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 September. 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 email@example.com.
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 Climbs Back to Pre-COVID Levels
Loan pricing volume has continued to rise since taking a dip in early July and is now at pre-COVID levels. As mentioned in our previous update, the two outliers in this chart can be explained by a significant rate drop (March) and the PPP program (April).
The mix of loan types changed slightly during this period, as the fixed rate deal incidence moved back up to 40% matching its June mark. Meanwhile, prime-based floating rate deals had an equivalent drop, down from 18% to 15% incidence.
Priced Commercial Loan Volume, Weekly Average
Do LIBOR and Prime Spread Drops Indicate “New Normal”?
Spreads to LIBOR and Prime both had noticeable decreases in early September - 9 bps for LIBOR and 10 bps for Prime. Both indices are now at the bottom of their COVID-period ranges and spreads to LIBOR in the first half of September were just 1 basis point above the yearly average.
After the major rate drops in March, there was a sense that commercial banks went into yield protection mode. But now, more than 5 months later – and with the Fed signaling that these low rates may continue through 2023 - these spread drops may indicate that bankers have become accustomed to this “new normal,” and are looking at ways to grow their portfolios through more flexible pricing. The aforementioned volume increases seem to support this theory, which we’ll continue to monitor in future market updates.
Average Spread to 1-Month LIBOR
Average Spread to Prime
Funding Curves Head in Opposite Directions
In most of our recent updates we’ve usually only shown either the FHLB Composite curve or the 3-Month LIBOR Swap curve, but not both, since they were both behaving essentially the same.
That changed in the first half of September, as the two curves took different paths at the 60-month mark. At that point the FHLB Composite moved upward more steeply than it had at the end of August, with a 120-month mark that was 14 bps higher and a 19-bps increase at 360 months. Meanwhile, the 3-Month LIBOR Swap curve in mid-September flattened in comparison to its end-of-August counterpart – dropping 7 bps at 120 months and 8 bps at 360 months.
We won’t conjecture as to why that’s occurred but will instead note that it essentially had a blended effect on COF for this period that essentially netted out to unchanged funding costs.
FHLB Composite Curve
3-Month LIBOR Swap Curve
Floating- and Fixed-Rate Coupons Fall
The previously mentioned drops in spreads over LIBOR and Prime were reflected in lower coupon rates for both types of floating-rate deals in early September. Both dropped by 9 bps since the previous update.
Meanwhile fixed-rate coupons have dropped 20 bps since May. Several trends we discussed previously - the growing volume in pricing, the rise in the incidence of fixed-rate deals, and the belief that the low-rate environment will be here for a while – are likely contributing factors.
Coupon Rate by Month
Fixed-Rate NIM Levels Remain Steady
Bankers may also be comfortable in offering lower fixed-rate coupons because they’re still able to protect yield. Fixed-rate yields are down slightly from March levels (11 bps), but a much larger drop in COF during the same period (58 bps) has allowed NIM to remain nearly 50 bps higher than it was in March – even with the coupon rate reductions.
Fixed-Rate NIM Composition
Lower Spreads Lead to Lower Floating-Rate NIM
Meanwhile, floating-rate NIM behaved as expected, with a drop (14 bps) that largely reflected the aforementioned lower spreads. Still, NIM remained in the same range as previous months – roughly 30 basis points higher than March levels.
Floating-Rate NIM Composition
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 firstname.lastname@example.org.