July 2021 Issue:
A Word from Arne
The SBA 7(a) program has experienced historic usage levels for the 3rd fiscal quarter ending 06-30-21. During that quarter, 7(a) lending volume increased over 28% compared to previous 3rd quarters. Several reasons account for the recent strong growth in the SBA’s flagship program.
Factors Behind Increase in SBA 7(a) Loan Volume
The 7(a) program is currently operating under several short-term stimulus provisions, which have played a role in its burgeoning usage. Currently, and through 09-30-21 (the end of the federal government’s fiscal year), the Guaranty Fee – paid by the borrower – is waived. Also, an increase in the 7(a) guaranty percentage (75% to 90%) will remain in effect on gross loans of up to $4,167 through the 09-30-21 date. The ongoing service fee of 0.55% – paid by the holder of the guaranty – is waived through 09-30-21.
It should be noted that these are temporary adjustments in the Payment Protection Program. And while the adjustments are still in place, it’s a great time to take advantage of SBA lending programs. As our recovery from the pandemic continues, we find that borrowers are increasingly in need of debt restructuring and permanent working capital. In addition, we are seeing increased activity in the area of business acquisition financing. As part of our lender training programs, Holtmeyer & Monson can help your lending team better understand and target the best prospect opportunities for your SBA/USDA lending products. Our proven process and in-house expertise have helped hundreds of community banks realize great success in generating SBA/USDA loans (and non-interest fee income), and we are happy to partner with your bank to launch or grow your business.
Speaking of in-house expertise, we are pleased to announce the addition of Mike Taylor to the Holtmeyer & Monson team. Mike recently joined us, bringing over 25 years of SBA lending and business development experience. He will serve as Vice President and Account Executive, joining our Account Executive team members Beth Kirby, Josh Miller, Tyler Anderson and Dustin Powell. Mike also has strong experience working with USDA loan programs. Please join me in welcoming Mike Taylor.
Feel free to contact us with any SBA/USDA- related question or issue you may encounter. As a qualified Lender Service Provider, and a Preferred Service Provider of the Independent Community Bankers of America, we can serve as your outsourced SBA loan department.
Featured Article
Slippery Slope
Another yield curve shift has community bankers guessing
by Jim Reber, President and CEO, ICBA Securities
And now for something completely different. Except it’s not; it just hasn’t been around for a number of years. But it most assuredly has an impact on your community bank’s bond portfolio and on the securities you’ll be thinking about purchasing the next time you’re in the market.
I’m speaking once again about the ever-popular slope of the yield curve. For our purposes, these are the yields on the various on-the-run Treasury issues, specifically the ones at the two-year and 10-year maturity terms. Those are the most popular benchmarks for bond market analysts to use when the slope of the yield curve is discussed.
More is better, usually
Most community bankers have been wishing for higher rates since late 2019, when the economy started to lose oil pressure. Loan demand (but not credit quality, thankfully) had already begun to deteriorate by the time “COVID-19” became part of our vocabulary. In short order, the Federal Reserve pushed short-term yields to near zero, began buying billions of bonds each month and launched a series of programs to back-stop the economy. The yield curve and—not surprisingly—net interest margins flattened.
What we experienced in the first quarter of 2021 is known as a “bear steepener.” This occurs when monetary policy is on hold at the same time bond investors get the shakes about inflation. With all the fiscal stimulus coursing through the economy’s veins, long-term buyers demanded more protection against purchasing power erosion, and the slope of the curve jumped nearly 80 basis points by March 31. Alas, this trend proved to be short-lived.
What shape indicates
This is probably a good time to recount what the slope of the curve telegraphs about investor sentiment. If long and short rates have very little difference, it indicates investors are relatively satisfied that inflation is not a threat. Two-year buyers will almost always take their cue from the Fed, while 10-year buyers, who are quick to retreat if they sense prices are about to rise, have gradually required less risk premium over the past 30 years since inflation has stayed under wraps. (Investors of a certain age will recall the term “bond vigilantes.” Those institutional buyers would demand higher yields if the combination of monetary and fiscal policies weren’t to their liking. In the two decades, the bond vigilantes have gone the way of Wyatt Earp.)
What took place in June of this year would qualify as a “bull flattener.” Longer rates retreated when the Fed, and in particular chairman Jay Powell, put the bond market more at ease regarding incipient inflation fears. The flatter curve means that longer-term investors aren’t rewarded as much for their additional price risk. That is relevant to community banks in 2021, since bond portfolios are as long as they’ve ever been, using duration as an indicator.
Where to go from here
What’s the next move for the shape of the yield curve? I’m not going to hazard a guess, but I will point out several tidbits of interest. For one, the current slope of about 120 basis points is almost exactly the past 10 years’ average. For another, the recent yield rise for the two-year Treasury note also restored its 10-year average spread over Fed Funds.
And finally, the Fed’s June dot plot may have shown that more members are projecting the first hike earlier than in the recent past, but the consensus is still in 2023, which is a long way from here. Stay tuned for more reporting on our mountain of debt, as depicted by the thrilling slopes of the U.S. Treasury yield curve.
Jim Reber (jreber@icbasecurities.com) is president and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker-dealer for community banks.
For more information on Vining Sparks, visit www.viningsparks.com.
Regulatory Corner
New Fiscal Transfer Agent Blackout Period – SBA Form 1502
The SBA has engaged a new Fiscal Transfer Agent – Guidehouse – that will replace Colson Services. This change will affect SBA Form 1502 reporting and will necessitate a “Blackout” period from Friday, 08-27-21 through Wednesday, 09-01-21 as the migration from Colson to Guidehouse is completed. No 1502 reports should be sent during this period. Beginning Thursday, 09-02-21, Guidehouse will assume all Fiscal Transfer Agent functions and responsibilities. We all hope this will be a smooth and seamless transition.
July 2021 Issue:
Penny’s
Hot Topic
Critical forgiveness deadlines are approaching for PPP loans made in 2020. The PPP initiative, which began on 04-03-20, includes a Covered Period lasting 24 weeks from the loan origination date (and not beyond 12-31-20). Borrowers must apply for forgiveness within 10 months of their Period end date, or start repaying their balance. Applications are accepted any time during loan repayment. See recent SBA guidance on processing defaulted PPP loans and guaranty claims.