Commercial Loan Pricing Market Update (2021 Review)

Since March 2020, 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. 
As we did last December, we’re using this update to take a step back and look back at what’s occurred in commercial banking throughout the course of the year. 
The ripple effects from 2020 – the onset of the COVID-19 pandemic and the federal government’s economic response to it – had a significant impact on banking activity in 2021. We’ll look at what that meant for several areas – pricing volume and spreads, in particular – while also examining the early days of the other big 2021 event – the transition from LIBOR to SOFR. 
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
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 Rose Early in 2021 and Stayed There  

Beginning in early March, we observed an uptick in pricing volume. From the point on, through the rest of 2021, activity remained high, with the 11-month average 34% higher than the January 2021 benchmark. It’s also worth noting that, through the first two months of Q4 2021, there’s been no sign of the volume downtick we observed in Q4 2020 (though December’s numbers may pull down the average a bit.)
Priced Commercial Loan Volume by Month
(Indexed to January 2021 = 100) 

SOFR Activity Increases, While Spreads Drop

While SOFR activity only reached a measurable point in August, the transition off LIBOR to this new index is certainly a story worth including in this year-end review. In November, 27% of the floating rate deals priced on the PrecisionLender platform used SOFR, making it the second-most popular index – behind Prime (39%) and just ahead of LIBOR (26%). 
Anecdotally, some clients have installed BSBY custom indices – this volume is part of the “All Other” grouping – but that has not had a material impact on the mix. 
Floating Rate Index Type Mix
While SORFR volume is clearly trending higher, it’s still early to draw many conclusions on SOFR spreads, as the latest numbers show. 
After starting off consistently higher than LIBOR spreads through the first three months, SOFR spreads dropped by 17 bps in November, while LIBOR spreads rose 15 bps – to finish 11 points higher than SOFR by comparison (2.65% to 2.54%)
Weighted Average Spread to 1-Month LIBOR & SOFR
We noted that, while the weighted average drop for SOFR was significant, the median SOFR spread fell only 5 bps. So we broke down the SOFR priced deals by size and looked at the spreads on those segments. The biggest takeaway: Bankers were doing more of the largest deals (>$25M were 40% of the mix in November) and were pricing them with significantly lower spreads (26 bps drop from October to November), thus pulling down the overall numbers.
Mix by Loan Amount, SOFR Loans Priced
Spread to Index, SOFR Loans Priced

A Closer Look at Dropping Fixed Rate Spreads

The decline of fixed-rate spreads is a story we’ve been following throughout the second half of 2021. Stepping back and looking at this trend from the year-long lens, we can see that, while fixed-rate funding costs (using the 60-month LIBOR Swap rate as a proxy) has been steadily rising since the summer, while the average coupon for fixed-rate loans has been almost frozen in place in 2021, right around 3.5% throughout the year. 
60-Month LIBOR Rate Trend (YTD 2021)
The next chart shows the inevitable impact on spread that has occurred as a result. After declining 16 bps from January (2.94%) to August (2.78%) fixed-rate spreads fell sharply in the fall, when funding costs spiked up. The November average spread (2.23%) is now well below pre-pandemic levels (2.66% in January 2020). 
Fixed Rate Spread and Coupon Trend (2020-2021)
(Spread to 60-Month LIBOR Swap Curve)

Floating Rate Spread Trends

While LIBOR-based floating rate spreads were largely static in 2021, Prime spreads were very sensitive. They had largely remained in a narrow 10 bps range for nearly a year after the rate decrease in 2020. But in May 2021 Prime spreads fell below 0.40% for the first time since the start of the pandemic and continued to fall down to below 2020 pre-pandemic levels by November (0.20%). 
It’s possible that trading a bit of spread makes sense as the performance of prime-based instruments is higher than LIBOR, SOFR, or fixed-rate alternatives. That said, the instruments originated in 2020 after the March spread spike – when spreads were hovering around 50 bps - may bring a tailwind of boosted interest income over the average 27-month maturity of those loans. 
Prime Spreads to Index (2020-2021)

NIM Trends: Fixed-Rate Hit the Hardest

It was a bleak story all around for NIM in 2021, as it fell for fixed-rate loans as well as 1-Month LIBOR-based and prime-based floating rate loans. But fixed-rate NIM took the hardest hit: By the end of November it had dropped 38 basis points since January 2021. 1-Month-LIBOR loans were on a similar trajectory until the last two months, when their NIM bounced back by 18 bps. Meanwhile, Prime NIM was steady for the first half of the year before falling down to 3.55% at the end of November, 22 bps lower than January 2021. 
NIM by Month, Rolling Trend

Got Questions?   

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  
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