variable loan servicing fees from the initial 40% down to 34% by the end of the forecast period.
Strategy 1 : Optimize Loan Portfolio Mix
Boost Asset Yield Now
Rebalancing your loan book toward Small Business Loans yields an immediate 20 basis point lift in average asset yield. Stop relying on 70% yield Trade Finance; push volume into the 85% yield products now. That's the fastest way to improve the asset side of your Net Interest Income (NII).
Model Yield Shift Impact
To model this, you need the current dollar volume for both loan types. If Trade Finance is $50 million at 7.0% and SBLs are $150 million at 8.5%, your current weighted average yield is 8.0%. Shifting 10% of TF volume to SBLs immediately moves the needle. What this estimate hides is the associated risk weighting.
Capture Higher Volume
Speeding up underwriting for SBLs is key to capturing volume. If your average loan decision time is 21 days, try to cut that to 10 days for smaller SBLs. This pulls volume away from competitors, but watch out for underwriting quality creep. You need to align RM incentives to defintely prioritize the higher-yielding product.
Margin Expansion Focus
The 15 percentage point difference between 85% and 70% yield is significant margin expansion. Focus your sales training on the SBL product features to drive adoption fast. You’ll see the 20 bps improvement almost instantly on the books.
Strategy 2 : Lower Cost of Funds (CoF)
Fixing Your Funding Cost
Your overall Cost of Funds (CoF) sits at 206%, which is too high for sustainable lending margins. To fix this, you must aggressively gather Business Checking Deposits paying 125% interest instead of Certificates of Deposit that cost you 350%. This simple shift immediately improves your funding economics.
Inputs for Cost of Funds
Cost of Funds (CoF) is the interest paid to depositors for using their money to fund loans. Your current blended rate is 206%. This is calculated based on the weighted average of all sources. You need the total dollar amount of deposits and the specific interest rate attached to each funding type, like the 125% checking rate versus the 350% CD rate.
Optimizing Deposit Mix
To manage CoF, shift your deposit acquisition strategy away from expensive term funding. Targeting low-cost Business Checking Deposits at 125% is better than paying 350% for Certificates of Deposit. This tactic defintely lowers the blended rate. Avoid over-relying on high-cost sources, even if they seem easier to gather initially.
Impact of Shifting $10M
Every dollar moved from a 350% CD into a 125% checking account immediately improves your funding spread. If you shift $10 million in funding mix, that’s a potential annual saving of $225,000 in interest expense alone. That cash stays in your institution instead of flowing out to depositors.
Strategy 3 : Increase Fee Generation
Fee Income Target
To boost non-interest income, structure Treasury Management services using tiered pricing. This action directly offsets operational transaction costs and sets a clear goal: fees must reach 15% of your Net Interest Income (NII).
Pricing Inputs
Treasury Management fees cover the specialized tools and dedicated support for client cash flow optimization. To price this right, you need the exact cost of servicing high-volume transactions and your current Net Interest Income (NII) baseline. This defines the target for non-interest income.
- Current NII baseline.
- Cost to deliver service tiers.
- Client transaction density.
Tiering Tactics
Implement tiered pricing now; don't use flat rates. High-volume clients should pay more for advanced reporting and liquidity management features. A common mistake is underpricing basic services, so ensure your lowest tier still covers variable transaction costs. This defintely helps stabilize revenue.
- Price based on service complexity.
- Ensure lowest tier covers variable cost.
- Review fee realization quarterly.
Actionable Buffer
Hitting the 15% of NII target means non-interest income becomes a reliable buffer against interest rate volatility or loan demand dips. Focus relationship managers on selling these fee-generating services alongside core lending products.
Strategy 4 : Control Fixed Overhead
Cut Fixed Costs Now
You must scrutinize the $546,000 yearly non-wage fixed overhead covering rent, software, and compliance. Aiming for a 10% reduction directly frees up $54,600 annually, which significantly helps reach profitability faster. This is low-hanging fruit.
Non-Wage Overhead Breakdown
This $546,000 annual figure represents essential, non-salary operating expenses for your Commercial Banking operation. It includes things like your office rent, core banking software licensing, and regulatory compliance costs. To verify this, you need current vendor contracts and lease agreements. This cost is static until you scale operations significantly.
- Rent contracts (monthly rate).
- Software subscription costs.
- Annual compliance filing fees.
Finding 10% Savings
Don't just pay the bills; actively challenge every line item in that $546k bucket. Look for duplicate software licenses or unused compliance monitoring tools. A 10% cut is defintely possible by renegotiating vendor contracts or moving to slightly cheaper, yet compliant, platforms. If onboarding takes 14+ days, churn risk rises.
- Audit all software licenses.
- Renegotiate rent/lease terms.
- Consolidate compliance vendors.
Annual Savings Impact
Achieving the targeted 10% reduction on $546,000 yields a direct annual savings of $54,600. This cash flow improvement directly boosts your operating leverage, making the path to positive net interest income much clearer. That’s real money you don't have to raise.
Strategy 5 : Improve Relationship Manager Productivity
Control RM Headcount Growth
Keep RM headcount growth slower than asset growth to boost productivity. Track assets under management per RM closely, ensuring the planned jump from 20 RMs in 2026 to 100 by 2030 delivers efficiency gains, not just cost increases.
Measuring RM Output
To measure efficiency, you need total Assets Under Management (AUM) and the total Relationship Manager Full-Time Equivalent (FTE) count. If AUM is $500 million and you run 20 RMs, each manages $25 million. This metric shows if new hires are truly productive or just adding overhead. We need to defintely watch this ratio.
Controlling Headcount
You plan to scale RMs from 20 in 2026 to 100 in 2030. If assets grow 150% in that time, RM growth must lag significantly, perhaps only 100%. This forces process improvement and better tech adoption per person. Don't hire just because you booked a new loan.
The Efficiency Trap
If asset growth stalls but you keep hiring RMs toward the 100 FTE goal, your cost of sales skyrockets. Slow RM hiring relative to asset growth is crucial for profitability, especially since these are high-salary roles. This protects your Net Interest Income margins.
Strategy 6 : Automate Loan Servicing
Cut Servicing Costs
To hit the 34% servicing cost target by 2030, you must deploy automation now, offsetting the $15,000 monthly Core Banking System license fee through immediate variable fee reduction savings. This investment directly attacks high variable costs inherent in manual collections.
System License Cost
The $15,000 per month Core Banking System license is the fixed cost enabling automation. This covers software access, maintenance, and necessary compliance modules for loan servicing. You must budget this $180,000 annual expense against the initial 40% variable servicing rate.
- Covers core servicing platform access.
- Annual fixed cost: $180,000.
- Must be offset by variable fee cuts.
Hitting the 34% Target
Achieving the 6 percentage point reduction in variable servicing fees requires aggressive process mapping. The $15,000 monthly software spend must generate savings greater than that amount by cutting manual collection efforts. If onboarding takes too long, you defintely won't see the ROI kick in fast enough.
- Automate payment reminders immediately.
- Reduce manual review time per loan.
- Aim for 1% savings in Year 1.
Servicing ROI Check
Calculate the break-even point where fee savings equal the $15,000 monthly license cost. If your current servicing volume generates $50,000 in variable fees, you need to save $15,000, or 30% of that total, just to cover the technology investment before realizing net profit improvement.
Strategy 7 : Optimize Non-Loan Assets
Shift Low-Yield Capital
You've got $33 million sitting in assets yielding only 45%, which is too low for a bank focused on lending. Move that capital into your 85% yield Small Business Loans immediately to lift your average asset return, or use it to retire expensive debt.
Calculate the Drag
This $33 million is currently tied up in Investment Securities earning just 45% yield. To see the drag, compare that to your target loan yield of 85%. If you redeployed even half of this into loans, the difference in annual earnings is defintely worth the effort. Here’s the quick math: the lost opportunity on that redeployed capital is substantial.
Manage Funding Costs
Stop letting low-yield assets dilute your Net Interest Income (NII). The primary tactic is aggressive redeployment into your core lending products. A common mistake is holding too much liquidity in securities for 'safety' when your funding costs are high. If you can't deploy it all into loans, use the cash to pay down the 206% cost of funds from high-rate Certificates of Deposit.
The Yield Opportunity
Every dollar stuck earning 45% yield is a dollar that could be servicing your 206% funding cost or earning 85% on a loan. This isn't just about optimizing returns; it's about managing your balance sheet risk profile right now by aligning asset yields with funding liabilities.
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Frequently Asked Questions
A realistic first-year EBITDA target is around $422 million, achieved by rapidly scaling the loan book to $185 million while managing fixed operating costs of $158 million;