Since March 2020, we’ve posted regular updates on the commercial loan pricing markets based on what we’ve seen when examining the Q2|PrecisionLender dataset. We look at several popular metrics and point out areas in which there have been noteworthy changes.
Our June data shows that volume is continuing to be steady and spreads are holding up. Fee income is mostly flat year to date, and the June 75 bps rate hike has been absorbed. Other key takeaways include:
- Fixed rate coupon exceeds 5%
- Loan size is trending higher
- Swaps offer alternatives to bankers and borrowers
If you’d like to see our previous loan pricing market updates, you can find them here.
If you have questions about metrics that have appeared in previous posts but not this latest one, please reach out to us at 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.
Activity Remains Steady the Past Four Months
The past four months show a steady pace of pricing activity. The rate hikes (March 18, May 4, June 15) have added 150 bps to short-term index rates like Prime, Fed Funds and SOFR. Bankers and borrowers have not been deterred or blinked as spreads on floating indices held steady. The mix of pricing activity trended higher on SOFR at the expense of fixed rate: 31% fixed, 34% SOFR and 16% Prime.
Priced Commercial Loan Volume by Month
(Indexed to July 2021 = 100)
SOFR Spread Maintained Nearly 250 Basis Points
Month after month, we notice consistency in the overall spread to SOFR since being widely adopted in late 2021. The past five months show a 7 bps increase, and only 3 bps over the past three months.
Weighted Average Spread to SOFR
Anecdotally, as a reminder, the pre-pandemic spread to Prime benchmark was 27 bps in 1Q 2020, when Prime was at 4.75%.
Weighted Average Spread to Prime
Fixed-Rate Coupons Show an Upward Trend
Fixed-rate loans, which are not always explicitly priced at a spread over an index, show an upward trend in coupon over cost of funds, posting 1.64%—an 11 bps gain in June over May.
Coupon Minus Cost of Funds (Coupon Spread)
Fixed-rate loan coupons have moved above the 5% level, which is the highest since we’ve been reporting.
Coupon Rate by Month (Rolling Trend)
Median Loan Amounts on the Rise
Looking at the trend on median loan size in 2022 across banking segments and all loan structures, we found an increase of about 40% in June over January in the Community and Regional+ space. Examining back to August 2021, we found median amounts little changed into January 2022. The mix of loan pricing activity by amount has shifted YTD to 68% greater than $10 million in the Regional+ space and 45% in the Community space. These compare to 61% and 37%, respectively, in January.
Median Loan Amount, Indexed to January 2022 = 100
Mix of Loans Priced by Loan Amount, June 2022
Fee Income Metrics
Within pricing activity, we track the incidence of origination fee income and its amount. Across the three main rate structures, fee income is present between 75% and 79% of opportunities and is nearly identical across rate types. The amount of fees, when present, varies as a percentage of loan amount. SOFR averages 55 bps YTD, but May and June are below that average. Meanwhile, fixed-rate structures trend at 46 bps YTD. We’re watching the convergence of SOFR and fixed-rate fee amounts. Prime-based structures posted 60 bps in June, below YTD average of 63 bps.
Fee Income as Percentage of Amount, by Rate Type
Swap Structures Track Fixed-Rate Structures on Coupon; Edge Higher on Percentage of Net Interest Margin
Following up on last month’s baseline comparison of swaps versus indicative fixed-rate loans, we found that coupons between the two structures maintain a narrow variance of 8 bps—5.05% versus 4.97%—and the net interest margin edges toward the swap by 5 bps at 1.74%.
In addition, the spread to SOFR on swap transactions posts 1.78% in June and continues to be lower than the floating SOFR spread of 2.45%. Swaps as a percentage of fixed-rate pricing have increased from 15% in January to 29% in June—nearly doubling relative volume.
Fixed-Rate Coupon Versus Indicative Fixed-Rate Coupon Via Swap Structure
Fixed-Rate Coupon Versus Resultant Floating Rate Swap Structure—
Economics to the Institution
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 your questions to email@example.com.