Since early March, we’ve posted regular updates on the commercial loan pricing markets, based on what we’ve seen when examining the PrecisionLender dataset. We look at several popular metrics and point out areas in which there have been noteworthy changes.
Today’s update is for the first half of August. If you’d like to see our previous loan pricing market updates, you can find them here.
We track many more metrics than are spotlighted in these posts. The ones that didn’t “make the cut,” usually don’t get displayed because there’s either a) nothing much new to say about them, or b) the data is too murky and needs a few more weeks of monitoring before it can be shared.
That said, if you have questions about metrics that have appeared in previous posts, but not this latest one, please reach out us at to firstname.lastname@example.org.
NOTE: PrecisionLender’s data reflects 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 Steadily Increases
For the second straight period, volume is up slightly. Still, it remains below June levels, as well as pre-pandemic levels.
Average Weekly Priced Commercial Loan Volume
Funding Curves Steepen
The short-end of the funding curves has remained relatively unchanged in recent months and has stayed flat from 3 months up until about the 5-year mark. But at that point, the curve steepened in August. On the 3-Month LIBOR Swap curve, the 10-year rate on Aug. 14 was 15 bps higher than at the end of July, and the 30-year rate jumped up 23 basis points, rising above end of June and end of April levels as well.
3-Month LIBOR Swap Curve
COF Continues to Drive NIM Increases
Product Types: LOC Amounts on the Rise
We’ve been asked frequently by bankers about what we’re seeing when we drill down a bit and look at specific product types.
Note: Because PrecisionLender does not control the product type names or codes used to identify products, by definition, some logic is required. That said, we have been monitoring three broad categories – CRE, LOC and Term.
When we looked at the product mix between CRE, LOC and term deals, we haven’t seen much of a shift during the pandemic. But we have seen some shift in loan amounts. While CRE deal sizes have been relatively flat, both term and LOC deals have gotten larger – with the median LOC deal in August roughly double the size of its January counterpart.
Median Loan Amounts by Product Type
Product Types: Targets are Lagging Behind ROE
As we noted before – NIM for both fixed- and floating-rate deals have risen steadily during the pandemic. That’s driving a similar increase in ROE as well.
Taking a look at ROE by product type also enabled us to compare that to the targets the banks have set for each product. We found that, while ROE has been on the rise, the targets banks have set have lagged – and the gap continues to widen. In August, CRE ROEs were 370 bps higher than targets, while the gap was 310 bps for LOCs and 240 for term loans.
CRE: ROE vs. Target
LOC: ROE vs. Target
Term: ROE vs. Target
Maturities Haven’t Changed Much
The anecdotal evidence we gathered in recent weeks from our conversations with commercial bankers suggested that banks have been more willing to offer longer terms on deals. But a look at our pricing data set suggests otherwise – that term length has not been a factor in deal structuring conversations during the pandemic.
As the chart below shows, the mix of maturities has stayed essentially the same.
Maturity Stratification YTD
Perhaps the length of the deal within each tranche has expanded? Could there be more, say 115 month deals in the 61-120 month deal tranche? That’s unlikely, as the average length of deal across the portfolio has remained at essentially the 5-year term length throughout the pandemic. It was 65 months in April vs 63 months in August. And that’s essentially the same as it was pre-pandemic in January (65 months).
Our banking consultants and data scientists are combing through PrecisionLender pricing data every day. If there is anything you’d like to know about what they’re seeing, please send along your questions to email@example.com.