Loan yields versus the costs of funds. S&P Global Market Intelligence — New Volume Rates from LoanPricingPRO (www.forvis.com/why-forvis/innovation/loanpricingpro). While there are many reasons for this increased margin pressure, one of the main contributors is the way commercial loans are being priced. Below is an illustration of how current loan yields and, more importantly, new loan rates compared to the prime rate. Until the end of 2021, bankers remained disciplined in attaining a spread over prime on new commercial loans. Even with rates at historical lows and facing fierce competition, the yield spread was 40-60 bps over prime. Since mid-2022, there has been a dramatic shift. Rates offered on new loans, while still increasing, have dropped to a negative spread to prime. This trend worsened by the third quarter of 2023 to nearly 100 basis points below prime. Loan yields relative to the prime rate. S&P Global Market Intelligence — New Volume Rates from LoanPricingPRO (www.forvis.com/why-forvis/innovation/loanpricingpro). There are likely many reasons for this trend. Competition has remained fierce, with too much liquidity chasing too few loans. Also, alternative investment options now have yields well below the rates on new loans. To many lenders, a 7.50% loan rate looks great compared to the 4.00% new loan rate from 18 months ago. Finally, some believe rates have peaked and will start 9 West Virginia Banker
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