To be more specific, can we properly justify Commercial RE loan pricing today? I observed one recent deal that was fixed for 7 years at 4.73% with 1/2% fee. Without drawing any specific "line in the sand" on this topic, I can tell you that I don't want to be the one who is accountable for these kinds of balance sheet commitments for the next 7 years. Seems like an odd time to bet that cost of funding will decline in the future to make this a healthy contributor to bank success.
Do we still have lenders who have significant control of pricing and are paid incentives for volume without considering profitability?
Where is or should pricing authority be located within the bank?
Are bankers using a frame of reference for pricing that is not staying current with the movements in interest rate markets?
Isn't this an active conversation within your senior management today?
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Neil Stanley
President of Community Banking
TS Banking Group
Treynor, Iowa
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Original Message:
Sent: 06-27-2018 21:52
From: Neil Stanley
Subject: Pricing of Fixed Rate Loans
Five-year FHLB rates hit their lows in May 2013. The FHLB Des Moines advance rate on May 1, 2013 was 1.04% In theory, fixed-rate commercial loans should have hit their lows at that time when fixed rate loans around 4% produced a 300 basis point spread. Today, the five-year FHLB rates are 200 basis points above that level. We still see some competitors offering fixed rates in the mid 4%'s. Do they really expect to be able to make reasonable spreads with pricing in the 4's and every wholesale funding source costing at least 2.00% regardless of duration? Do you think bankers are prepared to lower their costs so that sub-3% spreads are sustainable? What will it take to get bankers to make comparable pricing adjustments in fixed-rate commercial loans?
------------------------------
Neil Stanley
President of Community Banking
TS Banking Group
Treynor, Iowa
------------------------------
Do we still have lenders who have significant control of pricing and are paid incentives for volume without considering profitability?
Where is or should pricing authority be located within the bank?
Are bankers using a frame of reference for pricing that is not staying current with the movements in interest rate markets?
Isn't this an active conversation within your senior management today?
------------------------------
Neil Stanley
President of Community Banking
TS Banking Group
Treynor, Iowa
------------------------------
-------------------------------------------
Original Message:
Sent: 06-27-2018 21:52
From: Neil Stanley
Subject: Pricing of Fixed Rate Loans
Five-year FHLB rates hit their lows in May 2013. The FHLB Des Moines advance rate on May 1, 2013 was 1.04% In theory, fixed-rate commercial loans should have hit their lows at that time when fixed rate loans around 4% produced a 300 basis point spread. Today, the five-year FHLB rates are 200 basis points above that level. We still see some competitors offering fixed rates in the mid 4%'s. Do they really expect to be able to make reasonable spreads with pricing in the 4's and every wholesale funding source costing at least 2.00% regardless of duration? Do you think bankers are prepared to lower their costs so that sub-3% spreads are sustainable? What will it take to get bankers to make comparable pricing adjustments in fixed-rate commercial loans?
------------------------------
Neil Stanley
President of Community Banking
TS Banking Group
Treynor, Iowa
------------------------------
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