Last week (July 14 – 16, 2020) the four largest US banks began releasing their second quarter 2020 earnings reports and many analysts were focused on their updated estimates for credit losses anxious to see the effects of the Covid-19 crisis on these leading financial institutions. These second quarter 2020 earnings releases represent only the

Since the rapid onset of the novel Coronavirus striking US and global financial markets, benchmark interest rates have fallen sharply. Over the past month US Treasury rates for 5 and 10-year securities have quickly moved to historic lows. If your institution is using unadjusted US Treasury rates as proxies for market-based cost of funding for loan pricing purposes within LoanPricingPRO®, it is recommended that you override these rate curves in the short term with one of a number of other available rate indices.

Between the end of 2016 and 2018, the Federal Reserve incrementally increased the target Fed Funds Rate eight times from 0.50% to 2.50%. During this period, community banks took advantage of this rising rate environment by increasing their Yield/Cost spread. Loan yields increased 45 basis points from 4.65% to 5.10%, while deposit costs only increased 30 basis points from 0.43% to 0.73%. Further, the increase in deposit costs lagged the increase in loan yields, providing further margin enhancement.

Essential Concepts in Pricing Loans Current Lending Environment The US banking environment is in a new, more unpredictable phase as we begin 2019.  Economic growth continues to chug along nicely, poised to achieve a 3% plus GDP growth rate on an annual basis for the first time in many years.   However, all major US stock

Relationship profitability is an important metric within most pricing models. While it is important to understand the profitability impact of individual new loans, it is crucial to understand how the pricing decision on a new credit will impact the profitability of the entire customer relationship. These relationships often include deposit accounts.