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 analysis is for the second half of September. In this update we found evidence of increased banker comfort with pricing fixed-rate deals in this low-rate environment, as well as signs that bankers are finding ways to protect – and even expand – spreads on loans that have floors.
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.
Fixed-Rate Deal Volume Continues to Rebound
For the third consecutive update, the volume of fixed-rate deals rose to its highest level since the early days of the pandemic. This may be another indication that banks have become acclimated to the low-rate environment and are getting more comfortable with offering fixed-rate deals.
Also, while we typically include a pricing volume chart, there was nothing new to report this update, as levels remained essentially unchanged from early September – and still at approximately pre-COVID levels.
Fixed-Rate Loan Pricing as Percentage of Total Volume
LIBOR and Prime Spreads in Sync
Over the past two months, spreads to LIBOR and Prime have moved in sync, with both edging up slightly in the last half of September. LIBOR spreads are now three basis points above their year-to-date average, while spreads to Prime are eights points above their YTD average.
Average Spread to 1-Month LIBOR
Average Spread to Prime
Funding Curves Have Steepened Since July
The last three snapshots of the 3-Month LIBOR Swap Curve (Sept. 30, Sept. 12, and Aug. 31) have been very consistent. All three stay essentially on the same track with the July 31 snapshot, until the 36-month mark, at which point there has been a clear steepening of the curve in the past two months.
While the 360-month rate for Sept. 30 is lower than it was on Aug. 31, it is still 30 basis points higher than the July 31 mark.
3-Month LIBOR Swap Curve
Consistent Coupon Rates May Signify Comfort with Fixed-Rate Lending
Coupon rates for fixed-rate loans have been virtually unchanged since the second half of August. This steadiness, when coupled with the recent increase in fixed-rate loan volume, gives us more reason to believe that bankers have grown accustomed to the low-rate environment and are more willing to price fixed-rate loans.
As for NIM trends, we found both fixed and floating rate measures virtually unchanged from the first half of September (2.69% for fixed, 3.09% for floating).
Coupon Rate By Month, YTD Trend
LIBOR-Based Loans with Floors Actually Have Higher Spreads
Not surprisingly, floor incidence has increased during the economic uncertainty of the pandemic, with floors included on 38% of LIBOR-based loans since the onset of COVID-19, as opposed to 15% pre-COVID.
Interestingly, that downside protection has not forced bankers to give on the upside, as both yields and spreads to index are higher on loans with floors than those without. In September loans with floors had yields that were 93 basis points higher and spreads that were 25 basis points higher.
Spreads Also Increasing on Prime-Based Loans with Floors On Prime-Based Loans
It’s a similar story for prime-based loans with floors. Again, floor incidence has increased during the pandemic, with floors included on approximate 55% of these loans, compared to 40% pre-COVID.
Early on during the pandemic, there was little difference in yield between Prime-based loans with floors and those without. But that gap has steadily grown – to 53 basis points in September.
Meanwhile, prime-based loans with floors initially had smaller spreads than those without. But the difference between the two groups has gotten steadily smaller, and now in September, prime-based loans with floors now have slightly larger spreads (50 bps) than those without (47 bps).
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.