Given the recent economic uncertainty, we’ve been getting quite a few questions from our clients, asking us what we’re seeing in commercial loan pricing activity when we examine the PrecisionLender dataset.
Each week we’re posting updates based on our observations. We’re looking at several popular metrics and pointing out areas in which there have been noteworthy changes. Today’s update is through the end of last week – April 24. If you’d like to see our previous weekly pricing market updates, you can find them here.
NOTE: PrecisionLender’s data reflects opportunities actual commercial opportunities priced (loans, deposits, and other fee-based business) by more than 150 banks in the United States, ranging in size from small community banks to top 10 U.S. institutions. In addition to their variance in size, these banks are also geographically diverse, with borrowers in all 50 states.
Volume Continued to Rise
After the sizable drop two weeks ago (likely when clients were processing PPP deals but not pricing them on the PrecisionLender platform) volume continues to move upward, increasing by 5% week-over-week.
Priced Commercial Loan Volume by Week
Fixed-Rate NIM Rose …
Fixed-Rate NIM rose for the third straight week, making a 27 bps jump to 2.44% last week. The key factors – lower funding costs (more on that in a bit) and relaxed term liquidity premiums since the launch of CARES Act funding programs.
Note: We measure NIM with an assumed marginal funding cost, not the bank’s actual average cost of funds.
Fixed Rate Net Interest Margin Composition
One reason for the drop in COF – shorter maturities and amortizations on fixed-rate loans. Last week, both measures dropped considerably, with amortizations down 21 months and maturities down 4.
Maturity and Amortization (in Months)
… But Floating Rate NIM Dropped
Funding costs for NIM also dropped last week, but that was not enough to offset a large drop in yields (23 bps). The result – a 10 bps drop in NIM.
Floating Rate Net Interest Margin Composition
Spreads over Prime dropped last week (more on that later). Meanwhile, the swap curve indicates the 1-month rate dropped 15 bps from last week (from 0.72% down to 0.57%). Separately, the spread on 1-Month LIBOR loans remained largely unchanged week over week.
3-Month Libor Swap Curve
Prime Spreads Return to Earth
Last week when Prime spreads spiked up to 61 bps, we said we would continue to monitor the numbers to see if it was the start of a trend. A week later that numbers looks more like an anomaly, as spreads dropped down to 35 bps, much more in line with the year-to-date average.
Spread to Prime
What caused the spike last week? Perhaps a cluster of opportunistically priced deals. We found that deals last week averaged 50 bps in fee income, well above the 2020 run rate range of 30-35 bps.
DDA Volume Rises
Earlier this month when we looked at deposit balances, we noted at that time that DDA balances were down, year-over-over, from Q1 2019 to Q1 2020.
But more recently, DDA volumes are on the rise, with overall balance levels up 8% over the past two weeks. The timing matches the anecdotal evidence that commercial customers have been adding liquidity – from PPP, drawing down LOCs, etc. – and then moving it to their DDAs to help with cash flow.
DDA Volume by Week
Our banking consultants and data scientists are combing through PrecisionLender pricing data every day. If there’s anything you’d like to know about what they’re seeing, please send along your questions to firstname.lastname@example.org.